Pando

For the first time, almost entirely by accident, it’s great to be Lyft

By Sarah Lacy , written on May 22, 2017

From The Travis Shrugged Desk

No one is more surprised than me to be writing these words: It’s suddenly looking like Lyft is the best positioned of anyone in the on-demand/self-driving world right now.

And almost none of that is because of Lyft’s own doing.

If you watch reality TV you’ve seen this phenomenon before. The person who is on the bottom of a tribe in Survivor who suddenly becomes the swing vote that two factions are fighting over as each tries to get out the other’s strongest player. They go from eviction bait to the one everyone is appealing to just like that.

Of course, if you watch reality TV, you also know that being the king out of circumstances that have aligned around you, can also mean you are back to eviction bait a day later. But let’s savor Lyft’s moment just now and how it got here… because it just got better in the last 24 hours.

The Uber threat. Lyft has spent its life as the distant second next to Uber in market share, buzz, and investor enthusiasm. Lyft was the company you backed if Travis Kalanick pissed you off or rebuffed you, but you still wanted to be in the space. At one point, we referred to Lyft’s cap table as “the coalition of billionaires who couldn’t invest in Uber.” Others Lyft investors like Alibaba and DiDi had their own motives for bolstering Lyft to hurt Uber. Lyft raised billions of dollars not because of its own actions as much as the fact that it was the largest US threat to Uber.

Still, when it comes to consumers, Lyft has mostly squandered the golden opportunity to define itself as the “anti-Uber.” Recently a Silicon Valley investor-- who is neither company-- said to me the two things that piss him off the most about ridesharing are (A) how many horrible things Uber is doing that makes all of the Valley look morally bankrupt and (B) how unable Lyft seems to be to capitalize on it. Uber has far more self-inflicted wounds than it has Lyft-inflicted wounds.

And yet, those self-inflicted Uber wounds keep on adding up.

The biggest benefit to Lyft right now is the delta between the valuations. Uber is valued at nearly $70 billion and Lyft is valued at comparatively a “cheap” $7.5 billion. Here’s why that’s particularly good news: Because Lyft never had to concoct a story to support a $18 billion/ $30 billion/ $60 billion valuation, it’s avoided some of Uber’s biggest and costliest missteps.

Lyft never promised any investor it would dominate ride sharing around the globe, and focused squarely on competing in the US. Uber has burned billions in capital, lost in China and has been mostly regulated out of Europe (save the UK and Estonia). It may win in India, but India is a messy market that will take time to develop into a cash cow. Large markets like Nigeria and South East Asia may one day be promising, but they require huge local customization and understanding that Uber simply doesn’t invest in. Uber faces well-funded local competitors in almost every promising region in which it operates. DiDi-- the only company to defeat Uber in dramatic fashion-- has invested directly in its Brazilian, South East Asian, and Indian competition.

This aggressive global strategy would be a distraction even if things were going well. It was the very undoing of Groupon-- investors were shocked at how much the company was spending internationally when it filed its S1.

But things are not going well for Uber. It is in a legal fight to even have the right to compete in autonomous vehicles. A legal fight that some have speculated could end with executives facing criminal charges.

At some point Uber will need to raise more capital, and there’s little evidence of wins to point to after spending billions on this global plan. Even if investors buy that there are synergies in one global player dominating things in multiple markets, DiDi frankly looks better positioned to be that player than Uber right now.  

Lyft has side-stepped all of this by never trying, and never capitalizing itself to dominate the world. (See also food delivery.)

If Uber is no longer able to get such easy access to cash, it can no longer use cash like a weapon as it has in the past. Because Lyft and Uber are commodity products, the one with the lowest price always gains marketshare. As the competitor with more shallow pockets, Lyft was always slightly at the mercy of Uber in terms of short term market share. Something that, for instance, could hurt Lyft if it ever decided to go public before Uber. Uber could simply offer free rides for the quarter before Lyft filed, destroying its numbers mid-road show.

But without Uber having such free and easy access to capital at any price, Lyft becomes freed up to be more in control of its own destiny. Just last week, reports circulated that Uber is even experimenting with charging more affluent riders more money-- a sign that it is feeling pressure to make its business more sustainable.

