How Lyft Works: Insights into Business & Revenue Model
Lyft is an on-demand transportation service platform that lets people hire a cab with the help of a tap on their smartphone. The business model of Lyft is something similar to that of Uber and that’s why Lyft is often termed as an alternative to Uber. Being valued at $5.5 Billion and having a presence in 200 cities of the USA, Lyft is giving a tough competition to Uber and aims to make it BIG in the on-demand taxi industry.
Founded in year 2012 (i.e. 3 years after Uber came into existence), Lyft has been one of the fastest growing companies in the USA. Lyft has already captured 40% of the total market in US cities like Austin and San Francisco. In this post, I have tried to throw some light on how lyft works and some unique features about its business as well as revenue model. Read on!
Lyft Founders, Funding & Facts
Founders: John Zimmer, Matt Van Horn, Logan Green & Marcus Cohn.
Company Headquarters: San Francisco, California, USA.
Founded: As Zimride in 2007 and became Lyft in year 2012.
Lyft Valuation: $5.5 Billion.
Lyft Funding: $2.01 Billion (Till April 2016).
Lyft Revenue: Lyft is currently operating at $1 billion revenue run rate, based on October 2015 financials.
Number of Rides = 7 Million in October 2015.
Number of Lyft Drivers = 100,000 (As of March 2015).
Logo / Mark: Pink Coloured Moustache on front grill of car.
Lyft was founded as Zimride in year 2009 and at that time the company focused on ride share. It was in year 2012 that Zimride was relaunched as Lyft with a new business model. Here’s the entire timeline of Lyft which includes major funding milestones.
Salient Features of Lyft
Although Lyft is similar to Uber in many ways but it has always distinguished itself and followed a strategy where it can disrupt Uber in any way possible. Here are few salient features of Lyft’s model.
- Lyft matches customers who want a ride with nearest available drivers.
- They use the tag line – Find a new friend everyday.
- All Lyft cars have a big pink coloured moustache on their front.
- Customer gets to know the driver details and ETA when he requests a ride.
- Live tracking tells driver the exact location of the customer from where ride has been requested.
- Payment procedure is handled by Lyft itself from within the app.
- Lyft charges a commission of 20% from each ride and the rest 80% goes to the driver.
- Lyft business model has a rating system in place for drivers as well as customers where they can rate each other.
- Unlike Uber, Lyft just has 2 car options – Lyft and Lyft Plus.
- Lyft also has surge pricing model called as heat maps.
Lyft offers excellent value propositions for both its front end stakeholders – drivers & customers.
- No need to wait for a taxi. Lyft app enables matching you with nearby available car.
- Lyft offers free rides on certain occasions and users can also avail discounted rides from time to time.
- Lyft makes customers feel as if they are riding with a friend instead of traditional cab.
- Prices are often lesser than the normal taxi fares.
- Lyft’s tagline says – Your friend with a car. It lets customers befriend drivers.
- It adds up to an additional income source.
- Flexible working schedules. Drivers Can work anytime and for as long as they wish.
- Easy payments. Lyft pays 20% of the total ride cost to its drivers.
- Those who love to drive can make new friends and can earn money while pursuing their hobby.
4 step model about how Lyft works
- Step 1 (Request a ride): The initial step in the business model of Lyft is about requesting a ride. Anyone having a smartphone with the Lyft app installed can simply request a ride almost instantly with the help of few taps. User has the option to choose from Lyft, Lyft Plus and Lyft Line.
- Step 2 (Matching): As soon as a request is made, a notification is sent to nearby drivers in that area. Driver has the option to accept or decline a request.
- Step 3 (Ride): Map based interface allows the customer to track the car while it arrives and also gives the ETA. On the other side, the driver can also track the customer’s location from where the request was made. Live tracking is also available during the ride. Unlike Uber, Lyft works on a model where passenger almost always sits in the front seat along with the driver. This is due to Lyft’s tagline – Your friend with a car.
- Step 4 (Payment & Rating): Customers can rate the driver once the ride gets over. Rating system is an important part of Lyft’s business model.
Lyft Business Model Canvas
The business model canvas of Lyft has been prepared using Alexander Osterwalder‘s Business Model Generation Template.
Lyft’s Revenue Generation Model
Lyft is basically a cab aggregator that matches people who want a ride with drivers who have a car. Each transaction happening on Lyft’s technology based model is divided between the driver and the company. Lyft takes a 20% cut from the total amount paid by a passenger and the rest 80% cut goes to the driver. The main revenue models of Lyft include:
- Lyft Car Ride
Lyft charges a 20% cut from every transaction that happens on the platform. Normal 5-seater cars come under the normal “Lyft” car category. Drivers get the remaining 80% of the price that is being paid by the passenger.
- Heat maps (Surge Pricing)
Just like Uber’s surge pricing, Lyft also has het maps that define an area where the demand is more. In case of high demand in a particular area, more price is charged by the cab company. This adds up to the revenue model of Lyft. The heat maps are location specific as well as time specific.
- Lyft Plus (More seater vehicles)
To give its customers another option apart from the normal 5-seater cabs, Lyft has got “Lyft Plus” which are basically a 7-seater vehicles. The charges for Lyft Plus are higher as compared to normal Lyft. Over here again, Lyft earns net 20% of each ride.
- Lyft Line (Discounted Rides)
Lyft was born out of Zimride which was initially a ride sharing platform. Promoting car share among people and to give an option to those who do not wish to hire an independent cab, Lyft initiated “Lyft Line”. As the name suggests, it enables a user to ride along with others on a pre-specified route. It can be thought of as an alternative to public transport but with the service of Lyft.
The 4 different ways by which Lyft makes money might make you believe that Lyft earns a lot as there are millions of rides happening on the platform. But according to a fact mentioned by Bloomberg, Lyft is going into losses just as its counterpart Uber. Lyft saw a net loss of $127 Million in the first half of year 2015.
Lyft is growing at a fast pace. The company is expecting to be in profits in the year 2016. According to leaked figures, Lyft might acheive $400 million gross profit in the year 2016.
Difference between Lyft & Uber Business Model
Uber vs Lyft is a hot topic for those who want to enter the cab industry in the USA or anywhere else. How these 2 companies scaled is an inspiration for many others following the footsteps. While a lot people think that Uber and Lyft are similar companies as they are in the same industry vertical and serve the same target audience. If you also think the same way then remember that every company is different. They might be in the same vertical, might be present in same city, might serve the same audience and be competitors to each other, but still there will be a lot of things that would define one from the second. Let’s understand the difference between Uber & Lyft Business Model.
Lyft – Your Friend with a Car.
- Passengers almost always sit on the front seat.
- All Lyft cars have a pink moustache on their front grill, so that a user can easily spot the car.
- Lyft tells users that car drivers are your friends.
- You can tip your Lyft driver after the ride.
- Lyft is only present in the USA.
Uber – Arrive in Style.
- Passengers sit in the rear seat.
- Uber cars have a small Uber logo sticker on their front wind shield.
- Uber tells users that they have a personal driver.
- Uber does not allow tips through the platform.
- Uber is present in 67 countries of the world.
Will Lyft be able to make it as big as Uber?
Talking about the funding and valuation, Uber has got way more funding as compared to Lyft but Lyft is soon catching up. Lyft’s recent Series F funding of whopping $1 Billion says it all. If you are thinking to start something like Uber or Lyft in your local area and want to build up a community, you might want to know which business model out of Uber or Lyft is a better one. Ah, we’ll better leave it for you to think about how you want to treat your clients – the friendly way or the professional way?
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