The aim of this article is to analyze the strengths and weaknesses of Lyft Inc, a leading transportation network operator in the United States and Canada. Founded in 2012, Lyft has enjoyed strong growth in its driver and rider network over the recent years. This article will present the key factors that have aided the fast growth of Lyft and the weaknesses that the company needs to overcome to find faster profitable growth and achieve stronger growth momentum.
Lyft is a popular ride-sharing app and operates its business in the US and Canada. The pandemic has affected Lyft’s business negatively. This article analyzes the challenges and opportunities before the company and how its longer-term growth can be affected by technology, competition, and other factors. Apart from these things, the article includes suggestions to help the company find faster growth in the future.
Lyft is operating in a challenging environment. The competition from Uber and other rivals in the US and Canada markets and growing operating costs are also making the situation more challenging before Lyft. This article will discuss the challenges hindering Lyft’s growth and their solutions.
Introduction: About Lyft’s Business.
Lyft is a leading ride sharing app with its business operating in the US and Canada. It started in 2012 as an online ridesharing marketplace whose purpose was to connect drivers trying to earn money with riders looking for a ride. Lyft has continued to expand its business and in 2018 became the largest bike sharing brand in the US with its purchase of Motivate. The company has enjoyed rapid growth in its number of active riders which reached 22.9 million in 2019 (Lyft Annual Report, 2019). The pandemic had a severe impact on Lyft’s business and the brand experienced a sharp decline in its number of active riders and net revenue during the second and third quarters of 2020 (Lyft Quarterly Report, 2020). The company is facing several challenges including competition and regulatory challenges. However, it is also focusing on innovation and marketing to find faster growth. Lyft has not been able to generate a positive net income yet. The competition from Uber and others is also a significant challenge before Lyft.
In the next sections, we will discuss the strengths, weaknesses, opportunities and threats before Lyft Inc and offer suggestions for the company to find faster growth in future.
- Large transportation network :-
Lyft has successfully established a large transportation network in the US and Canada. The company has continued to strengthen its transportation network through new partnerships and acquisitions. The company recently acquired Motivate to become the largest bike sharing provider in the United States (Small, 2018). Its core offering is the Lyft Marketplace through which the company connects drivers with riders. However, in order to expand its driver base, the company offers rental programs so that the drivers who do not have a car matching Lyft’s requirements can still drive for the platform. It has also entered into strategic partnerships with Waymo and Aptiv so riders can access autonomous vehicles.
- Diverse transportation solutions for various customer segments:
Lyft offers diverse transportation solutions that cater to the needs of various customer segments. The company offers attractive subscription programs for individual customers like Lyft Pink that allows them to manage their ride costs effectively and derive more from their memberships (LyftBlog, 2019). Apart from individual customers, the company also offers transportation solutions that match the needs of small and large businesses across various industry sectors including healthcare, government and education sectors. It has also partnered with leading travel and expense management companies like SAP Concur, Certify and Expensify to offer its corporate clients a seamless travelling experience (Lyft Annual Report, 2019).
- Growth in rider and driver network :-
The company experienced fast growth in its rider and driver network in the previous fiscal year. The rider network of the company grew to 22.9 million active riders in the quarter ended December 31, 2019 compared to 18.6 million during the same quarter in the previous year (Lyft Annual Report, 2019). There are several factors that drove the growth in its rider network including higher focus on technological innovation, higher engagement rates, exclusive membership benefits and increased focus on marketing. Except for the impact of the pandemic, Lyft has been enjoying superb growth in its rider base. For example, its number of active riders for the quarter ended March 31, 2020 remained 21.2 million compared to 20.5 million during the same period in the previous year (Lyft Quarterly Report, 2020). The company has also been able to engage and retain drivers at a higher rate through attractive incentives and reward programs.
- Technological innovation :-
The company is strongly focused on innovation to achieve superior growth across all markets. Its technological research and development expenses have also grown rapidly over the past four years. In 2016, Lyft spent only 64.7 million USD on research and development. Its R&D expenses grew higher than $1.5 billion in 2019, rising almost five times compared to the previous fiscal (Pratap, 2021). Increased competition in the ride hailing industry has led to higher focus on technological innovation for maintaining market share and achieving a stronger growth momentum. Apart from in house research and development, the company also partners with external developers for development of new technologies that help Lyft differentiate its brand from rivals and offer its riders a seamless and superior experience.
- Strong brand awareness :-
Lyft has achieved strong brand awareness through a consistent focus on marketing and customer service. The company’s performance in key areas improved as it gained stronger brand awareness. The company employs digital marketing strategies in combination with other marketing techniques like sponsorships and rider engagement techniques such as discounted rides. It also runs marketing and promotional campaigns that drive brand awareness and customer engagement higher.
Lyft creates original content and shares it on social media and other channels. Its Youtube channel has more than 450K subscribers. The company shares promotional as well as educational videos on the video sharing website. It also makes interesting and engaging content that drives higher publicity and brand awareness. One example is the Undercover Lyft series in which celebs are disguised as drivers. These videos also reflect the unique culture of the organization.
