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Uber needs to buy Lyft to survive, and eventually make profits



Uber LyftLucy Nicholson / Reuters

  • Uber is still losing money at an alarming rate.
  • The problem is that, to turn a profit, Uber needs to stop cutting prices to win customers from competitors like Lyft.
  • So the solution for Uber is simple: Buy Lyft.
  • After an acquisition of Lyft, Uber can leverage its new scale to profitability.
  • Ibrahim AlHusseini is the founder and CEO of FullCycle, an investment firm focused on addressing the climate crisis.
  • Visit Business Insider's homepage for more stories.

Technology-enabled ride hailing has transformed the possibilities for urban mobility, combating climate change and creating more livable cities in the 21st century. That's the good news.

The bad news is that the top players in the US category – Uber and Lyft – don't have viable business models. The latest earnings reports make that clear. In the third quarter of 2019, Uber alone lost about $ 1.2 billion.

Which brings us to the inevitable: Uber's acquisition of Lyft.

Uber needs to buy Lyft to live

Implicit in Uber's argument is that one day it will control all, or at least the vast majority, of the ride-hailing market. That's not what you want for the business; it's a need.

The positive network effect doesn't really work for Uber. Having more drivers and, as a result, more passengers, and, by extension, lower wait times, is not enough. So long as there is competition, Uber will continue to provide passengers and drivers with more and more subsidies.

That's because there's really nothing proprietary about Uber's platform, or Lyft's, or that of any of the big players. In fact, even an autonomous vehicle offering is likely to become a commodity. To be profitable on the car-sharing side of the house, Uber needs to become a winner-take-all by merging with Lyft.

If Uber waits on this acquisition, Google could sweep in and buy Lyft, creating a three-way marriage between Waymo, maps (Google Maps and Waze), and Lyft. That would lead to a much bigger, and much more formidable, competitor to Uber. Indeed, Lyft and Waymo are already working together.

Uber also needs to expand its thinking

But acquisition is only one part of a strategy to gain profitability.

Until Uber takes a more collaborative approach to working with the government, the race to the bottom will continue – with no one to save the taxi industry, benefiting.

Throwing massive chunks of cash into their marketing, ride and driver subsidies, and research and development around initiatives that may or may not pay dividends will be included in every quarterly report, as it was this week.

In the context of combating climate change and creating more livable cities, drawing passengers away from public transportation like the subway in New York and adding more cars will only increase traffic, pollution, and frustration. (Uber's head of global public transport policy has already acknowledged that his company is contributing to congestion on the roads.)

In New York, regulators have enacted fleet caps to limit the number of Ubers and Lyfts on the street while collecting information about when and where they drive. And a new California law mandates these business hire drivers as employees rather than independent contractors, meaning they must provide benefits.

Which is why Uber needs to start making its regulators its customers.

One major challenge Uber and Lyft face is the fact that one of their competitors, public transport, is a government-subsidized entity. Subway systems, bus systems, ferry systems, and even sidewalks for people to walk on, are supported by taxpayers. It's tough to be compete with that.

So Uber should be more intentional about becoming part of the solution, and what Via does.

Arlington, Texas, went without a public transit system before partnering with Via in 2017. Now, Via operates a wide network of six-seat vans in Arlington, essentially providing public transportation to the entire city, which in turn subsidizes Via rides through its local transit budget. Via expects to operate in 200 cities globally by the end of 2019, with most of those cities following the "transit as a service" model.

And guess what: When you work with government and make communities healthier and save taxpayers money, regulators are less likely to make your life harder through new rules, new regulations, and new taxes.

There are other growth opportunities that Uber ought to double down on: food and freight.

Already, Uber Eats is one of the world's largest food delivery services. It could generate $ 1 billion in revenue this year alone. The business faces real competition in Eats too (Grubhub, DoorDash), but there are creative fixes. Uber Eats is already global and has significant reach through its ride-hailing platform, which gives it a leg up in terms of building partnerships with major brands like Starbucks.

Meanwhile, Uber Freight presents tremendous growth potential: By connecting truck drivers and shippers and ensuring we have fewer nonfull trucks on our roads, Uber Freight solves a real problem by making trucking far more efficient.

Then there's advertising.

Uber has 91 million active users across its platforms globally. And Uber knows a lot about these people: what they eat and where they go and when. Uber could start leveraging this massive network and sell ads, in-app, in-car, in-package delivery, and beyond. Indeed, Uber could become one of the world largest advertising platforms.

Whereas users don't need to go on Facebook, people who need to open the Uber app need to eat or need to travel somewhere. For key moments they represent a very captive audience, which is why Uber needs to invest heavily in advertising.

Ultimately, for any high-growth business, attacking a space as a new upstart is very different from defending one as a large incumbent. For Uber, now is the time to get profitability and prove that the future of ride hailing is part of a larger, more robust strategy for consumers, cities, and the world.

It all starts with buying Lyft.

Ibrahim AlHusseini is the founder and CEO of FullCycle, an investment firm focused on addressing the climate crisis. He was an early investor in Uber, Lyft, and Tesla, though he is no longer invested in those companies.

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Den Originalartikel gibt es auf Opinion Contributor. Copyright 2019.


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