It looked like everything was finally coming together for Lyft: After years of bare-knuckled competition with Uber, rising losses, constant struggles with regulators, then a rocky IPO, it had finally gotten on track. “Profitable growth” over growth at all costs was the new management mantra, and the company even had a target: breakeven, at least by its adjusted EBITDA yardstick, as soon as the last quarter of 2021.

And then the coronavirus hit.

Revenue promptly fell off a cliff: By early April, spending on Lyft and Uber was down by half, and the drop in demand continued, with ridership falling by roughly 70%. Lyft cut 17% of its workforce, furloughed another 5%, and cut salaries by 10% to 30% while Uber announced it would be laying off 3,700 employees, or 14% of its workforce.

Last Wednesday, Lyft reported earnings for Q1 2020, reporting losses of $398.1 million and revenues of $955.7 million, up 23% from last year. Lyft also achieved a record-high revenue per active rider in the first quarter of $45.06, up 19%, year over year. The company still grew during the quarter overall but said rides plummeted in April and are only slowly recovering with uncertainty looming ahead. The following day, Uber’s earnings call showed similar trends: The company reported a net loss of $2.9 billion and revenues of $3.54 billion with gross bookings for Uber Eats shooting up by 50% year over year as more consumers ordered meals from home. Uber ridership was down 80% in April, but Eats spending was up 89% for the month.

Now, navigating their way as public companies, it’s possible to imagine Uber and Lyft entering a new milestone, coexisting like Coca-Cola and Pepsi, Moody’s and S&P, or Kellogg and General Mills.

Lyft and Uber are a strange pair of companies. In one sense, their fates are tied together. Both companies were born from the same insight — that smartphones with GPS could reimagine the entire transportation system. They also face the same economic and macroeconomic risks. In recent weeks, both companies have suffered as demand for ride-hailing has evaporated since mid-March due to shelter-in-place and social distancing policies.

But for most of their history, ride-sharing has been a cage match with Uber trying to crush Lyft, and Lyft trying to permanently wrest customers and drivers from Uber. The two companies went public around the same time in spring 2019 (Uber debuted with an $82 billion valuation while Lyft was worth $22 billion at IPO).

Now, navigating their way as public companies, it’s possible to imagine Uber and Lyft entering a new milestone as a cozy, near profitable duopoly, coexisting like Coca-Cola and Pepsi, Moody’s and S&P, or Kellogg and General Mills.

The companies’ contrasting corporate cultures have always been a point of differentiation, and both companies have played up these differences in their marketing and PR. Lyft has typically been portrayed as the friendlier, if not quirkier, underdog, but the company has shown its business moxie from the start. When it launched, Uber’s then-CEO, Travis Kalanick, was apoplectic at its rule-breaking. At the time, Uber only worked with licensed livery drivers, and Lyft’s open system skirted those rules, pushing down prices considerably. Uber eventually copied them at scale.

Kalanick described Uber’s original black-car vision as a way for founders and tech insiders to feel like “ballers” (he dropped this line in an interview with the Financial Times, which defined the term, for their more staid readers, as “high-rolling sportsmen.”) Lyft, which evolved from a social app matching people for road trips, originally decorated drivers’ cars with an enormous fluorescent pink mustache. Which is definitely something, but not baller.

In 2014, Lyft accused Uber of a deliberately underhanded tactic: mass-ordering and mass-canceling Lyft rides to slow down the system. Uber immediately punched back, claiming that Lyft did exactly the same thing, conveniently finding that Lyft had done it just over twice as often as Uber. Despite its rapid-fire PR comeback, Uber was perceived then, and is still perceived today, as the aggressor, even though it claims Lyft was more guilty. And more intriguingly, the ostensible reason both companies behaved this way was not to slow down drivers; it was to hire them. The reason they canceled so many rides? They’d cancel when they matched a driver they’d already pitched and then request another ride and hope for a new driver.

This pair of stories were amazingly revelatory: Uber and Lyft were engaged in the same competitive action — to hire the same people to perform the same service. And yet, their different brand positioning meant that Uber got the blowback.

Ironically, the companies are even tied together when their fates diverge: in early 2017, Lyft was running out of money when Uber faced intense scrutiny surrounding allegations of sexual harassment, which prompted the #DeleteUber hashtag. In Lyft’s IPO prospectus, that quarter marks the start of a sharp upward inflection in its rides and growth.

