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The Duopoly of Ridesharing

Not sure if you heard the news, but it seems that Uber is in the process of raising yet more money into its coffers in order to maintain its growth. In doing so, the company wants to bring in $2.8 billion in new capital at a $40 billion valuation. Not to be outdone, competitor Lyft has its own funding news too: it’s raising its seventh round at a $2 billion valuation.

Such is the pattern between the two of these ridesharing-type companies. In the marketplace, it’s pretty safe to say that Uber is perceived to be the leader with Lyft trailing behind it. It’s almost akin to the Annie Get Your Gun song “Anything You Can Do” where one raises and another follows, or one launches a carpool option and another does the same. And while many of us are seeing a battle among ridesharing giants, it seems to me that there’s a shift taking place that could affect how we will view them in the next year or two.

The battle of would-be giants

Uber emerged first out of the gate compared to all the other major ridesharing services, and it had a mission: to take on the corrupt taxi industry. And it certainly had an impact, eventually spreading to more than 200 cities worldwide in 53 countries with just a idea that users didn’t have to stand out in the street and hail a cab — they could simply summon a ride from a participating driver using just their smartphone.

Several years after Uber had made its way throughout the US, Lyft debuted under a similar model along with Sidecar and other companies. Technically the team behind Lyft had already been invested in the ridesharing space for a while prior to Uber’s launch, but under a different name: Zimride. That company originated from an idea Logan Green had aimed at solving public transportation by helping crowdsource carpooling and specifically focused on the enterprise, providing private networks for companies and universities. Regardless, as years progressed and companies with similar offerings sprouted up, only two remained at the top of the class: Uber and Lyft.

rideshare-regulation-seattle

And both have certainly waged a battle against each other. We can’t forget Uber’s playbook to scorch the earth against Lyft, or perhaps the continuous PR battle aimed at drivers to encourage them to switch from one platform to another. One of Lyft’s counterpoints against its competitor is to emphasize its “weirdness”. It’s worth reading this piece from The Wall Street Journal for more of an understanding.

Defining perspectives

But how exactly are these companies scaling? Perhaps the most logical case is that both will continue to replace the existing livery companies with their own version, but how will it be fundamentally different? What makes them to enticing beyond the capability of summoning (and subsequently paying for) a car to arrive at your destination using a mobile app? In short, what will be the defining perspective for the ridesharing duopoly?

Let’s look at Uber first: this is a company that has spread like wildfires and even amid criticism and complaints from incumbent firms and fending off safety and regulatory challenges from government entities. And yet, there’s clear evidence that the first few years of Uber’s existence has all been a way to establish a transportation network that can not only be used to facilitate transit of people, but also other goods and services — it’s becoming the next FedEx or UPS of the world, a logistics business.

travis-kalanick

And it’s not as if it’s out of the realm of reality for CEO Travis Kalanick. In fact, in an interview with The Wall Street Journal, he mentions the possibilities of being centered around logistics:

WSJ: Beyond the car service, you have started to talk about the logistics opportunity. When you say you want to be a broader logistics business, what does that exactly mean, what are you targeting?

Mr. Kalanick: 
First, we didn’t pitch the logistics business in this fundraising. We are experimenting in logistics but it’s at the experimentation level. Uber Rush is a month and a half, two months old, it’s super early. Look, it took us a year before we went from our home city to our second city. You got to work the product, get the operations down, processes, technology, etc. We’re very bullish but that was not part of the pitch for this fundraise…If the logistics business works out, that’s icing on the cake.

And yes, while there’s quite a bit of backlash against Uber, most of it could possibly be attributed towards its culture, especially in how it views journalists and overall passenger safety. But above all of that, there’s no discounting the fact that this company valued at $40 billion is making an impact on not only our economy but society. It has taken an approach whereby it can leverage its technology infrastructure to help establish networks where it can start to deliver food and packages, such as in test cities like Los Angeles, New York, and Barcelona. It seems entirely feasible for Uber to help other companies facilitate transit of goods and services using its platform and/or API — the on-demand stack. And as I mentioned earlier, as Uber shapes up to be akin to UPS and FedEx, it certainly can corner a very unique and important market: the local one.

