April 09, 2019, 00:48 / Business Exclusively by subscription

How is Lyft better than Uber?

In the long-standing battle between Lyft and Uber, one or the other gains the upper hand. But Lyft has been growing faster lately, and it was the first to IPO. The company was valued above $20 billion Anton Osipov John Zimmer, President of Lyft / MIKE BLAKE / Reuters

The winter of 2010 was harsh in the United States. Young startups John Zimmer and Logan Green were wondering where to meet with investors. Their ride-sharing startup huddled in a rented apartment: they worked there during the day and slept there at night. There was no money for a restaurant. Therefore, a meeting was scheduled in the hall of the Stanford University dormitory. As a gift, Zimmer and Green each brought a bottle of Smirnoff Ice vodka, a play on the word “ice” in its name for the cold weather. Well-known angel investor Ann Miura-Ko couldn't drink because she was pregnant and jokingly promised to open a bottle when she made money from the company's IPO. Almost 10 years have passed, and now the occasion has appeared: Lyft went public, receiving $550 million for a 2.7% stake.

The market is following this story with great interest. Lyft has done everything to hold an IPO before its main competitor, Uber (which may launch a road show in April). Lyft was valued at $20.4 billion excluding shares and employee options. The latest investment in Uber went from a valuation of $76 billion, at the IPO it could rise to $120 billion. Or not rise in price: investors will judge this company using the example of Lyft.

Lyft's IPO began for good health. The offering price range was initially announced at $62–68 per share. Due to high demand, it was raised to $70–72, shares were sold at the upper limit. On Friday, March 29, the first day of trading, quotes jumped by 21%. Then things got worse. On the second day (Monday) they were cheaper than the listing price. By the end of the day, 38% of the shares outstanding were short, a serious reason for pessimism. By the end of Thursday, this figure had risen to 41% (data from S3 Partners). But then things started to improve again: on Friday, April 5, Lyft’s share price was $74.45.

Lyft and Uber are long-time competitors and, one might even say, enemies. They divide the US market into two: the remaining competitors fit within the statistical error, occupying 3%. Zimmer and Green were the first to enter the ride-sharing market (but in fact, both companies operate as a regular taxi service). However, Uber founder Travis Kalanick overtook them and left with a large lead. Lyft says it has 39% of the U.S. market, but Second Measure analysts estimate it's only 29%.

Lyft offers rides in cars, bikes and electric scooters. Uber also delivers food and transports cargo. Lyft operates in the US and Canada. Uber is spreading all over the world. Kalanick became famous for his aggressiveness and habit of first capturing the market and then sorting out the legal subtleties. His company has become the hero of more than one scandal. As a result, Kalanick had to resign from leadership of the company. Zimmer and Green are called good boys by the media. They prefer to negotiate with the authorities and preach good relations with clients and drivers. Uber has been criticized in every way on social networks: when demand is high, it raises fares so sharply that on rainy days or holidays a short trip can cost $500. Lyft has capped fare increases at 200%.

Another example: in January 2017, official taxis refused to serve Kennedy Airport for an hour to protest Trump's anti-immigrant policies. Uber decided to promote itself and lowered its prices. Lyft may not have stopped serving the airport, but it did not reduce its rates and donated $1 million to the American Civil Liberties Union. Americans initiated the #deleteuber movement, calling for the removal of the Kalanick app and the installation of Lyft. This is how it overtook Uber for the first time in terms of the number of downloads in the AppStore.

How Zimmer came up with the “waddler”

Zimmer and Greene not only founded Lyft together, but also run it together. They work so well together that sometimes one starts a sentence and the other finishes it. At first, both were listed as co-directors, now Zimmer is the president, and Green is the general director of the company.

Zimmer, 35, is from the affluent town of Greenwich, Connecticut. His mother was extremely sociable, while his father, on the contrary, was an introvert. Ironically, he also worked in customer service and marketing for the paper cup brand Dixie Cup and became famous for his ability to build relationships with customers and colleagues.