The easiest way to fuck with Uber is do a deal with Lyft. Last week Waymo did a deal to co-develop self-driving cars with Lyft. No one thinks this is a coincidence. Going forward anyone who wants to fuck with Uber will pick up the phone and call Logan Green. He’s the CEO of Lyft by the way. And you likely didn’t even remember his name. The least branded unicorn CEO in the world is the easiest path to fucking with the most infamous unicorn CEO in the world.

That may wind up meaning little for Lyft, or like its partnership with DiDi before DiDi bought Uber’s China business, relying on a partner could even potentially backfire for Lyft. But right now it gives Lyft new options in raising money, in potential acquisitions, in partnerships or anything else that could signal necessary momentum for a company that is still burning capital and hasn’t yet filed to go public.

Big auto panic. Those first two may be the more obvious, but this one became clear last night: Unless you are Tesla, big automobile shareholders are freaking the fuck out. GM’s CEO Mary Barra is fighting off an attack from an activist hedge fund and, last night, news broke that Ford’s CEO Mark Fields was replaced by Jim Hackett. That’s right, the guy who was previously in charge of its self driving car and ride sharing divisions.

Now, Fields was under pressure for not increasing profits at Ford. “Today” problems for the automaker, not “tomorrow” problems. But in lieu of a silver bullet there, an ambitious bet on the future could excite investors and change the narrative, if it were aggressive enough. Bill Ford has complimented Hackett as an “original thinker,” so he may well have the mandate to do something bold. Like, say, buy Lyft.

RBC analyst Joe Spak wrote in a report that Ford had been “throwing a lot of things at the wall...They are doing a lot. Some of it may be smart. But the overall communication hasn’t been great. A simpler message may be needed.”

Like, say, buy Lyft.

Ford’s stock price had fallen nearly 40% under Hackett, below Tesla’s. Tesla is only a few billion behind GM too.

It’s clear that investors in this market don’t need to necessarily see profitable businesses that involve the future of mobility. They just need something simple, credible, and ambitious to believe in. Lyft is the only thing with critical mass that can still be purchased to convey that.

There were rumors about one of the big automakers potentially buying Lyft last summer, including one report that GM offered $6 billion and Lyft turned it down. I’d heard similarly from people close to Lyft that there were conversations but the price wasn’t quite good enough to satisfy Lyft investors and the automakers in question didn’t feel enough urgency to pay up.

That may change if shareholders continue to put pressure on leaders to show they’re going to be part of the future.

A year ago, Lyft combined with a GM or a Ford wouldn’t have terrified anyone. An also ran teaming up with a company that doesn’t remotely understand consumer software… oooooooooh!

And here’s where the Survivor analogy comes into play. A lot has changed around Lyft in the meantime. Waymo, Apple, Uber and many of the other deep pocketed Silicon Valley threats have given up making their own cars. Uber is wounded-- maybe not meaningfully in terms of account cancellations, but certainly in terms of its ability to hire and raise more capital at the same prices. Last week, embarrassing accounts circulated from Adam Lashinsky’s new book about Travis Kalanick trying to partner with Tesla at one point, and being brushed off by Elon Musk. That was just before Musk unveiled the vision of his Tesla’s autonomous cars working for you future.

If Uber is barred against developing self-driving car technology, it’s out of the race. The rest of the Valley isn’t making cars, and the rest of automakers-- save Tesla-- aren’t going to build out consumer software services.

A Lyft owned by a GM or a Ford is suddenly not an embarrassment. It’s the only other player in the market other than Tesla that is vying to do the whole food chain. And look at those market caps: Investors like Tesla’s vision. A realistic plan to compete with it may be the easiest and most plausible “bold move” an automaker can make right now.

Of course, Lyft may be so emboldened by a wounded Uber that it is less inclined to sell than ever, and there may be no way for a $40 billion automaker to justify spending-- what? One quarter of that?-- on a company that is currently still a distant number two to Uber to help compete in an autonomous future that isn’t really here yet.

But for the first time in its existence, it seems better to be Lyft than Uber just at this moment. For high-growth companies, it’s all about “story.” (Again, compare Tesla’s market cap to Ford or GM’s.) And for the first time, Lyft has the better story.