Lyft’s quiet success in ridesharing

How Lyft climbed to 35% market share in a market once dominated by Uber

Nandu Anilal

Published in

The Startup

8 min readMay 21, 2018

The last 18 months have been a period of incredible, sustained growth — Brian Roberts, Lyft CFO

It feels like Uber had already become a verb by the time anyone was using Lyft, but somehow the small player has grown to become a real contender in the space. The numbers are quite staggering (per CNBC):

This month, Lyft tells us it has 35% of the national ride-sharing market, up from 20% 18 months prior.
It claims to have over 40% market share in 16 US markets and over 50% market share in ‘multiple’ markets (read: most likely 2–5)
An external source, Second Measure, has Lyft at 27% market share as of March 2018

Wanting to learn how this happened, I took a look at some of the major drivers for their success.

The Opportunity

It’s generally frowned upon to try to compete in a market where one player has 90%+ market share. Generally, the incumbent will have built up some type of sustainable advantages either through network effects, technological expertise, etc. However, market leadership in ridesharing is extremely difficult to defend for two major reasons:

No barriers to switching on supply or demand side: It’s easy enough for drivers to use both Uber, Lyft, Via, etc. with no real consequences. Similarly, riders can do the same and continue to switch based on which one provides a better price at the time.
Little competitive differentiation in performance: The business model is easy to replicate and there is not much that prevents a competitor from copying Uber. Companies that spend on acquiring drivers can generally get to a similar level of performance. As a rider for both services, I couldn’t tell you any consistent differences between the two.

Matt Ward captures these challenges perfectly in a recent article on the difficulties that lie ahead for Uber. All Lyft had to do is put their resources into winning over drivers since Uber had already proven that the demand exists:

Increase supply and the demand will follow — Ray Kroc, McDonald’s

What did Lyft get right?

Avoiding the Uber mistakes

It’s safe to say that any ridesharing service not named ‘Uber’ benefited from the negative press and multiple #deleteuber campaigns of 2017. If you need a quick refresher on the drama, here’s a quick recap of some important events:

#deleteuber episode I: In late January 2017, following President Trump’s travel ban, taxi drivers protested at JFK airport. Uber, in response, turned off surge pricing (to encourage people to use the product) which was ultimately perceived as Uber trying to take advantage of those protesting the immigration ban. At the same time, then-CEO Travis Kalanick was sitting on Trump’s advisory council, which may also have been perceived as an endorsement for the immigration ban.
#deleteuber episode II: In February 2017, Susan Fowler, a former Uber engineer, publishes an article on the sexual harassment and gender bias leading to an internal investigation. Investors criticize the choice of people to internally investigate suggest an unwillingness to be open and transparent. Later, Kalanick is heard berating an Uber driver and admits that he needs help with leadership. With the company constantly in the headlines and many executives leaving the company, Kalanick ultimately steps down as CEO.

Did these events even make a difference? The data below suggests yes.

A lot happened in 2017 for Uber, and as a result Lyft. The importance of corporate culture can’t be downplayed. By not having these issues, Lyft’s growth sparked and continued through 2018. With many people deleting the Uber app, Lyft had an opening to break Uber’s monopoly just by providing another alternative.

Focusing their brand strategy on its target customer

Additionally, the companies have stark differences in their branding which likely played a role during this time. Starting with the strictly visual, Lyft uses a pink background with lowercase letters and Uber uses all capital letters and a black background. Opposites..

I think what we might be seeing reflected in their logos is their differing origins. Uber initially started as a ‘black car’ service, so their more sleek and business-like aesthetic makes sense. Lyft came in to the regular consumer market and also originated the carpool feature, both contributing to a more friendly feel.

Lyft’s marketing is more casual and friendly, appealing to the younger generation while Uber seems to be more agnostic. It seems to be working as Lyft is growing fast with younger customers than Uber according to recent data.

I remember getting an email that Lyft donated $1M to the ACLU and condemned Trump’s ban which seemed to add to the perception that they are the more conscious, caring company. Again, this is in line with their target customer and their general messaging. Taking a political stance is risky, but with Lyft only in urban areas and having younger users, it’s not likely that their riders are staunch supporters of Trump.

Additionally, they launched a ‘Round Up & Donate’ campaign which allows users to round their fare and contribute the difference to charity. Regularly I wouldn’t think much of this, but when this is launched at the same time that Uber’s CEO is in the news for arguing with a driver, it begins to create a divide in my perception of the two.

