Scandals and missteps at Uber have given Lyft a chance to catch up in the ride-sharing race. Could a bold bet on driverless cars help the pink-mustache startup take the lead?
Just about everyone who has ever read a children's book knows the fable of the tortoise and the hare. That’s the one about the footrace in which the cocky hare sprints ahead, leaving his reptilian rival behind in a cloud of dust and trash talk—and then takes an overconfident nap before reaching the finish line, allowing the plodding tortoise to win in a blaze of slow-but-steady glory.
Now imagine the story with a few modern twists. The bunny-proxy is Uber, the brash front-runner that dominates the world of ride sharing—but has hamstrung itself with debilitating distractions like executive firings and allegations of systemic sexism and patent infringement. The tortoise? That’d be Lyft—which, if it isn’t exactly plodding, is at least less braggadocious and more cautious than its competitor.
For now, the hare—er, Uber—remains very much in the lead, and any fairy-tale ending is years away. Still, if ever there was a chance for Lyft, the perennially distant No. 2 in the ride-sharing duopoly, to pull ahead of Uber, this would be it.
Uber’s stumbles have been a can’t-look-away train wreck this year. They’ve ranged from a former engineer going public with claims of a sexist work environment, to the proceedings in a lawsuit filed by Waymo, the driverless-tech arm of Google parent Alphabet, accusing Uber of infringing on its IP. And they culminated with the stunning resignation of cofounder and chief executive officer Travis Kalanick in late June. (Kalanick remains on the board; as of mid-July Uber had yet to appoint a new CEO.) All this has played out against a media backdrop in which Uber has been depicted as ruthless with employees and customers and contemptuous of local laws.
The stormy news has put a wind at the tortoise’s back. Since June 2015, Uber’s share of the U.S. ride-hailing market has declined from 90% to 75%, according to TXN Solutions, a firm that uses credit card data to track consumer trends. The steepest single-month decline came in January, when some New York taxi drivers stopped working to protest President Trump’s original travel ban. First, Uber’s “surge pricing" kicked in in the area, because there was more demand for rides; then, when Uber announced it was turning surge pricing off and lowering its fees, critics attacked it for undercutting the striking drivers. Uber has said that its actions were misunderstood, but its market share dropped four percentage points that month alone. (Lyft’s response to the ban? Its founders pledged to donate $1 million to the American Civil Liberties Union.) Meanwhile, since February, Lyft’s market share has increased to 25% from 21%. Other firms have put Lyft’s share as high as 30%
The underdog’s growth and Uber’s deceleration have massive potential ramifications in and out of Silicon Valley. And for the front-runner, the timing could hardly be worse.
Pretty much every tech investor and their mother has put money in one or the other service. Uber has raised about $14 billion in equity and debt financing from more than 70 venture capital firms, private equity funds, and high-net-worth individuals, attaining a valuation of $69 billion, which makes it the most valuable tech startup ever. Lyft, meanwhile, is no slouch: It has raised $2.6 billion from an equally impressive “who’s who” list, including $600 million in May in a funding round that gave it a valuation of $7.5 billion.
Investors on both sides will soon be itching for a return—and for Uber, recent events may have pushed that finish line farther away. “The amount of dislocation at Uber is almost unprecedented,” says Mark Mahaney, an analyst with RBC Capital Markets. “I would assume that Uber has materially pushed back whatever IPO date they had.” Others believe that Uber’s dysfunction may deprive it of the future investors and corporate partners it needs to keep growing. “All it takes is one more issue before momentum is completely shifted,” says one automotive executive, who did not want himself or his company to be identified. “We’ve had internal discussions, and we don’t think Uber is a major player after 2020.”
And yet investor financing isn’t even the biggest prize at stake. The shift from car ownership to car sharing already represents one of the biggest business-model disruptions in the auto industry’s history. But whoever has the lead in ride sharing will also play a central role in an even more consequential transformation: the pivot toward autonomous vehicles. Technological advances, economic imperatives, and safety and environmental concerns are converging to push driverless cars into the mainstream—and ride-sharing services may be the way much of the public gets introduced to them. The winner of the Uber-Lyft contest could help redefine the blueprints of our cities, our transportation policies, and even our modes of interacting with each other—and become a truly huge, ubiquitous consumer brand.