Zimmer's family did not value material possessions very much. But those around us are the opposite. His peers dreamed of cool tape recorders, expensive watches and cars. Zimmer was also no stranger to ambition, but he sought to stand out in other areas. From an early age he played rugby and became captain of the school team. When he started running, he didn't rest until he could run a mile in 4 minutes 40 seconds instead of 5 minutes.

He chose his first job not for the money, but for the opportunity to communicate with people. At the age of 16, he applied for a position as a telephone operator at the Hyatt Regency Hotel. Received a refusal as a minor. But Zimmer insisted that the hotel manager consult with lawyers. To his surprise, he found out that hiring was possible. They found Zimmer the smallest uniform available, which was still too big. He looked a little funny, but he sat at the reception desk and answered calls from guests and future clients.

He went to study as a hotelier at Cornell University, part of the Ivy League. Soon he was fascinated by another direction - urban planning. They were taught that population density in cities is growing rapidly, and there is physically not enough infrastructure for everyone. What if we imagine not a transport network, but a hotel network, which often sits idle underloaded, Zimmer wondered. "I found that cars are used 4% of the time [...] a lot of infrastructure like parking lots is built for the 96% of the time they're parked," he told Business Insider.

Transportation is the second largest expense item for American households after housing costs. A household spends more than $9,500 a year on driving, Lyft wrote in its IPO filing, with the lion's share of that money going toward car ownership.

While still in college, Zimmer began to think about a ride-sharing startup under the funny (Zimmer himself later recognized it as “terrible”) name The Waddle. It sounds like someone got motion sickness during a trip, and can be translated as “waddler” or “duck walk.”

The startup was never born. Instead, Zimmer in 2006–2008. made money as an analyst for Lehman Brothers. There he used the knowledge about the real estate market gained while studying to become a hotelier. While his colleagues showed off their expensive gadgets to each other, Zimmer saved every cent. His frugality worried his parents so much that they called their son for a conversation. Zimmer explained that he was killing two birds with one stone: studying the world of finance and saving money for his business.

One day on Facebook he saw a repost with the idea of a startup called Zimride. The first letters coincided with his last name - Zimmer. In fact, it was about Zimbabwe, where a certain Logan Green, whom Zimmer had first heard of, had spotted the idea of car sharing.

Son of a hippie in Zimbabwe

Green is the same age as Zimmer. His childhood was spent in Los Angeles. “This is one of those cities where a car is simply necessary. The other travel options are much worse,” he shared his memories on the TechCrunch blog. Even then, Green was amazed that in cars designed for at least five people, people drove alone.

Logan's parents were keen on hippie ideas and sent their son to an ultra-liberal school where students were taken to the Indian equivalent of a bathhouse to meditate in search of themselves.

Unshaven car

In contrast to Uber's strict black and white logo, Lyft created a pink logo. It is not so masculine and more attractive to women, the creators considered. Then the question arose of how to distinguish Lyft cars from the general flow. A friend of Zimmer and Green had a startup called Carstache, which sold fake mustaches for cars. At first, the idea of a giant pink mustache on a radiator seemed like a joke. It was also presented to investors as a joke. As a result, mustachioed cars became a feature of the startup. Over time, the hype around mustaches died down. The more drivers Lyft hired, the less often they put mustaches on their cars. In New York, most rejected them due to their frivolous appearance. In December 2016, Lyft rebranded. The mustache moved to the dashboard, shrank to the size of a banana, but began to glow.

Logan went to study at the University of California at Santa Barbara, where he remained to work: to manage his own foundation, The Green Initiative Fund, which invested in environmental projects. He also served on the board of directors of the Santa Barbara City Transit Authority.

He often traveled to his native places, where his future wife Eva studied. As a matter of principle, he left the car at his parents' house and traveled to Los Angeles by public transportation or finding travel companions through message boards like Craigslist. Not everything went smoothly. Either the train breaks down, or the driver found online drops him off far from home because he is not on his way.

Logan decided to use car sharing and asked Zipcar to provide cars to the university. But he was refused: at that time the service only worked on the opposite, East coast of the United States. Then Green created a university equivalent of four-car car sharing for students at his university. They could be booked online and opened using an RFID tag and a one-time password. A couple of thousand students became interested in the service.