Attracting drivers from Uber

In my own experience as a rider for both services, I couldn’t tell you which one was which. However, I’ve seen a flurry of articles over the years about the range of experiences on each as a driver. This is important because the customer-facing performance is largely tied to the platform’s ability to attract and retain drivers.

An annual survey by The Rideshare Guy earlier this year examines driver perceptions of both services and Lyft appeared to be preferred:

% of drivers satisfied with experience: 76% Lyft vs. 58% Uber
% of drivers satisfied with pooling option: 46% Lyft line vs. 22% UberPOOL

Winning over drivers is an important part of the puzzle in this market. The same study shows that drivers unsurprisingly valued ‘pay’ and ‘flexibility’ as the top factors that people cared about. To increase pay, Lyft was the first to add in the tipping option (no obligation for consumers, but opportunity to add money to drivers’ pockets). Additionally, Lyft has had some generous sign-up bonuses in new cities that they launched in, often eclipsing the Uber sign-up bonus.

That being said, a lot of these features are easy to replicate. If Lyft launches a new driver perk that is well-received, Uber will do the same and vice-versa. Even then, there will undoubtedly be a delay before the other company can replicate, and in this time the competitor may capture some more share.

The bottom line is that Lyft is perceived well enough by drivers, which ultimately makes their service comparable to Uber. As shown below, there is a one-to-many relationship between drivers and companies, meaning new entrants don’t have to entirely beat out Uber, but rather they just have to be good enough to be one of the options that drivers use.

The future of ridesharing

These reasons explain why and how Lyft has become relevant in major US markets in the past few years. They claim to have reduced sales and marketing spend by 20% in Q1 2018 compared to the prior year. This is no surprise as they look towards achieving profitability.

It’s important to note that both companies are not profitable, but extremely well funded suggesting the need and possibility for changes in the future. In the shorter term, both companies are striving to lock up demand and build loyalty.

One way to do this might be through transitioning towards a subscription model — similar to how public transit systems issues monthly passes. Alternatively, building out a strong loyalty rewards program (similar to what Lyft is experimenting with currently) might help lock in consumers, but would likely take a bite out of profitability.

What comes later in the future (hopefully) will be far more interesting. Both companies have made acquisitions and partnerships in the autonomous vehicle space, believing it is a long-term opportunity to reduce costs.

There’s three parts to the autonomous vehicle equation: the technology, the vehicles, and the network. Uber and Lyft of course provide a network and have been aggressively working with technologies and auto-manufacturers. I mentioned earlier that I’ve had very similar experiences using both Uber and Lyft so far, but I think these services will be differentiated as we move towards autonomous vehicles:

Uber is looking to be vertically-integrated across technology, vehicles, and network while Lyft wants to be an open network available to multiple partners.
Car manufacturers and tech giants are all trying to claim a stake in the autonomous vehicle market too meaning more competition and possible outcomes.

This difference in strategy and emergence of new players in the market will likely increase the differentiation within the market. Lyft and Uber both have a strong position in a large market today, but technological breakthroughs have a way of turning everything upside down, so we will have to see how each company handles it.

Closing Thoughts

There are some important ideas that contributed to Lyft’s recent success that are applicable across industries:

Scaling first is not enough: While Uber had established themselves as the market leader, they didn’t have a lock on supply or demand. It’s no surprise that competitors like Lyft would replicate their business and take away some share.
Corporate culture matters: Uber’s decisions serve as a a powerful reminder that a company’s culture matters in to attracting customers and talent.
Prioritize the supply side: In marketplaces like ridesharing, network effects are seen by winning the supply side. If you can aggregate enough supply, then your service becomes competitive. In the case of ridesharing, it’s important that drivers could easily use multiple services, so Uber did not have a stronghold on its drivers. Meeting the supply side’s needs allows you to create a better experience for the demand side as well.
Know your audience: In markets dominated by one player like ridesharing was a few years ago, the competition should build a brand strategy that targets a specific segment of the market. It also helps when the branding of your competition is drastically different as was the case here.
Get ahead of disruptive technologies: Markets can become commoditized when everyone is equally resourced, but breakthrough technologies can provide a huge competitive advantage. It’s critical to think about how they will change your business model and how to best leverage them. In the case of ridesharing, there’s a lot of different ways that things can play out, but both companies have invested in the future.

Please clap if you found this article interesting and comment any thoughts you had on the piece! I’m always interested in learning more about marketplaces and am happy to continue the discussion.