- Growing market share in the United States:
Uber and Lyft command the largest market shares in the US ride hailing industry. However, as Lyft’s share has climbed in the US ride hailing industry, Uber’s has fallen. Uber held a market share of 74% in September 2017 which declined to 68% in January 2021 (Mazareanu, 2021). Lyft’s share climbed to 32% at the same time. Lyft is also expecting faster growth in the coming years and has grown its investment in research and development as well as marketing and sales.
- Largest Bike sharing brand in the United States:
Lyft became the largest bike sharing brand in the United States with its acquisition of Motivate. Lyft acquired Motivate in 2018. The company offered its services in some of the US cities with densest traffic levels. The acquisition of Motivate was a strategic step by Lyft meant to improve its competitive strength and grow market share in the US transportation faster.
- Negative net income :-
Despite the improved performance of the firm in recent years, Lyft has continued to experience negative net income. While the net revenue of the company climbed by around $1.5 billion, its net income declined by $1.7 billion approximately. Lyft incurred a net loss of $2.6 billion in 2019 compared to a net loss of $911 million in 2018. However, its net losses reduced significantly during fiscal 2020 but so did its net revenue. During the first three quarters of 2020, its net loss remained $1.3 billion compared to $2.25 billion during the same period in fiscal 2019. Despite the reduction in net loss, the company is still running in losses even in 2020. Its net revenue in the first three quarters of 2020 was $1.8 billion compared to $2.6 billion during the same period in fiscal 2019 (Lyft Third Quarterly Report, 2020).
- Limited to the US and Canada markets :
Lyft depends on the US and Canada markets mainly for its revenue. It has not expanded its business internationally like Uber did (Pratap, 2017). Due to this the company has been unable to generate a positive net income. If Lyft is unable to expand into new markets in the coming years, the company might keep experiencing negative income over the next several years. Remaining limited to a few markets only is hurting its revenue and profitability. Uber has been able to expand its business into many market regions including the United Kingdom and India.
- Revenue negatively impacted by the pandemic :
The revenue of the company was impacted negatively by the pandemic and the lockdowns that followed. The US market which is the largest market for Lyft, remained under lockdown for prolonged periods due to the pandemic. While travel was restricted in many areas, people were forced to remain indoors and as a result the business of ride sharing companies suffered. During the third quarter of 2020, its revenue was just a little above half during the same period in the previous year. Lyft’s revenue for the first three quarters of 2020 declined by more than 30 percent compared to the same period during the same period in the previous year (Lyft Third Quarterly Report, 2020).
- Facing legal battles :
Lyft is also facing several legal battles which can potentially damage its reputation and hurt operations. Both Lyft and its rival Uber are facing several types of lawsuits that can potentially hurt the companies financially. Lyft is facing various lawsuits, some of which the company has been able to settle and some not. These lawsuits are related to labor force, dsicrimination against disabled passengers, sexually predatory behavior by Lyft drivers and other types. Several people have filed cases of sexual assault against Lyft drivers (O’Brien, 2019). These legal battles have a severe impact on the reputation and image of the company as well as its operations.
- International expansion :
Lyft can find faster growth through international expansion. The company has currently limited its operations to only two leading markets including Canada and the United States. International expansion on the one hand will help the company grow its revenue and profitability, it will also help the company beat the competitive pressure from rivals like Uber on the other. Lyft must consider expanding into new regions like the UK, India and more European or Asian markets. The company has been experiencing negative net income, and international expansion or entry into new markets can help it improve its profitability faster.
- Marketing partnerships :
Entering into marketing partnerships with new brands including entertainment and automobile brands can help the company grow its business and brand awareness faster. Brand awareness is a key factor that drives higher growth momentum and profitability for the company. Partnering with other brands for growing brand awareness is a key method employed by several brands. In the case of Lyft, it has already worked since the company is partnering with some brands including Walt Disney to grow its marketing impact. The company can also partner with other leading marketers like Coca-Cola, Nike, Starbucks, and others to grow its brand awareness and achieve a higher impact from its marketing campaigns.
- Research and development :-
Competition in the ride-hailing industry has continued to intensify over the last several years. While Uber is the leading rival of Lyft in the markets where Lyft operates, the company is also facing growing competition from the smaller rivals. Innovation is key to acquiring faster growth and improving the quality of services for Lyft. The company must continue to grow its investment in research and development to improve its app and services and offer its riders a seamless riding experience. Through its focus on innovation, the company has been able to grow its market share against Uber over the past few years. Continuous investment in research and development can help the company gain substantially against its mightiest rival. Lyft had substantially grown its research and development investment in 2019 compared to the previous year. In 2019, it invested $1.5 billion in research and development but its R&D expenses fell again in 2020 due to the impact of the pandemic. It invested only $694 million in R&D in the first three quarters of 2020 compared to $1.23 billion during the same period in the previous year.