Green once went to Zimbabwe and his main impression was not the nature, not the sights, not the people, but the deserted streets. A car was an expensive pleasure, and the authorities did not get around to public transport. The locals have adapted to cooperate and team up. Green had an idea for a startup called Zimride, which he wrote about on Facebook .

Zimmer and Green meet

Zimmer and Green began communicating on Facebook in 2007, and Green soon rushed to the American East to meet offline. Zimmer appeared before him with a cold compress on his forehead. The day before, he went out to bars with a friend and suffered from a severe hangover.

In recent days, Zimmer has been filled with enthusiasm. Having already gotten well drunk, he pulled over a white Mercedes with five guys and began praising them for their thriftiness. For some reason, Zimmer decided that they were driving together to save on gasoline. The guys didn’t appreciate the idea, dropped Zimmer on the asphalt and ran away. This did not dampen his ardor.

Green was shocked by his new acquaintance. Zimmer then honestly told CNN why: “You shouldn’t sing Justin Timberlake’s songs in front of your future co-founder - even if you’re crazy about his work.”

Yet Green and Zimmer became instant friends, and Green remained in New York. Zimmer worked for Lehman during the day and for Zimride at night. In 2008, he quit his job to start a startup. Zimmer later admitted to Reuters that many were pointing fingers at him, and he himself doubted whether it was worth giving up a secure job for a risky startup. He received an answer very quickly: three months later, Lehman went bankrupt, provoking a global crisis.

The friends moved to Palo Alto and rented an apartment, which they nicknamed “apartfits.” One room had an office with six desks. The bedroom with the bed was occupied by Green. Zimmer got another one, with a fold-out sofa. Six months later, he moved into the house of a friend’s parents: this way he could save money. Then his future wife was indignant, and they rented a separate apartment. For the first three years, the startup founders did not pay themselves a salary. Zimmer used what he had accumulated at Lehman. And Logan continued to live in the “apartment office” until the startup got on its feet.

How Zimride worked

Zimride was designed for students who want a quick and cheap trip home for the holidays or weekends. The biggest fear was whether there would be anyone willing to get into the car with a stranger. Since its founding, the startup has been checking drivers for criminal records and traffic violations. At the same time, its participants began to have profiles. Green had been dreaming about them ever since he was trying to pick out a ride from an ad on Craigslist.

The service did not take money from fellow travelers. Universities paid for them. For example, the University of Southern California in Los Angeles signed a contract with Zimride in 2008 to reduce congestion in its 13,000 parking spaces. 3,000 people participated in the program, and in the first three years, they traveled 5.4 million miles, according to the university's estimates.

The first money, a grant of $250,000, was given by Facebook as part of its startup development program. It was possible to register with Zimride using a profile on this social network. Soon Green received a letter signed by a certain Sean Aggarwall, who wanted to invest money in the company. Zimmer and Green did not believe so much that their idea could interest people with money that they suspected fraud. They agreed to the meeting only on the condition that it would take place in a public place. But Aggarwal really turned out to be the vice president of eBay and became the first business angel, working with the guys for 5-10 hours a week.

It was unclear for a long time what to do with his money. The first expense was buying frog and beaver costumes for $30 each to hand out flyers on campus. True, this resulted in an embarrassment that Zimmer described to TechCrunch: he, a respectable employee in a suit, was standing next to his boss at Lehman when a student turned to him: “Dude, weren’t you the other day walking around, dressed as a beaver?

Startup changes course

By 2012, the startup had raised several million dollars, had a team of 20 people, and was working with 150 universities and companies that paid it for access to the ride-sharing network for 350,000 students and employees. Here the creators wondered whether they were moving in the right direction. They wanted to create a full-fledged alternative to their own car and change the life of entire cities, but the result was an intimate project.

