On Dec. 6, Uber Technologies Inc. filed paperwork confidentially with the U.S. Securities and Exchange Commission to go public. According to sources familiar with the filing, Uber’s likely investment bankers—Morgan Stanley and Goldman Sachs Group Inc.—believe the company could be valued at $120 billion. The news of the IPO was the latest achievement for Chief Executive Officer Dara Khosrowshahi after a series of scandals, lawsuits, and embarrassments involving the previous CEO, Travis Kalanick. The biggest threat to Khosrowshahi’s turnaround effort: Lyft Inc., Uber’s smaller, friendlier, annoyingly persistent ride-hailing competitor. At times, Lyft had seemed like a long shot just to survive. In 2014, Kalanick tried to buy the smaller company, proposing to give Lyft’s shareholders a little less than a 10 percent stake in Uber, according to two people familiar with the negotiation. When Lyft founders Logan Green and John Zimmer refused, Kalanick set out to crush them instead. But Lyft hung around, raising additional capital, winning market share, and, mere hours before Uber filed to go public, stealing the spotlight with its own IPO filing. Lyft intends to go public in either April or May, according to people familiar with its plans. “Uber thought they’ll just kind of grow their business and these guys will go away,” says Santosh Rao, head of research at Manhattan Venture Partners LLC. Now, “Lyft is in a strong competitive position.” Revenue at Lyft, which like Uber is based in San Francisco, reached $563 million in the third quarter of this year, Bloomberg News reported. That’s a lot less than the $3 billion Uber took in during the same period. But while Uber has grown mostly by entering markets outside North America, Lyft has yet to expand globally and is increasing its market share at home. The company has about 28 percent of the U.S. market, twice what it had in early 2016, according to researcher Second Measure. In February, it recruited one of Tesla Inc. CEO Elon Musk’s deputies as its chief operating officer. Lyft’s resilience has been attributed to consumer outrage over Uber’s stumbles. Riders boycotted the larger service in early 2017 after reports detailed the company’s treatment of female employees and its use of ethically questionable tactics to evade regulatory scrutiny, among other things. Meanwhile, Lyft presented itself as the “better boyfriend,” as Zimmer put it in 2017. A less appreciated aspect of Lyft’s rise has been its relationship with its drivers. Under Kalanick, Uber embraced the idea that drivers were more or less disposable cogs who would eventually be replaced by self-driving cars. Among the scandals Kalanick confronted: a widely circulated video published by Bloomberg News in which he berated a driver. About two-thirds of Uber drivers quit within six months of joining, according to a June paper co-written by the company’s chief economist. Lyft was well-positioned to take advantage of this discontent. It allowed tipping, which Uber didn’t introduce until mid-2017, and encouraged passengers to treat their drivers as peers rather than service providers. As Khosrowshahi tries to make amends, Lyft is trying to press its advantage. That effort has been led by Jon McNeill, the Tesla alum who joined as COO in February. Lyft has to “do as much for drivers as we can,” he says. “This is our differentiation.” One easy way to please drivers would be to pay them more. The average Uber driver earns just $10 an hour, according to a recent study by Ridester, an industry trade publication, and Lyft drivers are widely thought to have similar pay. With both companies locked in a price war that only adds to their enormous losses, offering higher wages isn’t really an option for either. Instead, Lyft has focused on helping drivers cut costs, including a recently expanded partnership with Shell gas stations, to provide discounted gas. McNeill says Lyft may eventually operate its own gas stations or deploy a fleet of fuel trucks to meet drivers in the field and fill up their vehicles at a discount.Another obvious way to win over drivers, many of whom have poor credit and meager savings, is to give them cars. Uber tried providing loans to drivers starting in 2013, but it backed away from the effort in 2017 amid huge losses and criticism from drivers that the program amounted to indentured servitude. (Drivers’ payments were deducted directly from their paychecks at an interest rate of around 20 percent, according to a 2017 Federal Trade Commission complaint.) At the same time, Lyft has expanded its weekly car rental program, Express Drive. Unlike the Uber program, rates—generally $180 to $250 a week—include car insurance. Lyft’s also helping drivers who already own vehicles. With the encouragement of McNeill, who founded a chain of auto body repair shops and previously ran Tesla’s sales and service division, the company has been building service centers where Lyft drivers will get a deal on repairs.
Shortly after joining the company, McNeill mandated that Lyft’s driver centers, which offer drivers technical support and help with insurance if they get in an accident, expand from normal business hours to stay open until 8 p.m. The adjustment was important because the evening rush hour tends to be one of the busiest times for drivers. In May, McNeill announced plans to spend $100 million on driver “hubs”—each includes a service center, car wash, car rental counter, and a WeWork-like “community space” where drivers can hang out. Uber says it, too, is committed to drivers’ well-being. In November it announced a partnership to cover tuition for some drivers for online courses at Arizona State University. But unlike McNeill, Khosrowshahi remains open to the possibility that ride-hailing is a commodity business. “That’s actually a pretty good position to be in,” he says. Uber, as the bigger company, can reach more customers—and drivers will go where the customers are, he figures. “We have more data than anyone else,” Khosrowshahi says. “We have multiples of the numbers of product folks, designers, and developers working on our technology.” Good intentions, in other words, may go only so far.
BOTTOM LINE – As Lyft readies an IPO, its valuation is one-fifth that of rival Uber. The ride-hailing service is trying to overcome that deficit by helping its drivers lower costs and make more money.
One thought on “The Key to Lyft’s IPO Could Be Happier Drivers”
I agree with this article, 6 months ago, now Lyft is no better to drivers than Uber is.