Uber has monopolized the transportation networking service market for quite some time, but it is now getting competition as other companies are making waves in this field. Hot on Uber’s heels is a company called Lyft, which was founded by Logan Green and John Zimmer in 2012. Initially called Zimride, the company is based in San Francisco, California and they now have a 39 percent share of the market. In March 2019, the public went public, and this has left potential investors and stockholders asking questions about how exactly Lyft makes its money.
While there are many similarities between the services offered by Lyft and their closest rival Uber, Lyft has an entirely different business model. Like Uber, Lyft offers a ride-hailing service that allows people to hail a lift by using their app. However, the two companies have many differences when you look into the details of the structure, services, and payment systems.
The drivers who work for Lyft are independent operators, but Lyft must pay them for their work in accordance with the United States and Canadian laws. Driers are guaranteed payment of $15 an hour, even if they do not give anyone a ride. However, there is the potential for drivers to earn much more than that as they take a percentage of the ride fee. This means that some drivers are even earning between $35 and $40 per hour. So, if the drivers are making all this money, how are Lyft staying in profit?
Riders pay a fee to Lyft that is based on the length of the ride, the location, the time of the day, and several other factors. Lyft takes 20 percent of the transaction, while the other 80 percent goes to the driver. Before paying their drivers, Lyft’s bookings totaled $8.1 billion in 2018. While this sounds impressive, the company actually lost $911 million in 2018. With such a discrepancy between the booking figures and the profit or loss figures, it begs the questions of where all their money went and whether the company has a viable business model.
During 2018, Lyft spent a total of $3.1 billion. This was a combination of different expenses, including the cost of insurance, web hosting, marketing, payment processing fees, research and development, and administrative costs.
Due to the various expenses involved in running and expanding the company, it is already showing signs of growth and this gives it great potential for profitability in the future. For one thing, Lyft now has an estimated 30 million riders every month. This is an increase of around 226 percent since 2016. There is also greater value in Lyft’s regular riders now. The average spend per user was $27.34 in 2017 and this figure has now risen to $36.04.
In the short-term, it is likely that Lyft will continue to spend a lot of money in some areas of the company, such as marketing and research. This is because it is trying to expand to gain a greater market share to compete on a more even ground with Uber. However, the company has plans in place to cut costs in various aspects of running the company in the future. Also, they are expanding their business into other areas to increase their revenue potential. For example, they have launched a parcel delivery service just like Uber. They are also partnering with Aptiv and other self-driving tech companies to test out the possibility of using driverless cars. While this will save them money on driver fees, the concept needs thoroughly testing for safety and practicality.
The primary focus for Lyft right now is to increase the revenue it can make from its customer. This includes both those who are already active users of the service and attracting new customers to their services. One way they are doing this is to try to encourage existing customers to increase the number of rides they take each month. Another way of increasing revenue through riders is to dabble in other services, including scooter rentals. This shows that the predominant way that Lyft is earning money right now is from riders.
Financial analysts have taken an interest in Lyft, and they believe that the company has great potential. They have watched how the company has developed since it was founded and can see that it has further room for both growth and expansion.
The news that Lyft is looking into other fields in which it can expand and is involved in research projects for technological developments can only increase confidence among financial experts. It has been noted that this company could produce technology that has the potential to change the entire industry. This alone would allow Lyft to overtake its main competition, to dominate the market, and to become an extremely profitable company.
Currently, Lyft is available in approximately 300 cities and approximately one million riders use the system each day. All riders need to do is download the app so that they can access one of the six ride options. Shared Ride is the cheapest option, although this is only available in some cities. This matches the riders with drivers who are going in the same direction. The basic option is Lyft, and this matches riders with nearby drivers. Lyft XL is a good option for groups as it matches a rider with a vehicle that can seat six or more people. Lux offers a luxury vehicle that can seat four passengers, while Lux Black gives at least four passengers a ride in a luxury vehicle with a black exterior. The final option is Lux Black XL, which matches riders with a black luxury vehicle, such as an SUV.
Lyft has been praised for encouraging community spirit and for establishing trust between the drivers and passengers. These are just two more of the reasons why Lyft is showing such promise as a successful business and why the company was valued at $15.1 billion in the summer of 2018.