Who Drives Lyft

Before the IPO, Lyft conducted a survey among customers in the United States. 46% of respondents claimed that in 2018 they began to use their car less often. And more than 300,000 people have given up car ownership thanks to Lyft. In total, the service had 18.6 million active clients last year – that is, those who use the service at least once a quarter. You need to understand that the company counts by cell phone numbers. If one person has two numbers, he is seen as two different clients.
The company collected statistics on the use of all services - cars, bicycles, electric scooters - and painted a portrait of a typical client in the fourth quarter of last year. In three months, he completed 9.6 rides with Lyft, generating $30 in revenue for the company. In total, the typical customer spent $270 on Lyft rides last year.
In 52% of cases a person travels to or from work, in 14% he gets to a public transport stop. The majority, 65%, own or lease their own car.

One reason is that when Zimride was created, smartphones were a novelty. The service worked through the website. Another startup founded in 2009, Uber, had a smartphone app. But they were nowhere near competitors. Uber offered its users to pool a limousine or a luxury car, the driver of which had a carrier’s license. Its slogan was “Personal driver for everyone.”

Zimride took money from universities and companies. In return, it provided their students and employees with access to a database of drivers who were ready to pick up fellow travelers if they chipped in for gas. Zimmer and Green decided to change the business model, open ride sharing to everyone and release a smartphone application. In just three weeks the product was ready. At first they dubbed it Zimride Instant, but changed their mind and called it Lyft.

The startup inherited the Zimride ideology. Initially, it was aimed not at professional taxi drivers, but at car enthusiasts who wanted to save money on their trips. Its slogan is “Your friend with a car.” At one time, there was heated debate at the startup about whether to insist that the driver and passengers shake hands at the beginning and end of the trip. Green put an end to them: “Who wants to feel awkward because his palms are sweaty.”

For old times' sake, Zimmer viewed cars as hotel rooms, for which occupancy and turnover were important. “We wanted the Lyft experience to feel like staying in a fancy hotel,” Zimmer told TechCrunch.

The application was launched in June 2012. And a few weeks later, Uber released a similar service.

How journalists got around the ban

Zimmer and Green told reporters about Lyft's launch in advance, but asked them to hold back the news. However, that same evening one of the publications violated the embargo. The well-known online resource TechCrunch faced a dilemma: also break a promise or publish the news late. They came out of the situation gracefully: the article was published immediately, but it did not tell about the emergence of the new Lyft service, but about how its launch was ruined. In this case, the rather strong verb to ruin was used.

Zimmer and Logan were furious. And everything turned out just fine: news about the problem attracted more attention than the victorious report. By the time the embargo expired and TechCrunch published a note about the launch of Lyft, many publications had already written about the startup, including Time magazine.

A few months later, Lyft had a waiting list: drivers couldn’t cope with the influx of orders. The success created the next problem: what to do with Zimride, which suddenly became a spin-off and 90% of its employees switched to work on Lyft? The best universities in the country are not clients with whom contracts can be treated carelessly.

Against this background, Zimmer began to have terrible headaches. The doctors shrugged their shoulders; the tomography showed nothing. About a month later, it was decided that Zimride would continue to be supported, and Zimmer’s pain stopped. A few months later, Zimride was spun off into a separate company and sold.

War on wheels

Lyft and Uber immediately engaged in a price war. Both made the service cheaper for customers and more profitable for drivers, who often installed both applications. “A competitor tried to put us out of business with money,” Zimmer recalled. “[In 2014] they had 30 times more money than us, and they tried to encourage passengers and drivers not to use our service. Those were difficult times."

In 2014, Lyft accused Uber of having 177 of its employees book rides with Lyft and then cancel them. Allegedly, this happened at least 5,000 times, and the purpose of the action was to undermine Lyft’s business. Prior to this, Gett made the same accusation against Uber, comparing it to a DDoS attack. In response, Uber began to claim that everyone at Lyft, including the co-founders, is also involved in ordering and canceling rides - supposedly 13,000 such cases have been recorded.