- Diversification and acquisitions:
Lyft can also grow through diversification. It can diversify into related areas to grow its business and gain growth momentum. Lyft has established itself as a ride hailing business. However, it can diversify into related areas like supply chain and logistics. The company can also acquire related technology business that can help it build growth momentum and find faster growth. The company acquired Motivate to grow its business in bike sharing. However, technology is driving faster growth in several areas and if Lyft plans to diversify into logistics, it can acquire blockchain technology businesses that can help it grow its logistics business faster.
- Heavy competition :-
Lyft is facing heavy competition and it is one of the leading factors that is challenging Lyft’s faster growth. Competition on the one hand, limits the growth and expansion opportunities for Lyft. On the other, it drives operating costs higher since businesses need to invest more in marketing as well as research and development to maintain their competitive strengths and market position.
Uber is the leading competitor of Lyft. While many other smaller businesses are operating in the same industry sector, the strongest challenge comes from Uber. In recent years, while Uber’s share in the US ride-hailing industry has declined, Lyft’s has increased. Uber is still the mightiest in the ride-hailing industry, and therefore, the competitive pressure on Lyft is higher. If Lyft can expand its operations into new market regions, it will help the company grow faster and beat the competitive pressure. Lyft will also need to focus more on the technological aspects of its services since Uber is a leader in this area. Riders prefer a seamless and safe riding experience. A higher focus on technological innovation will help the company grow its market share and become the preferred ride of customers in its current markets.
- Pandemic and its economic impact :
The pandemic has also hurt Lyft financially. It had a devastating impact on the US economy which experienced a record number of cases. Prolonged lockdowns across the United States severely hurt Lyft’s business. The economic impact of the pandemic on Lyft was evident in its balance sheet. The net revenue of the company was badly hurt during the first three quarters of 2020. During the third quarter of 2020, the net revenue of Lyft fell to around $500 million compared to $956 million during the same period in the previous year (Lyft Third Quarterly Report, 2020). The pandemic’s impact is not entirely over. Even in 2021, the ride hailing companies might continue to face difficulties since things will take time to come to normal. Lyft will also continue to experience difficulties in 2021. After the Biden government’s $1.9 Trillion stimulus bill is signed, things are expected to return to normal faster (Siegel, 2021). However, in the meantime, Lyft was forced to cut down operating expenses aggressively. Overall, the pandemic had a serious negative impact on Lyft and it has also introduced a new set of challenges before the company. Returning to the old normal may remain difficult for companies and people.
Kotler writes about the new normal after Covid-19,
“We expect that many people will start searching for places where they can live out some new values that offer them more hope and satisfaction. More people will become conscious of climate change, income inequality, poverty, hunger, homelessness, poor living accommodations, racism, guns, and other issues. People will increasingly favor political candidates who offer some new solutions to these social problems than just returning to the old normal” (Kotler, 2020).4PKotler.medium.com
- Legal and regulatory threats :
The legal issues in the ridesharing industry are also a major obstruction to growth. While there are several areas where the industry’s legal control and oversight seem appropriate, there are also areas where the law has made the industry highly challenging and complex to operate in. The ride-hailing industry was less regulated earlier, but the rise of Uber brought the government’s attention to several new issues that were not prevalent earlier, as the classification of drivers as employees or independent contractors, competition in the industry, treatment of workers, discrimination, and several issues that had previously attracted less attention.
Legal battles continue for both Lyft and its leading competitor Uber. However, the two still registered an important win in the form of proposition 22. Under this proposition, the gig workers can continue to work for ride-hailing companies as independent contractors instead of being treated as employees (Conger, 2020). However, that does not bring the issue to an end since workers have also filed a case that the proposition violates the constitution. There are other laws apart from the labor laws too that regulate ride-hailing companies including anti-competitive laws, anti-discrimination laws, and more. The sexually predatory behavior of some Lyft drivers also subjected the company to additional scrutiny (Nadolny & Kelly, 2019).
Conclusion and Suggestions:
Lyft is one of the two leading players in the ride hailing industry in the United States and Canada. The company has experienced faster growth in recent years and successfully grown its market share compared to its nearest rival Uber. The company is also investing more in research and development as well as marketing to find faster growth. However, the pandemic has brought a new set of challenges before Lyft which experienced reduced net revenue during 2020. In the third quarter of 2020, its net revenue remained just slightly above half of what it generated during the same period in the previous year.
Lyft must try to expand its business faster by entering new markets. Geographic expansion can be a great method for the company to grow its business faster outside the United States. It will also help the company strengthen its competitive edge and beat the competitive pressure, which is one of the leading challenges before the company. However, for acquiring more robust growth in the coming years, the company must continue to invest in research and development as well as marketing. Apart from a higher focus on digital marketing and customer engagement, it must also focus on innovation to offer its riders a more satisfactory experience and driver rider retention rates higher. In terms of marketing, it can also partner with more brands to generate higher brand awareness. Partnering with brands in hospitality industry could also help drive revenue growth, but the biggest challenge right now before the company is to beat the impact of COVID-19. Things are set to change with the pandemic and might be people would not remain to the previous normal (Pratap, 2020). The use of digital technology has grown with the pandemic and this change is lasting which could benefit Lyft in the longer term.
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