By Douglas MacMillan
Forget Apple vs. Google. The fiercest battle in the tech capital
may well be between two heavily financed upstarts plotting the
demise of the taxi industry--and each other.
Uber Technologies Inc. and Lyft Inc. operate just blocks from
each other in San Francisco, yet their bitter war has spilled into
dozens of cities where they are racing to provide the default app
for summoning a ride within minutes.
The two rivals are undercutting each other's prices, poaching
drivers and co-opting innovations, increasingly blurring the lines
between the two services.
But this is more than two tech darlings duking it out. It's a
battle for a key role in the future of urban transportation. Many
commuters now rely on Uber and Lyft to get around rather than
taking cabs, buses or trains and, in some cases, their own
cars.
The loudest opposition to the ride-sharing apps comes from
regulators, taxi drivers and local taxi commissions, which have
moved to ban the companies from operating, offering proof that a
multibillion-dollar transportation industry has entered a phase of
rapid transformation.
Meanwhile, the potential market for these companies may stretch
beyond rides. Investors who bid up the value of Uber to $18.2
billion in June are betting it can expand into being the backbone
of a logistics and delivery network for various services--a kind of
FedEx for cities.
For now, the battle is lopsided. Uber, led by sharp-tongued
technologist Travis Kalanick, operates in nearly three times as
many markets as Lyft, whose co-founders Logan Green and John Zimmer
have crafted a friendlier image by attaching fuzzy pink mustaches
to cars and encouraging passengers to greet each other with fist
bumps. Uber also has four times as many employees and five times
the amount of funding from investors.
But a market-share lead doesn't assure success. By dreaming up
new ways to move passengers from point A to point B, Lyft and other
ride-sharing startups have created new arenas of competition.
The rivalry extends to the recruitment of new drivers, the
lifeblood for the services as they attempt to build the biggest
networks with the the fastest pickup times. A Lyft spokeswoman said
Monday that representatives from Uber have abused its service in
the past several months with the goal of poaching drivers and
slowing down its network. Passengers who identify themselves as
working for Uber frequently order a Lyft and then ride for only a
few blocks, sometimes repeating this process dozens of times a day,
she said.
Many of these representatives may actually be Uber drivers
motivated to get a bounty by referring a new driver. According to
an email Uber sent to drivers in May that was reviewed by The Wall
Street Journal, the company offers $250 for referring a new driver
to its service; $500 for referring a Lyft driver; and $1,000 for
signing up a Lyft "mentor," an experienced Lyft contractor who
helps train new drivers.
A spokeswoman for Uber denied the company is intentionally
ordering Lyft rides to add congestion to its competitor's service,
but confirmed the company does offer recruitment incentives. "We
recently ran a program where thousands of riders recruited drivers
from other platforms, earning hundreds of dollars in Uber credits
for each driver who tries Uber," she said.
Another salvo in their battle occurred last week, when both
companies unveiled similar carpooling services within hours of each
other. The two offerings, Lyft Line and Uber Pool, will both let
passengers ride with strangers and split the bill, lowering the
cost of regular commutes.
Pooling customers may mean fewer rides and less revenue for
ridesharing companies at first. But over time, the appeal of
cheaper commutes could entice new customers to sign up and boost
usage by existing riders, said Mr. Zimmer, Lyft's president.
Lyft has been developing a carpooling model for several years
and acquired a team to lead the effort months ago, Mr. Zimmer said,
adding, "I think it's flattering when other companies look at how
we're innovating and want to do similar things."
An Uber spokeswoman said that company has been working on
UberPool for several months and filed patents involving carpooling
late last year.
Regarding the competition, the Uber spokeswoman said: "Uber was
first to market by years, back in 2010 when nobody believed any of
this was possible. We now have competitive clones on each of the
five continents where we operate, and that competitive spirit is
good for consumers and for the marketplace."
Lisa Gansky, an investor in smaller ride-sharing startup
Sidecar, said that new features can gain popularity so quickly that
it makes sense for Uber and Lyft to match one another in case
something becomes a big hit. Last week, Sidecar also said it has
been testing a carpool feature for several months.
Given all the money Uber has raised, it could afford to buy Lyft
and end the rivalry. The smaller startup was valued at $700 million
in a round of funding in April, and Uber just banked $1.2 billion
from investors in June. But Mr. Kalanick has been dismissive of
other startups, instead pursuing a strategy of building the most
popular features in the marketplace.
The most successful clone in ride-sharing is UberX, which Uber
launched in 2012 to pair amateur drivers with passengers. Up until
then, Uber was a high-end car service offering Lincoln Town Cars
and white-glove treatment. But just months after Lyft launched and
began to popularize the concept of ride-sharing, Uber introduced
its own service, becoming in the process a more affordable
transportation network for a wider variety of customers.
For its part, Lyft has borrowed heavily from Uber. Uber
originated a real-time map showing nearby drivers, and the design
of Lyft's app is similar. In addition, Lyft's "prime time" prices
for peak-demand times are a variation of Uber's surge pricing.
The startups also compete in lockstep on pricing. Both companies
have squeezed their profit margins to reduce prices and add more
customers. Lyft earlier this year went so far as to forgo its 20%
commission on rides.
On Monday, Lyft said it is reintroducing commissions but will
base them on how many hours its drivers work per week. A driver who
logs 50 hours or more won't have to share any fees with Lyft, for
instance. At the other end, one who drives fewer than 15 hours will
share the full 20%.
The company also said it will begin keeping 20% of "prime time"
pricing, a policy change that could rattle Lyft drivers who are
used to keeping all of those extra fees for themselves.
Mohan Lama, a former yellow cab driver in San Francisco who now
drives for Uber, believes more drivers will stop using Lyft when
the company begins taking commissions again. "The day Lyft will
start commissions, their drivers will stop working," he said. "Lyft
is in a trap."
Courting drivers has also meant offering them an array of
benefits, from insurance to new-car financing. This past March,
Lyft and Uber each announced in the same week they would add
insurance between rides, rather than just covering the time a
passenger is in the car. Those moves helped placate regulators, who
have raised questions about the culpability of ridesharing startups
when accidents occur as drivers are on their way to pick up
passengers.
At times, the fight between Uber and Lyft has gotten nasty. In
March 2013, Mr. Kalanick challenged Mr. Zimmer on Twitter about
Lyft's offer of an insurance policy. The back-and-forth ended with
Mr. Zimmer asking Mr. Kalanick to stop by his office. The Uber CEO
responded by tweeting, "you've got a lot of catching up to do...
#clone."
The ease with which Uber and Lyft can imitate each other's
features highlights the ride-sharing industry's low barriers to
entry, said Thilo Koslowski, an analyst for Gartner Inc. Because
Uber and Lyft don't own cars or employ chauffeurs, they are
essentially matchmakers between drivers and passengers, he
said.
But investors who have poured a total of nearly $2 billion into
the two companies are betting the apps will have staying power.
Millions of people are now used to riding with Uber, and the app is
still one of the most popular programs in Apple's App Store.
"Organizing demand is remarkably hard and extremely powerful,"
said Bill Gurley, a partner at Benchmark and a member of Uber's
board. "Being installed on someone's iPhone on the home page is a
pretty sticky place to be."
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