In early 2015, Lyft was on the verge of collapse. Uber attracted hundreds of millions of dollars from investors, its capitalization was estimated at $52 billion. Lyft had money left for four months of work, and it could not explain why it was necessary to invest in it. One investor insisted that it was time to shut down the startup and distribute the remaining cash to those who had invested in it. Lyft was helped by the American billionaire Carl Icahn, who bought a share of $100 million (and he proceeded from a capitalization of $2.5 billion). And in December of the same year, the company received $1 billion from 14 investors led by General Motors. The auto giant needed Lyft's help to test self-driving cars.

2017 was a turning point for Zimmer and Green. “For the first 4-5 years, Lyft existed in survival mode <...> But now the time comes when we can go on the attack,” Zimmer said in an interview with Inc. magazine. The fact is that Uber made a number of serious mistakes.

The first bell rang in December 2016. A former employee accused Uber of spying on the movements of celebrities, such as Beyoncé, and their friends and relatives. In February 2017, a blog post by a former employee sparked a scandal around harassment and gender discrimination at Uber.

Lyft, Inc.

Taxi ordering service
Shareholders (based on the IPO results, excluding the organizers' option, voting share): company founders Logan Green (29.2%) and John Zimmer (19.4%).
Capitalization – $21.3 billion.
Financial indicators (2018):
revenue – $2.2 billion,
net loss – $911.3 million.
Market share in the US by number of trips – 39% (as of December 2018).

In March, The New York Times reported that Uber had been using a secret Greyball program for several years. She analyzed personal data of passengers, from trips to credit card data and social network profiles. Based on them, officials and police officers were calculated - in cities and countries where Uber’s activities are prohibited, but it still operates, suspicious customers were denied orders. In their applications, available cars were hidden or “ghosts” were shown instead.

Lyft is not an angel. His television advertisement at one time ridiculed a certain competitor who was weaving intrigues against him. Formally, you can’t find fault, but everyone understood who we were talking about. It seemed childish when news broke in April 2017 that Uber was tracking Lyft cars using a program called Hell. For this purpose, fake passenger accounts were created. The goal was to understand drivers' preferences and offer them bonuses to get them to fulfill Uber orders.

In May 2017, a trial began between Google and Uber. One of the employees of the Waymo self-driving car project stole secret documentation, moved to Uber and used it to develop autopilot. It is not surprising that Waymo then included Lyft among its partners.

Kalanick apologized and promised not to sin again, while at the same time adding fuel to the fire. One day he drove an Uber, got into a conversation with the driver, and he began to complain that every year Uber was taking more and more money for itself. Kalanick lost his temper: “Some people just don’t like taking responsibility for their own shit. They blame others for what happens in their lives!” And he left, slamming the door. The stung driver posted a dash cam recording of this conversation online.

As a result of all the scandals, many employees were fired from Uber, and many left themselves; Kalanick was forced to write a letter of resignation.

Customers have begun switching from Uber to Lyft, which positions itself as a friendlier and more ethical company. Lyft beats Uber in customer and driver satisfaction ratings, and its riders tip more than its competitor.

In July 2017, Lyft reached a psychological milestone by completing one million rides in one day. During the year, the service received as many orders as in the previous four years combined. He began working in all states of the United States and even abroad, in Toronto.

“The goal that Logan and I have had for 10 years—to offer a low-cost alternative to car ownership—has remained the same [...] But the way we achieve it continues to change,” Zimmer told Inc. magazine. In September 2018, Lyft launched electric scooter rentals in the United States. And in November 2018, it acquired the largest American bicycle rental company, Motivate, which operates in eight cities and accounts for about 80% of trips in the United States. The media estimated the deal at $200–250 million.

Lyft has been growing faster than Uber in recent years. But both are deeply unprofitable. In the first quarter of 2018, Uber showed profit only due to the sale of its divisions in Southeast Asia to competitor Grab, and in Russia to Yandex. But Lyft managed to convince IPO participants that it was spending the money on developing a business that had the brightest prospects. Zimmer places special hopes on the mass distribution of autopilots. Three years ago, he promised that Lyft would operate without drivers in 2021. Zimmer and Green will have to answer personally for the promises. Although the two of them account for less than 5% of the shares, they do not let go of power. The shares are divided into two types, the founders own almost 50% of the votes.