Tech's Fiercest
Rivalry: Uber vs. Lyft
By Douglas MacMillan
in the Wall Street Journal
Forget Apple .The fiercest battle in the tech capital may
well be between two heavily financed upstarts plotting the demise of the taxi
industry—and each other.
Uber Technologies Inc.
and Lyft Inc. operate just blocks from each other in San Francisco, yet their
bitter war has spilled into dozens of cities where they are racing to provide
the default app for summoning a ride within minutes.
The two rivals are
undercutting each other's prices, poaching drivers and co-opting innovations,
increasingly blurring the lines between the two services.
But this is more than
two tech darlings duking it out. It's a battle for a key role in the future of
urban transportation. Many commuters now rely on Uber and Lyft to get around
rather than taking cabs, buses or trains and, in some cases, their own cars.
The loudest opposition
to the ride-sharing apps comes from regulators, taxi drivers and local taxi
commissions, which have moved to ban the companies from operating, offering
proof that a multibillion-dollar transportation industry has entered a phase of
rapid transformation.
Meanwhile, the
potential market for these companies may stretch beyond rides. Investors who
bid up the value of Uber to $18.2 billion in June are betting it can expand
into being the backbone of a logistics and delivery network for various services—a
kind of for
cities.
For now, the battle is
lopsided. Uber, led by sharp-tongued technologist Travis Kalanick, operates in
nearly three times as many markets as Lyft, whose co-founders Logan Green and
John Zimmer have crafted a friendlier image by attaching fuzzy pink mustaches
to cars and encouraging passengers to greet each other with fist bumps. Uber
also has four times as many employees and five times the amount of funding from
investors.
But a market-share
lead doesn't assure success. By dreaming up new ways to move passengers from
point A to point B, Lyft and other ride-sharing startups have created new
arenas of competition.
The rivalry extends to
the recruitment of new drivers, the lifeblood for the services as they attempt
to build the biggest networks with the the fastest pickup times. A Lyft
spokeswoman said Monday that representatives from Uber have abused its service
in the past several months with the goal of poaching drivers and slowing down
its network. Passengers who identify themselves as working for Uber frequently
order a Lyft and then ride for only a few blocks, sometimes repeating this
process dozens of times a day, she said.
Many of these
representatives may actually be Uber drivers motivated to get a bounty by
referring a new driver. According to an email Uber sent to drivers in May that
was reviewed by The Wall Street Journal, the company offers $250 for referring
a new driver to its service; $500 for referring a Lyft driver; and $1,000 for
signing up a Lyft "mentor," an experienced Lyft contractor who helps
train new drivers.
A spokeswoman for Uber
denied the company is intentionally ordering Lyft rides to add congestion to
its competitor's service, but confirmed the company does offer recruitment
incentives. "We recently ran a program where thousands of riders recruited
drivers from other platforms, earning hundreds of dollars in Uber credits for each
driver who tries Uber," she said.
Another salvo in their
battle occurred last week, when both companies unveiled similar carpooling
services within hours of each other. The two offerings, Lyft Line and Uber
Pool, will both let passengers ride with strangers and split the bill, lowering
the cost of regular commutes.
Pooling customers may
mean fewer rides and less revenue for ridesharing companies at first. But over
time, the appeal of cheaper commutes could entice new customers to sign up and
boost usage by existing riders, said Mr. Zimmer, Lyft's president.
Lyft has been
developing a carpooling model for several years and acquired a team to lead the
effort months ago, Mr. Zimmer said, adding, "I think it's flattering when
other companies look at how we're innovating and want to do similar
things."
An Uber spokeswoman
said that company has been working on UberPool for several months and filed
patents involving carpooling late last year.
Regarding the
competition, the Uber spokeswoman said: "Uber was first to market by
years, back in 2010 when nobody believed any of this was possible. We now have
competitive clones on each of the five continents where we operate, and that
competitive spirit is good for consumers and for the marketplace."
Lisa Gansky, an investor
in smaller ride-sharing startup Sidecar, said that new features can gain
popularity so quickly that it makes sense for Uber and Lyft to match one
another in case something becomes a big hit. Last week, Sidecar also said it
has been testing a carpool feature for several months.
Given all the money
Uber has raised, it could afford to buy Lyft and end the rivalry. The smaller
startup was valued at $700 million in a round of funding in April, and Uber
just banked $1.2 billion from investors in June. But Mr. Kalanick has been
dismissive of other startups, instead pursuing a strategy of building the most
popular features in the marketplace.
The most successful
clone in ride-sharing is UberX, which Uber launched in 2012 to pair amateur
drivers with passengers. Up until then, Uber was a high-end car service
offering Lincoln Town Cars and white-glove treatment. But just months after
Lyft launched and began to popularize the concept of ride-sharing, Uber
introduced its own service, becoming in the process a more affordable
transportation network for a wider variety of customers.
For its part, Lyft has
borrowed heavily from Uber. Uber originated a real-time map showing nearby
drivers, and the design of Lyft's app is similar. In addition, Lyft's
"prime time" prices for peak-demand times are a variation of Uber's
surge pricing.
The startups also
compete in lockstep on pricing. Both companies have squeezed their profit
margins to reduce prices and add more customers. Lyft earlier this year went so
far as to forgo its 20% commission on rides.
On Monday, Lyft said it is reintroducing commissions but will base them on how many hours its
drivers work per week. A driver who logs 50 hours or more won't have to share
any fees with Lyft, for instance. At the other end, one who drives fewer than
15 hours will share the full 20%.
The company also said
it will begin keeping 20% of "prime time" pricing, a policy change
that could rattle Lyft drivers who are used to keeping all of those extra fees
for themselves.
Mohan Lama, a former
yellow cab driver in San Francisco who now drives for Uber, believes more
drivers will stop using Lyft when the company begins taking commissions again.
"The day Lyft will start commissions, their drivers will stop
working," he said. "Lyft is in a trap."
Courting drivers has
also meant offering them an array of benefits, from insurance to new-car
financing. This past March, Lyft and Uber each announced in the same week they
would add insurance between rides, rather than just covering the time a
passenger is in the car. Those moves helped placate regulators, who have raised
questions about the culpability of ridesharing startups when accidents occur as
drivers are on their way to pick up passengers.
At times, the fight
between Uber and Lyft has gotten nasty. In March 2013, Mr. Kalanick challenged
Mr. Zimmer on Twitter . More
quote details and news » about
Lyft's offer of an insurance policy. The back-and-forth ended with Mr. Zimmer
asking Mr. Kalanick to stop by his office. The Uber CEO responded by tweeting,
"you've got a lot of catching up to do... #clone."
The ease with which
Uber and Lyft can imitate each other's features highlights the ride-sharing
industry's low barriers to entry, said Thilo Koslowski, an analyst for Gartner Inc. Because Uber and Lyft don't own cars or employ
chauffeurs, they are essentially matchmakers between drivers and passengers, he
said.
But investors who have
poured a total of nearly $2 billion into the two companies are betting the apps
will have staying power. Millions of people are now used to riding with Uber,
and the app is still one of the most popular programs in Apple's App Store.
"Organizing
demand is remarkably hard and extremely powerful," said Bill Gurley, a
partner at Benchmark and a member of Uber's board. "Being installed on
someone's iPhone on the home page is a pretty sticky place to be."
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