Uber filed its S-1 last Thursday (April 11), two weeks after Lyft went public. By close of business on Friday, Lyft’s stock was trading at $59.90 a share, 20 percent off its $75 high at the end of its first day of trading.
Lyft’s market cap was a bit lighter by the end of the day Friday, too: $17 billion versus the $23 billion it enjoyed, albeit briefly, on its first day as a public company.
Pundits attribute the drop to overzealous investors who’ve since sobered up, perhaps even more quickly after having gotten a good look at the financial performance of the global ridesharing goliath that defined the space. That look has many of those same pundits now fretting over how to value both adequately, since apple-to-apple comparisons, they say, are hard.
And they are – mostly because there’s not an apple-to-apple comparison to be made.
Both Uber and Lyft are in the ridesharing business, but that’s where the similarities begin and end.
Lyft is a self-described peer-to-peer marketplace focused on “revolutionizing transportation” and reducing traffic congestion in cities.
For Uber, transportation is a platform feature that is central to its business, but is not its end game.
Lyft’s marketplace of drivers and transportation alternatives gives consumers access to a variety of cost-effective transportation options, so they don’t have to buy cars or drive them as much.
Uber’s platform helps consumers do that, while also enabling adjacent businesses to solve their own logistics frictions.
Lyft highlights Uber and Juno as its key competitors, as well as transportation providers such as Lime, Bird and Uber’s JUMP, along with OEMs like BMW that are getting into the subscription car sharing business.
Uber considers its competitors to be Amazon and Alphabet.
Uber’s valuation is pegged at $100 billion.
Lyft’s valuation is less than 20 percent of that.
These two platforms offer a real-time case study of the power platforms can wield – and the economic opportunity they create – when they morph from focusing only on adding more features to their core businesses to using their core platform assets to identify and ignite new business value for others.
Once Upon a Platform
Platforms are complicated beasts with the mission of finding a friction big enough to build a profitable business around.
For Uber Founder Travis Kalanick, spending $800 to hire a private car to get around town on New Year’s Eve was that friction.
As everyone knows, Uber started as a ridesharing platform in San Francisco that matched professional black car drivers who had idle time with people like Kalanick who wanted black car service, on demand.
In 2009, Uber was incorporated as UberCab – a nod to the business it had set out to disrupt. In 2011, the company’s services and mobile app debuted in San Francisco. The rest, as they say, is history.
Over the last decade, Uber has evolved from being “everyone’s private driver” to offering a form of transportation that best suits their budget and their preferences – and then some.
Today, the Uber app offers choices ranging from black car service, UberX, Black and UberPool to the metered Taxi service, Uber Bus and car rentals. Other modes of transportation like bikes, scooters and rickshaws are also available, depending on where one happens to be in the world. According to its S-1, Uber has 91 million consumer users on its platform and 3.9 million drivers in 700 cities worldwide to service them.
Uber’s core platform asset was – and remains – its network of drivers and consumer users, and the technology that powers the on-demand Uber experience. That tech includes the ability to track a driver in real time as well as the integrated payments experience that has become the industry metaphor for what a frictionless payments experience should be.
Like many of the largest players in the platform economy today – Facebook, Airbnb, Google, Amazon – Uber is leveraging its platform assets, and its critical mass of drivers and consumer users, to find new sources of value for its platform and the stakeholders who are part of it.
In 2012, Uber launched Uber Eats, a way for drivers to get more paid gigs by delivering food. The launch added a new “side” to its platform – restaurants – that had its own logistics challenges. Consumers wanted the benefits of restaurant food, but eaten in their own homes. Uber Eats gave restaurants an alternative to aggregators and a built-in base of consumers and drivers to tap. Uber reports 220,000 restaurants are now part of its network, and out of its 91 million consumer users, 15 million are also Uber Eats customers. The company also touts delivery in 30 minutes or less, which it claims to be the fastest in the market, as well as the largest restaurant delivery network outside of China.
Uber Freight was launched in 2017, adding two new sides to Uber’s platform: carriers and shippers.