Both Lyft and Uber have invested in autonomous vehicles development. But until recently, Uber had a significant head start in building its own technology, partnering with others and launching self-driving pilots. More recently, though, Lyft has started to catch up. The company inked its first driverless-car partnership, with General Motors, in early 2016, and more recently added another deal, with MIT spinoff NuTonomy (pilots with both companies are expected to start launching this year and the next). In May, it came out that Lyft had another partner —none other than Waymo, the litigious thorn in Uber’s side. “It was an easy and straightforward partnership to make,” says John Krafcik, CEO of Waymo.
And later this week, Lyft will announce its biggest leap yet toward an autonomous future—the development of a suite of technologies, both hardware and software, that will allow any manufacturer to turn its vehicles into driverless machines and to easily integrate with Lyft’s network of passengers. With the new tech, Lyft is offering a new pitch to potential partners: We’re in it to win it, and we’ll give you tools that’ll make it easier for you to win too.
Uber is quick to note that self-driving is core to its mission (it has been developing many of the above technologies for a couple of years now) as well, and that it is still growing at a more-than-healthy clip despite the recent controversies. “Our business is stronger than ever, and we’re keeping our heads down to build the best and most innovative products out there,” a spokesperson said in an email to Fortune. (Uber declined to allow an on-the-record interview with an executive.)
Leapfrogging Uber won’t be easy. But driverless tech could elevate Lyft to parity, or better—not to mention make it profitable. (Lyft reportedly brought in revenue of about $700 million and lost about $600 million in 2016; Uber says it lost $2.8 billion on revenue of about $6.5 billion.) Is there room for two giants to coexist in a driverless future? Perhaps. But in this high-pressure race, the winner gets far more than bragging rights.
Zimmer and Logan Green, Lyft’s CEO, and its president, John Zimmer, have worked together for more than a decade. The soft-spoken Green oversees Lyft’s product and engineering ranks; the more spirited Zimmer is the public face of the company (he also drives divisions like marketing and government relations). Says one Lyft colleague, VP of customer experience Mary Winfield: “I like to think of them as the head and the heart.”
On a midsummer afternoon, I get to see the whole corpus in action. Green and Zimmer sit across from me in a conference room at Lyft’s headquarters, steps away from San Francisco’s waterfront ballpark. The two give the impression of being almost inseparable. They live just two blocks from each other in nearby Berkeley, and carpool in most days. (On a recent flight back from a business trip to China, they watched the musical comedy Pitch Perfect together.) Both are 33 years old, and married with young children. And while they were born on different coasts, their lives have been on parallel tracks for a long time.
Green grew up in Los Angeles, snared in its web of continually gridlocked freeways. “I spent a lot of time sitting in traffic, seeing one person in every car,” he says. He spent a lot of time pondering how to change that—and went on to launch a Zipcar-like, rent-by-the-hour car-rental service on his college campus in nearby Santa Barbara. During school, Green and a friend took a trip to Zimbabwe, where he encountered his next inspiration: Kombis, the myriad minibuses that make up much of that country’s informal “ride-hailing” network. He came back home and began plans for a carpool-matching service, aimed at students driving back home.
Zimmer, a New York native, studied at Cornell’s School of Hotel Administration. A class called Green Cities got him pondering transportation infrastructure, and his hotel-management coursework informed his thinking: What if you built a transportation strategy around hospitality-like efficiencies, a.k.a. occupancy rates, and great service? The average American car is used only 4% of the time, Zimmer notes, typically with only one seat occupied. “It’s a horrible occupancy rate at a high cost,” he says. “I wanted to create a better ‘transportation hotel.’ ”
After college, Zimmer became an analyst at Lehman Brothers, where he started working on a marketing plan for that idea. One day, while perusing Facebook, he ran across a post by a guy named Logan Green on a mutual friend’s page. “It said, ‘Check out this website I’m starting, Zimride.com,’ ” says Zimmer. “I was like, ‘Where did he come up with this name?’ ”
“Zim” was short for Zimbabwe, it turned out, and Zimride was Green’s carpool service. The two met and bonded over their mutual passion, and in the fall of 2008, about a month before Lehman’s collapse, both moved to Silicon Valley to devote their time to Zimride. To spread the word, the duo would sometimes dress as frogs or beavers and parade around universities. The guerrilla marketing worked—upwards of 150 clients signed up—but focusing on colleges and mostly long-distance trips limited the startup’s prospects. At a company “hackathon,” Green and Zimmer came up with a spinoff idea with greater growth potential: Lyft, an urban, short-rides variation on the carpool. Lyft could target all kinds of rides, including the shorter trips most people make more frequently.
