Opinions from our network of advisors, investors, operators and analysts on the risks and opportunities they see.
More than a century ago, Ford Motor Co.’s automobile assembly lines were the cutting edge of American innovation. Now, the carmaker’s recent round of layoffs is emblematic of the decline of traditional automakers and their growing challenges.
One hundred years from now, the odds are that the ride-sharing pioneers of today, the Ubers and Lyfts, will have played a key role in defining the state of transportation and even the look of our cities.
As Uber and Lyft become public companies, their balance sheets are under greater scrutiny. While many ride-sharing companies still have much to prove to investors about profitability, the competition for the hearts and minds of consumers, the social impact side of their business and which is “the better boyfriend,” as Lyft President John Zimmer explained to Time magazine in 2017, are in full force while these companies also compete to define what comes next.
If the latest on Facebook and other tech giants is any indication, it’s up to investors who care about social impact to hold these industry leaders -- and the broader ride-sharing industry -- accountable.
On this day of Lyft’s IPO, investors and analysts are skeptical of the company’s commitment to social impact and tone-setting role for the rest of the industry.
“They are establishing market dominance in a way we haven’t seen before,” Eileen Burbidge, an investor at Passion Capital, said in an interview with Bloomberg TV on March 29, noting they are still “so far away from generating any kind of profit.”
She also questioned what going public will mean for the cost structures and profitability of the ride-sharing industry.
“Once they have pressure from public markets to try and get there [become profitable], they are either going to increase wages, either on the consumer side or take a bigger cut out of the drivers’ wages,” she added. “That’s going to cause all sorts of problems and headwinds in the next year or so.”
In the weeks ahead of Lyft’s IPO on Friday, the company’s broader ambitions to cure social ills received more attention. Lyft doesn’t just want to just bring you from Point A to Point B, it wants to address the inequality that car ownership creates, according to its IPO filing.
"The average cost of a new vehicle in the United States has increased to over $33,000, which most American households cannot afford," the company added. "We estimate over 300,000 Lyft riders have given up their personal cars because of Lyft."
Lyft founders say they want to solve the inefficiency and underutilization of vehicles, and “improve people’s lives.”
"We believe that the world is at the beginning of a shift away from car ownership to Transportation-as-a-Service, or TaaS,” the company stated. “Lyft is at the forefront of this massive societal change.”
Transportation companies of the future not only want to drive passengers, they also want to mold societies.
Michael Masserman, Lyft’s head of global policy and social impact, is in a role that focuses “opening global markets, sustainability, social impact and smart cities” according to his LinkedIn profile.
The company also appointed its first-ever sustainability director last year, as a part of Lyft’s positioning as “the first and only carbon-neutral ridesharing company and is covering 100% of its electricity – including electric vehicle charging – with renewable energy.”
The filing doesn’t mention electric vehicles or share plans how the company will deliver on its mission to “redesign our cities around people, not cars."
Lyft went all out in March for Women’s History Month. In New York and other cities around the country, the company offered free rides to historic landmarks, hosted local meet-ups for drivers and even produced a social content series that highlighted civic heroes and female Lyft drivers who have made an impact in their cities and across the country.
Uber Playing It Safe
While Uber remains the world’s largest ride-sharing company, it has struggled to generate revenue in its decade of operation despite forays into food delivery and other businesses.
Over the past two years, the company has dealt with sexual harassment scandals, a trade secrets lawsuit with the self-driving tech company Waymo, questions about its treatment of drivers, and concerns about Saudi Arabian origins of some of its financing in the wake of journalist Jamal Khashoggi’s murder at the country’s embassy in Istanbul, Turkey, last October.
After so much public scrutiny, Uber’s reputation appears to be on the mend. In a memo leaked earlier this year, 63% of employees said Uber acts in a socially responsible way.
At this point, all Uber need do is behave in a way that doesn’t cause bad headlines ahead of its expected IPO in April.
The competition is also heating up between the two companies across electric scooter and self-driving verticals.
Through its Uber Movement initiative, Uber wants to help shape societies and what our transportation systems will look like, similar to what Lyft envisions.
Its aim is to “transform cities into safer, more efficient, and more beautiful places,” and the company is using data from 500 cities globally to help urban planners design new cities, according to its website.
Uber also has sustainability initiatives aimed at helping to reduce carbon emissions through Uber Pool and to go fully electric in London by 2025.
Regulators in the U.S. and internationally don’t have the best track record when it comes to keeping giant tech companies in check, even if companies claim they are trying to “make the world a better place.”
Scott Galloway, a professor of marketing at New York University’s Stern School of Business and author of The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google, is among critics questioning Lyft’s path to profitability from current negative margins.
“Ride-sharing as a whole is a transfer of wealth from drivers who are not paid minimum wage or health insurance and from their investors to riders. It is literally an amazing deal for riders,” he said in his podcast Pivot. “They keep using the word[s] ‘network effect,’ and there are no network effects in ride-hailing.”
Lyft promised investors it would eventually make 20% earnings before interest, tax, depreciation and amortization (EBITDA) margins.
As IPOs arrive, the broader questions remain about these companies’ profitability, sustainability and wider global impact on societies.
It’s up to investors to keep these companies accountable and examine the role they’re actually playing in shaping cities and the coming transportation models.