From Fistbump to Hitchhiker Thumb: Lyft’s March Towards Free?

So there’s a new Lyft feature called Driver Destination which, especially when combined with Lyft Line, focuses a lot on peer-to-peer ride sharing as opposed to an on-demand taxi-like service. My understanding is it matches passengers with drivers already heading in the same direction. The benefit to the driver is ability to earn a few bucks without going much out of their way – they’re not driving a shift for Lyft per se, just heading from Point A to Point B. And the rider pays less than they would for the on-demand service. Brought to mind the college rideshare board where you could get a lift in exchange for gas and tolls.

By many measures Lyft seems to be an impressive startup, growing at a fast rate. The challenge is whether they’re competing in a winner-take-all market where Uber is growing even faster. If you believe that it’s a big enough market for multiple winners, fine. If you believe Uber will lose their lead because of cultural or regulatory issues, fine. Or if you believe Lyft can out-execute Uber, fine. But unsure of those three conditions, I wonder if Lyft, as the second place competitor, could try a different strategy, one which Uber can’t and won’t follow. Maybe Lyft’s ultimate goal is (or should be) to make the peer ride market a near zero margin industry where drivers are motivated by reciprocation and simply covering their own gas/maintenance/car costs rather than auto as profit center? Essentially use their brand (friendlier) and community to move from commercial enterprise to co-op. Ironically, back towards where they started as Zimride.

In this model how would Lyft make money, assuming they were only facilitating a small payment from rider to driver to cover mileage based gas + maintenance? Well, they could charge participants a small monthly subscription fee to participate in the ride share. Or take a few percent transaction fee. Obviously the key here is to maintain enough consistent driver density to cover passengers with a responsiveness comparable to commercial rideshare (although at least some people would tolerate a few minutes longer wait for a cheaper service or to participate in a community they feel proud of). And from a Lyft management and investors standpoint there has to be either confidence (if you win the market, the volume will make up for the lower margins) or desperation (Hail Mary!).

“Changing the battlefield” is a classic underdog strategy. Lyft is well-funded and growing; their market is big and quickly evolving. But ultimately Uber seemingly has the ability to fast-follow any product or strategy innovation implemented by a competitor (UberX for example). So for me at least, it’s interesting to think about what happens if Lyft goes somewhere Uber can’t: It might not be a zero sum game but it could be a zero margin one!

…..and disclosures: I know way more people who work at Uber HQ than Lyft HQ and I believe Uber’s speed of execution, and strategic execution is impressive. Most specifically, Uber’s VP of Ops Ryan Graves is an advisor to Homebrew.