Uber IPO vs Lyft IPO — A Tale in Blue Ocean vs Red Ocean Markets
When the Lyft S-1 was released I did a breakdown here and now we finally have access to the Uber S-1 filing. It’s interesting to take a look at the two filings and especially look at their financials side by side.
Is Bigger Better?
A quick refresher at the Lyft S-1 has Lyft losing about 1 billion from their operations last year.
While a quick look at Uber shows they lost 3 billion dollars last year!
While the headline could be easy for folks to grab onto the point that Uber is losing more money annually their scale is different. Uber is doing over 5 times more annual revenue than Lyft. The story between these two companies is really revealed in the expense ratios:
Uber expense ratios at first glance look a lot healthier than Lyft’s business. With 50% margin and requiring less Sales & Marking has led to significant strides to profitability. Despite losing more dollars, I would bet that Uber will be first to hit profitability
Blue Oceans vs Red Oceans
One of my favorite business frameworks is Blue Ocean Strategy. It’s a basic idea of operating in markets that aren’t saturated with major competitors until you gain scale. Uber’s global reach is definitely impacting their P&L with significant operations across the globe.
While many venture capitalists speak of the importance of focusing on a single market and not competing on the international stage too soon, Uber has been able to compete in many markets where there were only small start up companies to compete with. This has allowed them to take those learnings and income to red ocean markets like the North American market and make things very difficult for competitors. Unlike Uber, Lyft is mainly focused in North America and doesn’t have a clear path to the international market without facing significant red ocean markets.
During my time at TrackR where we competed relentlessly with Tile in North America, we were quick to expand internationally to Brazil, Canada, EU, Japan, Australia, and the Middle East. We were able to profit from these operations where no large competitor was present and benefited with higher contribution margins. We then reinvested those dollars in our battle with Tile for the North American and UK markets.
Is Bigger and Broader Better?
I think that focus is important and a start up unable to secure a stable footing on a single market will fail. However, I believe that the world is more connected than just 10 or 15 years ago and startups can now expand globally much easier than before. For businesses and especially startups, the Uber and Lyft story is important to remember about the speed of expansion and to not let language & cultural barriers block you from finding your Blue Ocean.