According to its S-1, Uber has made its billing and tracking technology available to 36,000 carriers and 400,000 drivers, and is serving companies as diverse as Colgate-Palmolive and Anheuser-Busch. The value proposition is to bring the same level of transparency and certainty to the freight business that Uber brought to the consumer ride-hailing business.
In 2018, Uber added another side to its platform that catered to healthcare providers, which had struggled with their own logistical problems in getting patients to appointments. Patients were either showing up late or not showing up at all because of a lack of reliable transportation options. Uber’s integrations with healthcare providers and their billing platforms gets those patients reliably into doctors’ offices, reducing wait times and non-adherence.
This is in addition to expanding consumer transportation options – bikes, scooters and whatever is local to the countries and cities in which Uber operates – as well as partnerships and integrations that provide loyalty and other rewards for using the service.
A Single Focus
Lyft’s S-1 describes a company with a very different mission and focus.
Founded in 2012, Lyft is about giving consumers an alternative to car ownership.
Put off by a business that just gave rides to people going to and from banks (any guesses who they were referring to there?), Lyft’s founders were inspired to create an easy way for consumers to carpool – and an easy way for car owners to make money by using their own cars to give others a ride.
As the company states in its S-1, cars – and the garages and parking lots required to store them – take up green space that could be better utilized. Cities were built for people and not cars, they note, and the sheer number of vehicles on the road has turned that upside-down.
The Lyft marketplace pairs drivers and passengers who share those values. That includes expansion into transportation adjacencies such as healthcare, where they report integrations with nine out of the 10 largest healthcare systems to provide services similar in scope to Uber Health.
Lyft is about innovating the category of transportation as a service (TaaS) by giving consumers as many options as possible to serve their transportation needs through a tap-and-go experience.
The company reports 30.7 million riders, 1.9 million drivers and operations in 300 cities. They also state in their S-1 that 23 percent of their users say car ownership is less important to them than it once was, and that 46 percent of Lyft users report they use their cars less, too.
All this is not to declare that Uber is right and Lyft is wrong, but simply that they are different businesses. Yet what may have Lyft investors spooked is how those differences could define their respective futures, and the threat those differences could pose to the Lyft business.
Lyft’s mission and value proposition is affordable and reliable transportation. It defines its addressable market as the $1 trillion that consumers spend on owning and maintaining a car. Lyft measures its business performance in terms of active rides, riders and revenue per active rider.
It’s why, not surprisingly, Lyft is doubling down on building a thick market of transportation options that reduce consumers’ reliance on cars. Boosting rides, riders and revenue per rider is only possible if that is their focus and they are able to create profit-maximizing business models that can be monetized.
Uber describes its business as one that “ignites opportunity by setting the world in motion.” That means it is a platform that helps people and businesses solve their logistics challenges. The company has created a metric to measure business performance in those terms. Monthly Average Platform Consumers (MAPC) measures gross bookings from what Uber refers to as its core platform business – ridesharing and Uber Eats – among consumers who use the Uber platform at least once a month, averaged across a quarter.
That means the cars, scooters, bikes, rickshaws and tractor trailers that Uber drivers operate become nodes on that global logistics network that helps people get from point A to point B, delivers dinner from a restaurant to a home, gets patients to and from medical appointments and digitizes and delivers freight from a manufacturer to a distributor or store.
And any other use cases businesses and people might dream up that can leverage their platform assets.
Uber also defines its business potential in those terms, too, to the tune of some $12 trillion. That’s made up of the $5.7 trillion global ridesharing market – of which Uber says only 2 percent of all people today have used – as well as the entirety of the $2.8 trillion market for food eaten in restaurants and the $3.8 trillion global freight market.
It helps explain why Uber is more worried about competition from mega platforms like Amazon and Alphabet than ridesharing platforms like Lyft and Juno. And why Uber is a serious competitor to anyone who competes in the businesses its platform now touches, like Grubhub, DoorDash and.
Any why Lyft investors could be nervous.
Sleepless in Platform Land
All platform operators spend their waking hours – and many a sleepless night – worrying about how to keep their platform equilibrium in balance. They know the climb to build critical mass on each side of the platform is a years-long slog – as both Lyft and Uber clearly illustrate – but the slide down can come much faster.
