lyft-business-model

Lyft Transportation-As-A-Service Business Model

Lyft is a transportation-as-a-service marketplace allowing riders to find a driver for a ride. Lyft has also expanded with a multimodal platform that gives more options like bike-sharing or electric scooters. Lyft primary makes money by collecting fees from drivers that complete rides on the platform.

Lyft business model in less than a hundred words

Lyft is a transportation-as-a-service on-demand marketplace that allows riders to quickly find a driver and get from one place to another. However, Lyft has also expanded with a multimodal platform that gives more options like bike sharing or electric scooters. 

And it is also experimenting with autonomous driving. Lyft primary makes money by collecting fees from drivers that complete rides on the platform. It also makes money via subscription fees and single-use ride fees paid by riders to access the network of shared bikes and scooters.

Related: How Does Uber Make Money? Uber Business Model In A Nutshell

The birth of Lyft value proposition

A business model starts with a value proposition, and Lyft built it on the modern mass transportation system which turned out to be inefficient.

Indeed, while mass transportation allowed people to move freely, it also created massive inefficiencies, stress among car users and wide underutilized spaces. Therefore, Lyft value proposition started from three key drawbacks of mass transportation:

  • Underutilization: vehicles are not used most of the time
  • Inefficiency: the large ownership of vehicles also made cities build large parking spaces which occupy a good chunk of cities’ urban landscapes
  • Inequality: car ownership while distributed is still a large issue for many people that can’t afford to buy a car

The Lyft value proposition also got fueled by five key trends, that Lyft highlighted in its financial prospectus:

  • The growth of Sharing Versus Ownership: a growing number of people prefer to use as they go rather than own a vehicle, that is still most of the time.
  • The rise of On-Demand Services: the rise of web portals allow people to use services on demand. Rather than owning upfront an expensive vehicle.
  • Greater Affinity Towards Mission-Driven Brands: younger generations are more concerned with brands that try to do it differently and value those brands more.
  • Increasing Demand for Flexible Work Opportunities: as the job market becomes more unstable, the opportunity to have a flexible way to make additional income is valued by a growing number of people.
  • The emergence of New Modes of Transportation: transportation is becoming more and more a multi-mode where people don’t mind having several options for their daily trips.

Lyft mission

Lyft’s mission is to “improve people’s lives with the world’s best transportation.”

It all started in 2012 when Lyft launched a peer-to-peer marketplace for on-demand ridesharing. This mission is fueled by a willingness to get rid of mass car ownership. 

Transportation-as-a-Service

The core of Lyft business model can be described as transportation-as-a-service or TaaS. Indeed, Lyft facilitated the on-demand request of riders and drivers.

This model is facilitated by a transition from car ownership to ride-sharing and on-demand marketplaces. It is also getting fueled by a multimodal transportation platform.

Lyft multimodal transportation platform 

lyft-multimodal-platform

Source: Lyft Financial Prospectus

A multimodel platform expands on several sets of transportation modes, that beyond cars, also leverages on a network of shared bikes, and scooters for shorter rides. This multimodal platform enables TaaS, which gives more options to Lyft users to get by without owning a car. For that matter, the Lyft multimodal system leverages on four primary transportation modes and platforms:

  • Ridesharing Marketplace.
  • Bikes and Scooters.
  • Public Transit.
  • Autonomous Vehicles.

Lyft core values

From its financial prospectus Lyft stated core values are summarized below:

  • Visionary, Founder-LedCompany.
  • Culture and Values.
  • Authentic Brand.
  • Singular Focus on Transportation.
  • Driver-Centric.
  • Innovative Multimodal Platform.
  • Personalized, Data-Driven Insights.
  • Unique, Established Partner Relationships.
  • Pioneering Autonomous Vehicle Strategy.

Two-sided marketplace powered by local communities

Lyft key partners are:

  • Drivers.
  • Riders.
  • And local communities.

Drivers

The driver side of the platform is a key element to Lyft success, that is also why the company uses dynamic pricing strategies to keep drivers’ presence stable. 