Uber’s valuation puts it on near-equal footing with market leaders in the logistics trade. Although it falls under the market caps of FedEx ($50.14 billion) and UPS ($92.09 billion), it’s not considerably that far off. Its strength rests with being able to easily coordinate shipment and coordination of goods and services within a city, quickly facilitating transit within hours, not days.

sf-community-balloon

So what about Lyft? It doesn’t seem that the company has a yearning desire to go the same route as Uber. However, that’s not to say that it’s not trying to define expectations either. In fact, it appears that the company is looking to focus on the humanitarian and community experience. It’s all about delivering happiness to their customers and this is partially why it started out with a pink mustache — after all, you can’t really be angry if you see a car with a mustache heading your way, can you?

The thing is that Lyft is looking to make helping your fellow person more satisfying. Just like Green and his co-founder John Zimmer’s previously thought about with ZimRide, Lyft aims to let anyone be a driver and make some money if they so choose. People have cars and if they’re just sitting around, why not make some money off of them. And before you say it, yes, Uber has the same capability through its UberX program. But Lyft doesn’t employ any professional drivers, just your neighbors.

Lyft’s pitch could be perceived as being all about reconnecting us with our “neighbor”, rekindling those happier times when we would reach out to them for anything like sugar for our coffee, housesitting duties, or simply for a ride to the market. And the “gas money” would be the fares you’d pay to the driver. This is certainly a night and day difference between it and Uber, which has an aura around being about the product while Lyft is around the people. Here’s a take on Lyft’s appeal to drivers:

The company’s new chief marketing officer had said recently that Lyft’s vision would be “achieved” when “the mom in the minivan is Lyft enabled.” A huge step in this direction, Zimmer said, was to give drivers more control through a feature they’d recently added called “Driver Destination,” wherein a driver has a say in whom he or she picks up along a given route. Features such as this one weren’t just savvy legal maneuvers that returned some feeling of independence to independent contractors, but made it easier to casually drive for Lyft, and to recruit new drivers. Lyft’s tagline — “Driving You Happy” — stood in stark contrast to Uber’s, “Everyone’s Private Driver,” in that it spoke to both its customer pools: passengers and drivers.

Battling for supremacy or survival?

So we have a duopoly in the ridesharing space: Uber and Lyft, each with their own experiential dynamic. But how will it all stand up to the test of time and market demand? Is it enough for Lyft to withstand the enormous onslaught of Uber’s rapid expansion and fundraising capability? Kalanick’s company has already helped usher one company out of a key market and it’s not out of the realm of possibility to see others also wave the white flag and give in to Uber. So which company will be the must-have alternative? Amid all of the backlash that Uber has received, it seems that Lyft has been designated as being the company with the strongest chances of not only giving customers another choice, but being able to avoid giving Uber a powerful monopoly.

In my opinion, it wouldn’t be far-fetched to see Lyft make acquisitions to consolidate all of the lower ridesharing services to bolster its offering to better compete. Additionally, with SoftBank playing a bit part in funding companies to rival Uber, the telecom company could very well be a wild card, giving Lyft the necessary ammunition to further its reach, perhaps into other countries and also generating exclusive deals with carriers like Sprint.

The ridesharing space has definitely become crowded with many companies but when you shake everything out, you only really have two big companies here in the US. It’s a tug and war battle to see which will give up more market share, but whether a monopoly will emerge remains to be seen.

Photo credit: Lyft car via Tom S. Warren/AP on NY Daily News; photo of Travis Kalanick via David Paul Morris/Bloomberg; Lyft community balloon via TechCrunch

Published in Featured Headline Industry Analysis