By 2012, the duo had sold Zimride to Enterprise Holdings for an undisclosed amount. After five years of working together, they turned their full attention to Lyft.
By then, Uber had been in business for four years—though it wasn’t the Uber most know today. The company’s original mission was to connect passengers with “premium black cars.” If Lyft’s philosophy was colored by Zimride’s communal idealism, Uber’s was more tech-bro libertarian: Using technology to optimize transportation is better not because it will get cars off the street, but because the status quo offered to the masses inherently sucks.
Indeed, while Uber users rode in relatively luxurious vehicles behind professional drivers, Lyft utilized drivers’ existing cars from the get-go—whether high-end or hoopty. Lyft encouraged riders to sit up front and exchange fist bumps with their driver, and gave car owners pink, fuzzy mustaches to attach to their bumpers. (Last year, the company ditched the goofy decor elements in favor of multicolored-LED gadgets that attach to dashboards.)
Leapfrogging Uber won't be easy, but driverless tech could even the playing field for Lyft—not to mention make it profitable.
It turned out car sharing was the model more consumers wanted. Lyft launched in 2012; Uber announced its own car-sharing function—letting anyone with a car become a driver—shortly after. That version quickly became Uber’s dominant service, and a fierce rivalry was born.
It’s a rivalry that has been largely lopsided. Well-connected and well-capitalized, Uber aggressively launched in multiple cities and countries, opting for a “move fast, apologize later” strategy. Uber, not Lyft, became the default verb in ride-sharing lingo. (“I’ll just Uber over.”) While Uber’s reach now encompasses more than 600 cities worldwide, Lyft is available in just 350 and only in the U.S. Since its launch, Lyft has completed 400 million total rides; in roughly the same time period Uber has given 5 billion rides.
To be sure, No. 2s have been known to pull ahead of No. 1s. And public sentiment has been tilting Lyft’s way since long before Uber’s scandal-filled 2017. In adding new markets, Uber employed a scorched-earth strategy: Local governments were an impediment, not an entity to partner with or seek approval from. That approach has kept Uber’s lawyers gainfully employed—and generated almost as much work for angry activists and editorial writers. And while Uber expanded its empire to 77 countries, broadening its revenue opportunities, it also exposed itself to high-profile spats and setbacks. The company has wound up essentially giving up on penetrating the markets in both Russia and China, for example, merging its operations with bigger and more successful rivals.
SILICON VALLEY PLAYERS. Ben Horowitz, cofounder of VC firm Andreessen Horowitz, is a Lyft board member.
CORPORATIONS. General Motors is partnering with Lyft on the deployment of a self-driving Chevrolet Bolt EV.
EMERGING MARKET MONEY. Chinese Internet giants Alibaba and Tencent have backed Lyft, although it doesn’t currently operate
RANDOM CELEBRITIES. Rock band Linkin Park invested through its VC firm, Machine Shop Ventures.
A CORPORATE RAIDER. Icahn Enterprises, headed by Carl Icahn, has been an investor since March 2015.
SILICON VALLEY PLAYERS. Matt Cohler, general partner at Benchmark, joined Uber’s board after the resignation of CEO Travis Kalanick.
CORPORATIONS. Microsoft Accelerator, the company’s late-stage startup investment arm, has held a stake since 2015.
EMERGING MARKET MONEY. Tata Capital, a branch of the huge Indian conglomerate, invested in Uber through its private equity arm.
RANDOM CELEBRITIES. Rapper and music exec Jay Z bought a stake as an angel investor in 2011; its value has multiplied 200 times since then.
A “VAMPIRE SQUID.” In 2015, Uber raised $1.6 billion in convertible debt from Goldman Sachs (pictured here: CEO Lloyd Blankfein).
Of course, Lyft can be ambitious and calculating in its own right. The smaller startup has been criticized for letting Uber fight regulatory hurdles in new markets, then waltzing in (with its “dumb mustaches and friendly PR operation,” as online publication Vox recently put it) to take advantage of the openings. (“I wholeheartedly disagree with that narrative,” says Joe Okpaku, VP of government relations at Lyft. “Some markets [Uber] entered first, some we entered first.”)
There's clearly desire among civic leaders to have better relationships with the growing autonomous-vehicle community. "We don’t know exactly what the future of this technology will bring," says Eric Garcetti, the mayor of Los Angeles. "We have to keep our minds open, but stay focused on creating policies with tangible goals to improve safety, public transportation, data sharing, and infrastructure."