The sources of that platform disruption vary. It can come in the form of regulators who don’t like or understand platform business practices or new entrants with better value and tech. Or it can come from platforms with scale and a different business model that chip away at the money side of an existing business.
The rise of mobile devices, apps and new tech have accelerated, intensified and created new sources for how that can – and does – happen.
We’ve seen shopping malls disrupted by Amazon, which offers consumers better options and raises overall retail expectations, for both physical stores and online.
We’ve seen global remittance platforms disrupted in key send/receive corridors by mobile money platforms that serve a more targeted community.
We’ve seen content businesses disrupted by streaming services like Netflix and Spotify.
We’ve seen online advertising disrupted by Google, Facebook and now Amazon.
We’re watching regulators across the globe call for breaking up big tech companies, which threaten to disrupt the economic value they create for platform stakeholders, especially consumers.
We’ve seen the taxi business decimated by platforms like Lyft and Uber.
The Next Platform Frontier
Both Uber and Lyft face their own sets of challenges and risks, as they explain in detail in their S-1s. Both are at the risk of regulators who could force a change to their business model, or a driver deficit in key markets like the U.S., where unemployment rates are at historic lows and drivers don’t want or need the side gigs as much as they once did.
Both acknowledge the intensity of the competitive playing fields in which they operate, and the risks to short- and long-term profitability given the costs of investing in, expanding and operating their platforms.
The question then becomes who is better positioned to withstand those risks in the short- and medium-term: the platform with a deep vertical focus, or the one whose assets run both broad and deep.
The answer: It’s too soon to know.
While Lyft is worrying about Uber taking its share, Uber is worrying about Amazon and Google scooping up share in verticals like restaurant delivery and hyperlocal delivery, forcing massive investments in tech like autonomous cars to fend off that threat.
For both Uber and Lyft, maintaining a critical mass of drivers is, well, critical – at least until self-driving cars reach their own critical mass. Consumers will only use a platform – any platform – if the supply side is reliable, consistent, secure and offers value for money. This is where Uber comes with an advantage, since its many-sided platform strategy gives drivers more ways to make money, thus attracting and keeping a thick market of drivers in local markets. More drivers give Uber more opportunities to expand its services.
Uber Eats and Uber Health are just two examples of platforms that can cost-effectively solve logistics frictions in their target segments. And there are plenty more segments that could use the help – including retail, where having a hyperlocal and dense network of drivers to enable delivery could help local sellers compete more effectively and cost-efficiently.
Of course, more things to do on the platform keeps consumers sticky, and attracts new ones who can access those services with one app linked with registered payment credentials. Uber reports in its S-1 that 50 percent of its Uber Eats customers were new to the Uber platform.
Single Versus Many-Sided
There are plenty of examples of platforms that add tremendous value for themselves and their stakeholders by building deep vertical expertise that is difficult to displace. Freelance marketplaces that cater to specific skill sets are thriving. Online booking sites that give consumers a single place to reserve their trips have made travel agents as anachronistic as video rental stores. Streaming services aggregate content that consumers want to watch or hear.
But there are many more examples where massive platforms with critical mass enter adjacent businesses and reshape the platform dynamics, to the detriment of those incumbent businesses. It’s what Apple is trying to do with Apple Music and News, and what Amazon and Alexa are trying to do with voice and a wide range of connected commerce endpoints.
To me, Uber and Lyft feels a bit like the Amazon and eBay comparisons of a decade ago.
Back then, many put the two in the same bucket: competitors for the consumer’s retail spend online. Thinking the same thing, eBay doubled down on building out its marketplace, mostly for used goods and later for new products. Amazon thought differently and doubled down on building out its platform, adding more nodes to its retail marketplace but also recognizing that buying online was more than, well, buying something online.
Today, Amazon has a $900 billion market cap, while eBay’s is $33 billion with a platform that’s shrinking in a field of diverse platform competitors. Some may call the comparison unfair, the fight one-sided.
Others, those who understand platform economics, beg to differ.
They say it’s what can happen when platforms go deep and wide to leverage platform assets, add more stakeholders and unlock new economic opportunities.
We’ll see what happens as we watch it unfold in the next decade – now a mere eight months away.