Over time, competitive pressure forced the companies to converge. Lyft offers fancier cars than it used to, and Uber embraced open-access ride-sharing in a big way. Today, plenty of riders and drivers are agnostic between Uber and Lyft. Whichever has the lower price or shorter wait time gets the fare, and since both companies use the same drivers, the difference is generally close.

Uber’s management has also softened a bit over time, getting closer to Lyft’s cuddly approach. Kalanick was ousted in a boardroom coup in 2017, and his allies have gradually departed since then. The last of his old guard, CTO Thuan Pham, announced his upcoming departure a few weeks ago. Today, Uber’s CEO is Dara Khosrowshahi, the former CEO of Expedia. Expedia under Khosrowshahi was an acquisitive company that also pursued organic growth — but despite operating in a duopoly with, it avoided the sort of bruising competition Uber and Lyft were famous for. And now that he’s at Uber, the company has stepped up its acquisitiondivestiture, and reorganization game. The old Uber tried to win everywhere, all the time. The new Uber wants to focus on what’s worth winning; like Lyft, it’s aimed to articulate one competitive advantage and then maximize it.

But outside of the core product, they’ve started differentiating again. Today, Uber thinks of itself as a driver-centric logistics network: Anything that can be transported point-to-point by motor vehicles is fair game, from passengers to meal delivery a la Uber Eats to cargo via Uber Freight. Lyft is reimagining itself as a passenger-centric company that helps anyone get from one point to another, whether it’s through cars or public transit.

Uber’s product and geographic diversification is a natural hedge. When no one leaves the house, no one needs a ride — and more people order delivery. But the company’s bad PR may come back to bite it here, too: If a restaurant switches from dine-in to delivery and still goes bankrupt, it’s less satisfying to blame the virus than to blame a particular villain, and Uber’s reported 27% cut of the gross is an easy way to place the blame. Even if rides in the U.S. take a long time to recover, Uber’s 85-country footprint means it’ll have good news to report somewhere.

Lyft has also diversified, but in a way that underscores its mission of being community-driven and passenger-centric. Similar to Uber, it’s added bikes and scooters to its revenue stream, but in the past few years, the company has also moved into health care in an intentional way with services like Lyft Concierge, which launched in 2016. The program works with health care providers to transport nonemergency patients to doctor’s appointments, a boon for many cities where households are car-free (since 2018, Concierge has expanded its ride-share services beyond hospitals to businesses more broadly). Concierge has a stronger competitive moat than traditional ride-sharing; health care regulations like HIPAA require stringent privacy safeguards and audits, and it doesn’t make sense for a competitor to pay a high fixed cost in the hope that they can split a relatively small market with Lyft.

Concierge sounds like it should be the right diversification for the moment. If nothing else, health care spending should be safe during a pandemic. Sadly for Lyft, that’s not so. In fact, nearly half of the GDP contraction in the first quarter of 2020 was due to lower spending on health care. In preparation for a wave of coronavirus patients, hospitals have been deferring elective surgery — and with fewer people out and about and more people washing their hands religiously, injuries and non-coronavirus infections have also declined. According to NPR, hospital revenues are down, with 1.4 million health care workers losing their jobs in April, up from 42,000 reported in March.

Nearly a year after going public, the two ride-share companies have now settled into the next marker of their ongoing relationship — a comfortable duopoly, where both are focused on long-term profitability rather than total market domination.

Lyft still has a long way to go to catch up to Uber both in terms of overall market share and global brand visibility: Lyft’s market cap stands at $9.35 billion compared with Uber’s $54.65 billion, and Lyft currently operates in two countries to Uber’s 85 and counting. But nearly a year after going public, the two ride-share companies have now settled into the next marker of their ongoing relationship — a comfortable duopoly, where both are focused on long-term profitability rather than total market domination.

The two companies may even find themselves having to team up in the future as California sues them over the misclassification of drivers, citing lack of worker protections with the state attempting to reclassify independent contractors as full-time employees with benefits. Other states may soon follow. If the gig economy implodes, ride prices could go up by 30% and threaten both of their business models on an existential scale.

Recently by choice, and now increasingly by necessity, Uber and Lyft are following a similar playbook to the symbiotic duopolies seen in cereal and soft drinks, like Kellogg and General Mills or Coca-Cola and Pepsi. They’ve staked out slightly different marketing positionings — global dominance for Uber, community-centrism for Lyft. They’ve decided that profitable growth is nicer rather than mutual self-destruction and more achievable, too. The coronavirus crash hit them both hard, but it hasn’t wiped out either, and both companies are converging on a slightly less exciting — but much more profitable and mutually beneficial — equilibrium.

*by Byrne Hobart via Marker*

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