That's one more reason it may help Lyft in the long run to be the "nice guy" in the ride-share duopoly. Whether or not Lyft has ridden Uber’s coattails, it has definitely picked fewer battles—including with its 700,000 drivers. Like Uber, Lyft has been the subject of class-action lawsuits brought by drivers who sought to be classified as employees, not independent contractors. But recent surveys show that Lyft’s drivers are happier with their experience than Uber’s. It’s not surprising. While Uber’s Kalanick was caught on camera berating a driver in a video that went viral, Lyft’s fist-bump ethos has long nudged customers to see drivers as peers rather than chauffeurs—let alone punching bags. Notably, Lyft drivers also make more money, on average, and the company has enabled “in-app” tipping since its launch. Uber, meanwhile, only got around to offering a gratuity-giving feature this summer.
The idiosyncrasies of the company-driver relationship are on full display on a hot summer afternoon at Lyft’s new “driver hub” in Phoenix. It’s hard to make an industrial office park 10 minutes from the airport look like a quirky Silicon Valley employee’s lounge, but you have to hand it to Lyft for trying. The newly opened space, a meeting place for drivers looking for help, is decorated with posters sporting mantras like “Be Your Own Boss” and “The Road Is Your Oyster.” Platters of cookies and jars of magenta-colored candies are on hand. Even the chairs are pink, set out in neat rows for a “Driving With Lyft” session.
Just before 5 p.m., drivers start wandering in. Some are old, some are young. Some have gray hair, some have turquoise, some have none. One recently moved to Phoenix and says she doesn’t know where the hell Tempe is so how is she supposed to drive people there.
Lyft has more than 30,000 drivers in Phoenix, and tonight, about 50 have gathered to learn how to use Lyft’s driver app. Stephanie Reynolds, a Lyft employee and former driver with pink glasses and a similarly hued laptop, answers their most burning questions: What do you do if someone barfs in your car? (Take a picture and send it to Lyft.) What if a passenger has a non–service animal? (“I don’t turn down any pets unless they look like Cujo,” says Reynolds.)
Another driver asks a more philosophical question: “Why would a potential driver choose Lyft over Uber?” Reynolds quickly responds: “I’m not going to talk about Uber. I love this company because of what it stands for.”
To the extent that Lyft stands for good driver relationships, that identity may soon be challenged. Most Lyft and Uber drivers are part-timers, bringing in an average of just $377 and $364 a month, respectively, according to consumer-lending startup Earnest. But you know who’s cheaper? Robots.
Uber and Lyft each pay drivers between 75% and 80% of the total fee for each ride. Autonomous vehicles require no such cut, not to mention that they can be utilized nearly 100% of the time. This is the direction in which Uber and Lyft are being pushed by forces too numerous to count—not least the idea that businesses should, you know, earn profits.
Characteristically, Uber raced toward this reality faster and more aggressively. In 2015, the company struck a research pact with Carnegie Mellon’s robotics department, then made the controversial move of poaching 40 of its top researchers, setting up an Advanced Technologies Center with the looted talent in Pittsburgh. Rather than simply partner with researchers, Uber wanted to develop the building blocks of autonomous systems, from cameras and sensors to software and mapping, by itself.
In 2016 Uber made another big move, buying a self-driving truck startup called Otto. That acquisition wound up throwing a big-rig-sized wrench in Uber’s plans. Otto’s cofounder, Anthony Levandowski, is a former Waymo engineer, and has been at the center of the high-profile lawsuit. Waymo alleges that he stole IP and took it to Uber—a particularly incendiary allegation, because Uber had put Levandowski in charge of its driverless-car research efforts. Throughout pretrial proceedings, Levandowski has stayed mum-—invoking, through his attorney, his Fifth Amendment rights against self-incrimination. In May, Uber fired him, saying it had done so for failing to cooperate with investigators. The brouhaha, as you’d expect, has reportedly created dysfunction and distraction in Uber’s autonomous-vehicle ranks. (An Uber spokesperson tells Fortune that while there have been departures, there hasn’t been an exodus, and the lawsuit hasn’t impacted pilot programs with its automaker partners, Volvo and Daimler.)
Lyft, in contrast, was late to the autonomous party—it inked its first driverless-car partnership, with GM, almost a year after Uber broke ground in Pittsburgh. But Ben Horowitz, the venture capitalist who’s a Lyft investor and board member, argues being late actually works in Lyft’s favor: He tells Fortune it has positioned the company to be “able to capitalize on rapid advances in the technology,” specifically in the machine learning and lidar sensors that help driverless cars pilot themselves.
