Two tech startups have become synonymous with on-demand car-hailing services, due to their ubiquity and the amount of money they have raised in a relatively short period of time. One is Uber.
The other is Lyft.
Lyft was founded in 2012 by Logan Green and John Zimmer. Green and Zimmer sold their first startup, a ridesharing service called Zimride, to the car rental company Enterprise in 2013.
Right now Lyft operates in 65 US cities, and has been rumoured to expand internationally.
Uber, though, is the car-hailing juggernaut: It’s raised a whopping $US5.9 billion in funding, and it’s expanded operations to 53 countries, more than 200 cities, and six continents. The company doesn’t seem to be slowing down anytime soon.
It’s hard not to compare the two companies, which, on the surface, offer a pretty similar experience: they pick you up and drop you off on-demand.
Lyft’s strategy for succeeding in an increasingly competitive marketplace boils down to three main beliefs held by Lyft executives, as well as the company’s investors.
It’s not all about the money.
Investors say the drama between Lyft and Uber is greatly exaggerated.
“People have a tendency to overplay the drama of the competition,” says Floodgate Fund’s Ann Miura-Ko.
Floodgate Fund participated several of Lyft’s funding rounds, including the company’s $US15 million Series B round in January 2013.
“Lyft will continue to succeed as long as they put customer delight first instead of getting distracted by external noise and drama,” Miura-Ko says. “So far they have done an excellent job of this.”
Manu Kumar, a partner at K-9 Ventures, invested in Lyft when it was still Zimride.
“I think most people, and especially the media fail to recognise and give appropriate credit to Lyft for what they have built,” he says.
It’s true, the company has grown considerably in just a few years: When Green and Zimmer launched Lyft in 2012, they had 30 people at the company, and it was operating only in one city: San Francisco.
Lyft closed 2013 with 80 employees and operations in 25 cities, and it finished out 2014 with 400 employees in 65 cities, reporting 5x year-over-year growth in both rides and revenue. So, even though Uber remains a competitor, it doesn’t seem to be affecting whether Lyft can grow.
“[Lyft has] a phenomenal team, a business that is growing like crazy, a service/experience and brand that people love,” Kumar says. “In any other industry these are all things any company would love to have and strive towards. However, for Lyft, they’re always looked at (especially by the media) as ‘second to Uber,’ which fails to recognise the brilliant work that the Lyft team has done.”
Still, Lyft has a lot of work to do, especially if it hopes to keep pace with its biggest rival. Uber has been aggressive in its battle with Lyft, especially in recruiting drivers and executives: It even hired Lyft’s former chief operating officer Travis VanderZanden in October.
In terms of revenue, a September report from FutureAdvisor said Uber’s revenue was 12X that of Lyft, with $US26.4 million going to Uber and just $US2.2 million going to Lyft. Uber also reportedly provided more than 7X the rides that Lyft provided (1.23 million vs. 170,000). In its defence, a Lyft spokesperson told Business Insider that the company doubled the number of cities it’s in since May.
Lyft offers a distinct, friendly experience.
Lyft’s chief marketing officer Kira Wampler isn’t fazed by the competition.
She only joined Lyft in December, but she’s already helped oversee the company’s rebranding efforts, including the replacement of Lyft’s signature cuddly, pink mustaches with sleeker, bright Glowstaches.
Before Lyft, Wampler held positions at Trulia, Lytro, and the accounting and financial software company Intuit.
Wampler says ridesharing companies may offer similar experiences in terms of estimated time of arrival, price, and availability of vehicles. But Wampler predicts these companies, Uber and Lyft included, will start to differ on both service and experience within the next two years.
Compared to Uber, which markets itself as a luxury, chauffeur-like service, Lyft presents itself as a friendly means of connecting people and communities through better transportation, helping people get from A to B.
The company has since clarified its initial riding guidelines — which used to encourage fist-bumping your driver and sitting shotgun when your ride showed up — so you can now sit in the back seat of your Lyft car without feeling guilty, and you don’t need to fist-bump anyone if you don’t want to (but you can still fist bump and sit shotty if you want).
Lyft also has a distinct culture: Its three-story headquarters in San Francisco is adorned with pink mustaches, play rooms, and even a secret library, but from a personnel standpoint, 14 of Lyft’s 30 executives are women, Wampler says, which fits Lyft’s inclusionary atmosphere.
“John [Zimmer] actually said to me the other day, ‘We didn’t set out to have half of our execs be women,’ and I was like, ‘that’s why it works — because it’s authentic, and it’s true to the kind of company John and Logan have built,'” Wampler says.
“You can’t reconnect all the people and all the communities through transportation if you’re only a service and experience for a few people, and if you have the point of view that the people who participate in your system are exclusive.”
The transportation marketplace is big enough for multiple companies.
Scott Weiss, a General Partner at Andreessen Horowitz, a VC firm that most recently participated in Lyft’s $US250 million Series D round last April, says a market as vast as transportation has room for at least two big players.
“Lyft is growing faster in a very large market (consumers spend $US2 trillion on cars every year). Millennials are no longer buying cars at the same levels and Lyft demographics skew millennial,” he says.
“The investment in Lyft is based on the fact that ridesharing (Lyft Line) will ultimately win and be a larger market than a car for hire. The market is massive and we’ve not only proven we can co-exist, but have also been gaining market share on the competition.”
Wampler says Lyft is going after the $US2.25 trillion personal transportation space instead of the $US11 billion for-hire taxi and limo space. And, therefore, there’s plenty of room for multiple car-hailing startups — especially when “in some communities you can’t even get a bus to come to your neighbourhood,” she says.
K-9 Ventures’ Kumar says the most important point is that the ridesharing space is not a “winner take all market,” adding that multiple companies will be winners in the space.
“While Uber may be the dominant player in the market, that doesn’t mean that it will be the only player in the market,” Kumar says. “The press likes to simplify the story and likes to have a David vs Goliath story to write about, but the fact is that in most industries there are multiple successful companies who compete with each other.
“In cases where there is only one company left in the market, that is what we call a monopoly, and we all know that monopolies are good only for the owners of the monopoly, certainly not for consumers.”