🚕 Uber and Lyft's divergent visions for transport-as-a-service
The ridesharing companies are still archrivals... but not for long.
Uber vs. Lyft is one of those classic rivalries, right up there with Coke vs. Pepsi. It makes sense, too: for years, the two companies offered pretty much the same ridesharing product. Every innovation was swiftly copied: UberPOOL and Lyft Line, the companies’ competing carpooling services, rolled out within hours of each other back in 2014.
But if you look at the companies’ recent moves, you’ll notice that their strategies are slowly diverging, pointing to two very different visions for the future of transportation-as-a-service. Uber’s recent announcement that they were selling their self-driving division just solidified this theory in our minds. Let’s dig in.
💸 Prologue: a race to the bottom
One of the old sayings around Silicon Valley was that there were only two ways for Uber to ever become profitable: get a monopoly on the ridesharing market so they could drive up prices, or launch self-driving cars so they’d no longer have to pay drivers. By the late 2010s, Uber was routinely losing billions of dollars a year, fueled by unsustainably low prices and high costs (mostly from having to pay drivers).
Uber didn’t really have an option here: if they raised prices, customers would flee to Lyft. This is because ridesharing is a commodity market; riders don’t care about anything but price. No matter how much you might hate Uber, chances are that you’ll still take an Uber if it’s $2 cheaper than the equivalent Lyft. Predictably, this has forced prices down — so far down that Uber and Lyft can only hold onto market share by losing money on each ride. With these awful unit economics, no wonder Uber and Lyft’s financials have been so terrible:
Uber’s bungled opportunities
Now we come back to the old saying. Facing this commodity market, Uber knew they had just the two options:
Finding a way to raise prices. The only way to do this was to drive Lyft out of business first, which in turn was why Uber slashed prices so much.
Replacing human drivers with self-driving cars to reduce costs. This is why Uber famously bought out Carnegie Mellon’s robotics department to build their self-driving “ATG” group.
Meanwhile, Uber swung-and-missed at Option 2. Even before the sale, the ATG’s self-driving car tech was rumored to be falling behind that of Google’s Waymo and GM’s Cruise.
Lyft: smarter, but not enough
Lyft faced a very similar calculus, but it was in an even worse spot given that it’s always been a distant second in the ridesharing market. Even after Uber’s PR controversies, Lyft peaked at 30%-ish market share. So driving Uber out of business was never an option.
To Lyft’s credit, they savvily decided to partner with Waymo instead of trying to build a self-driving car themselves. While Waymo has made a lot of progress, it’ll still be a while before self-driving Lyfts take over the world.
The drive to pivot
So both Uber and Lyft have been staring down an unprofitable status quo that won’t be getting better any time soon. Both companies have started to pivot away from pure, commodity ride-sharing, but here’s the interesting part: they’re pivoting in very different directions.
🚛 Uber: the new enterprise logistics company
Self-driving cars aren’t the only flashy thing Uber has abandoned this month: last week Uber sold off its “Uber for helicopters” project. Clearly, Uber doesn’t think that just moving humans from point A to point B is enough to make the business profitable.
Uber for trucking
Instead, Uber’s biggest new bet is Uber Freight, a logistics network that connects truck drivers with companies that need to ship products via truck. Instead of hiring an old-school trucking company directly, you can use Uber’s slick UI to book shipments, pay, and track your goods.
Trucking companies, meanwhile, can use Uber’s software to manage incoming requests:
Basically, it’s copying Uber’s rider-driver model to freight, except the two sides of the market are “shippers” and “haulers,” in Uber’s language.
B2B SaaS for logistics
The other important trend to notice is that Uber is now selling its logistics software to public transit agencies. These agencies are using Uber’s infrastructure — the rider-driver matching algorithm, the payment infrastructure, the ETA calculation algorithm, etc. — to manage their transportation networks. For instance, Marin County (north of San Francisco) is using Uber’s software to manage the movement of public vans used to help passengers in wheelchairs get around.
Combine this with Uber Freight and you’ll see Uber’s new direction: a B2B SaaS logistics platform. (In English: selling software to companies and governments that need to move goods or people around.) Uber Eats and the classic consumer ridesharing products will still be around, but Uber’s main customers will increasingly become other businesses.
🥑 Lyft: the new leisure bundle for high-rollers
While Uber drives full-speed toward the enterprise market, Lyft has been trying to solidify its grasp on the consumer market. Looking at Lyft’s recent moves, it seems like the company is trying to create the one program that every “yuppie” (young, urban professional) will subscribe to.
In January 2020, Lyft started a partnership with the ultra-luxury Chase Sapphire Reserve (CSR) credit card, offering Lyft riders 10x points if they paid with their CSR and giving all CSR holders a free year of Lyft Pink, a subscription service that gives further discounts on all rides. The CSR is a favorite of young American techies and other white-collar professionals because it provides huge amounts of airline miles, including 3x miles on travel and dining (two of yuppies’ favorite pastimes). By partnering with Chase here, Lyft showed that it was trying to strengthen its appeal to the yuppie market.
Then, in October of this year, Lyft announced that all Lyft Pink subscribers would also get free access to Grubhub+, a subscription service that offers discounts on food delivery from Grubhub. Food delivery is another favorite service of yuppies, so by bundling these two services together, Lyft is further deepening its appeal to this market.
(Interestingly enough, the Chase Sapphire Reserve also offers free DashPass, which offers free food delivery and other discounts from DoorDash.)
These layer on top of Lyft’s existing deals: you can get 1 mile on Delta’s reward program and 3 Hilton rewards points for every $1 you spend on Lyft. These bonuses are free — they aren’t tied to any subscription program — but they still make Lyft an alluring choice for people who love to travel.
Crafting the yuppie bundle
Ridesharing. Food delivery. Flights. Hotels. Yuppies spend a lot of money in these four categories, and it looks like Lyft is creating a bundle of services that caters perfectly to this demographic. Right now, the services are all loosely linked, but imagine if one day you could get Lyft Pink, Grubhub+, a luxury credit card, free flights, and free hotel stays all for one monthly price. It would basically be a mandatory “starter pack” for any newly-minted college grad. (The only thing that’s missing is streaming… so we wouldn’t be surprised if Lyft or the CSR announced a partnership with Spotify or Hulu.)
As clever as the bundling is, though, Lyft itself is still only selling ridesharing — which, as we already established, isn’t a very profitable space to play in. For this strategy to really work, Lyft would probably want to launch other consumer-focused services: grocery delivery, delivery from local shops, laundry pickup, peer-to-peer shipments, etc. Just partnering with other companies wouldn’t be enough here; Lyft needs to own these services to actually get revenue from them.
(Plus, being a one-trick pony, like Lyft is with ridesharing, is a pretty risky move. COVID19 has made that clear.)
Despite the challenges it faces, Lyft is well on its way to creating a bundle for big-spending consumers. Like Uber, Lyft is trying to carve out a niche that lets it expand and (hopefully) turn profitable instead of getting locked into an endless war. The fascinating part is just how different the two companies’ directions are.
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