As specified in Lyft financial prospects the drivers on the platform are parents, students, business owners, retirees and everything in between and the majority drive in their free time to supplement their income.

Why do they drive? For four primary reasons:

  • Flexibility
  • Income
  • Trust and Safety
  • Extensive Support

Riders

Riders are the other side of the marketplace. And they use Lyft for four primary reasons:

  • Selection and Convenience
  • Availability
  • Affordability
  • Trust and Safety

Local communities

As pointed out by Lyft on its financial prospectus “building community and having a positive local impact is fundamental to who we are.”

That is also why Lyft spends most of its efforts in establishing relationships with the local community, and it seeks to impact them in three ways: 

  • Socially: Connect people with their communities
  • Economically: Increase the quality of life and reduce transportation inequality
  • Environmentally: Replace car infrastructure with green space and reduce emissions

How does Lyft make money?

It primarily generates revenue from drivers for service fees and commissions paid for the use of the ridesharing marketplace to connect with riders and successfully complete a ride.

In 2018, Lyft also started to generate revenue from subscription fees and single-use ride fees paid by riders to access the network of shared bikes and scooters.

There is also a third service, called Under our Express Drive program, that connects drivers who need access to a car with third-party rental car companies. Lyft facilitates car rental transactions between car rental companies and drivers.

How does Lyft spend money?

As pointed out on its financial prospectus Lyft spends its money in a few ways:

  • Cost of revenue consisting of insurance costs generally required under TNC.
  • Operations and support expenses consisting of personnel-related compensation costs of local operations teams and teams who provide phone, email and chat support to users.
  • Research and development expenses primarily consisting of personnel-related compensation costs and facilities costs.
  • Sales and marketing expenses primarily consisting of advertising expenses, rider incentives and refunds, personnel-related compensation costs and driver incentives for referring new drivers or riders.

Lyft dynamic pricing

lyft-dynamic-pricing

Source: Lyft Financial Prospectus

Just like Uber uses a dynamic pricing strategy so Lyft does the same to keep the drivers’ presence on the platform strong.

Lyft branding strategy

Lyft core strategy is based on strengthening its brand. For that matter, Lyft uses six main strategies:

  • Lyft-Produced Content: original content with a range of partners to help showcase its brand (things like Undercover Lyft, a viral marketing series where celebrities, such as Shaquille O’Neal, Danica Patrick, Chance the Rapper, Odell Beckham Jr., Demi Lovato and Jerry Rice)
  • Popular Culture: with the aim of spreading its brand, like the placement in the HBO TV series InsecureThe Equalizer 2 and more
  • Marketing Partnerships: marketing partnerships with leading brands, such as Delta Air Lines, SkyMiles and more 
  • Local Events: sponsoring local events to boost brand awareness like unique campaigns such as Pride On! campaign showing support for the LGBTQ+
  • Outdoor Advertising
  • Specialty Modes: specialty or promotional ride modes for local events and organizations. For instance, Strange Mode to celebrate Halloween and the premiere of Netflix’s Stranger Things and Star Mode in Nashville during the 2018 CMA Music Festival

Looking ahead: bikes, scooters and autonomous platform

Just like Uber is investing in alternative transportation modes, Lyft is also widely betting on them.

Beyond bikes and scooters, Lyft is also experimenting with Open Platform, which enables partners to connect with a network that offers their autonomous vehicles on the Lyft platform. For example, Open Platform partnership with Aptiv enabled the deployment of a fleet of autonomous vehicles in Las Vegas that facilitated over 35,000 rides!

Is Lyft business model sustainable?

This isn’t a simple question to answer, as in this case, the success of the Lyft business model highly depends upon its ability to pass through a change in the way people and local communities use local transportation.

As of 2018, Lyft has massively invested in growth, and for that matter is still recording an almost billion-dollar in net losses. Only time will tell whether or not this business model will prove sustainable.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which he brought to reach about a million business students, professionals, and entrepreneurs in 2019 alone | Gennaro is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate and become profitable | Gennaro is an International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

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