Lyft sees its opportunity, and the need to move fast. To that end, the company this week will announce what it thinks could be its killer app: the development of a “full stack” of technology that will enable any auto manufacturer to roll out self-driving fleets on Lyft’s ride-sharing network. While Lyft’s contribution to its partnerships, until now, has mostly involved connecting other companies’ tech to its network of drivers, this ambitious undertaking aims to develop and supply the guts and brains (and face, or interface) of future vehicles. Think of it as a self-driving car in a box that contains everything but the actual car.
“Lyft has never built a car, and we never will,” says Taggart Matthiesen, Lyft’s director of product. But it is exploring all other areas of autonomous development. And it hopes its pitch to partners will be an enticing one: It will offer mapping software, physical interfaces for drivers and passengers, and other key components of autonomous driving, so manufacturers don’t have to create all those building blocks themselves.
Lyft isn’t yet disclosing exactly when the stack will be available, or exactly what its components will look like. But one compelling ingredient they do discuss is the technological equivalent of its pink mustache—a user interface aimed at making the experience of being “robo-driven” friendlier, by showing passengers what the car’s sensors are “seeing” and “thinking.” In addition to a screen that will show real-time footage from the car’s cameras, the system will include a voice function that explains what the vehicle is doing and why. (Imagine a soothing, conversational voice telling you, “Hey, I see a bike.”) Obvious as that may sound, Lyft’s hope is that it can humanize the car and let passengers peer inside its mind.
Lyft execs believe this focus on user experience could help it push ahead of Uber. All things considered, Uber and Lyft are equally reliable and charge customers identical prices, Zimmer notes, “So now it’s all about the brand and experience.” Put in terms Zimmer loves best: Imagine you’re on a sidewalk in New York and two hotels are the same distance from you and the same price. Which do you choose? Maybe the one that gives you fist bumps?
If Lyft’s bet is right, customers dabbling in driverless ride-hailing will care more about seeing a trusted brand than about who makes the sensors or software—and that trust, in turn, could help Lyft attract more automaking partners.
Its drivers, though, might be less enthused. Progress on the autonomous side will make it a lot harder for Lyft to play the nice guy. According to a report from Goldman Sachs, once it matures, driverless technology will eliminate upwards of 300,000 jobs a year. And many drivers fear that the tech will cut a swath through ride sharing, where even a part-time gig without benefits is beneficial to many.
Lyft’s founders contend that driver growth will continue for the foreseeable future. The shift to autonomous won’t happen overnight, they note. And with the ride-sharing industry expected to grow eightfold by 2030, the need for drivers will keep ballooning with it.
If and when it tapers off? As the founders discuss the possibility, their utopianism surfac es. Self-driving cars will be “rooms on wheels,” says Zimmer, the hotelier-at-heart. “You’ll actually need folks as hosts. Is it a movie theater on wheels? Or an office on wheels, or a Starbucks on wheels? Passengers could pay a premium for these types of services, and our hope is that we can create many more jobs.”
Already cars are driving themselves in California, Arizona and Pennsylvania, in some of the earliest pilot launches. Autonomous vehicles are restricted to specific test areas. Regulators also currently require that they have actual human drivers in them—to take the wheel if things go wrong. But most insiders agree that fully self-driving vehicles will be in wide use much sooner than the public expects.
For Lyft and Uber, this evolution represents a massive turning point. Kalanick, Uber’s former CEO, famously called the move to autonomous crucial to his company’s ability to survive. Of course, that was last year, before he was faced with an even bigger existential quandary: rescuing his company’s reputation.
Lyft’s challenge is different. Long the underdog, it has thrived on a tactic that other No. 2s have used over the years: being the nice guys and the do-gooders. But if the company rides its current momentum to sustained, faster-than-before growth—growth that’s, well, Uber-like—its halo may be harder to maintain.
That doesn’t faze Lyft’s idealistic duo. Says Zimmer: “I don’t think that wanting to win is at all in contradiction with our mission.” And in a world where cars drive themselves, a tortoise beating a hare doesn’t seem all that farfetched.
Correction: An earlier version of this article inaccurately described Uber's handling of its "surge pricing" in New York City during protests in January over President Trump's travel ban.
A version of this article appears in the Aug. 1, 2017 issue of Fortune with the headline "#DefeatUber."