Why You Should Use Lyft Instead of Uber

Uber Post Photo

 

Use Lyft whenever you can, instead of Uber (for the record, I’m referring to UberX, not black cars). Not because Lyft weirdly decided to put pink mustaches on the front of their cars as an initial marketing ploy, and as a society we should support that level of silliness, but because if Uber wins, they will have a monopoly on a service that we will have grown to rely on, and that’s going to suck.

You know how we all hate taxis now? If Uber wins, it’s going to be “meet the new boss, same as the old boss”.

Why?

Ride services that get you from point A to point B (Taxis, Uber, Lyft, Sidecar, etc) are fundamentally a commodity industry. One car may be slightly nicer than another, one driver might be cooler than another, but 98% of the value we get from ride services is that we get from one place to another and don’t perish on the way.

With a commodity industry, you have two main types of costs:

1) Raw Input Costs

For Uber/Lyft the main input cost is paying drivers (for now, until they cut them all out in favor of driverless cars). For an oil refiner, the input cost is the price of oil.

Generally, everyone in a commodity industry has the same input costs, and they can’t really compete with each other on inputs alone. It would be extremely difficult for Uber to pay its drivers less than Lyft pays its drivers (because drivers would switch companies), and for Uber/Lyft there is no option to vertically integrate and own the inputs at the source because they can’t own people. (They’ll be doing their best to fix this in the future, by the way, by owning some sort of proprietary technology around driverless cars…but that’s for a different post.)

2) Operating Costs

Operating costs are everything required to add value to those raw inputs in order to resell them for a profit.  For Uber/Lyft, this is software development, marketing, HR, accounting, etc…all the functions of the company required to turn a willing driver into one unit of you getting a ride somewhere. For an oil refiner, it is the plant, marketing, HR, accounting, etc.

In a commodity industry, input costs as a percentage of price remain constant as sales increase, more or less. If Uber/Lyft rides increase 10x, the amount it has to pay its drivers also increases 10x. However, operating costs don’t remain steady as a percentage of price as rides increase because they often have a technology component that allows them to efficiently scale. If Uber/Lyft rides increase 10x, software development costs might only increase 2x, and accounting might barely increase 1.5x.

This means that in a commodity industry, the biggest company has the lowest costs per unit/service/good sold. And because firms can’t fundamentally differentiate their offering (it isn’t like Uber or Lyft can get you somewhere faster or better), the only way they can compete is on price. This means that the biggest company competes the best because they can afford to charge the lowest price.

This advantage in turn helps the bigger company sell more units/service/goods, bring down costs as it grows even bigger, and be more competitive by lowering prices. This is the stage we are in right now with Uber/Lyft, they are competing hard, and it is awesome…until Uber wins because they’ve raised more money, grown more quickly, and can grind Lyft down until Lyft agrees to be acquired. Then suddenly Uber is the Standard Oil of ride services, loosely-regulated-at-best, and we are all screwed. Prices will go up, innovation will slow down (except in ways to attract value from customers) and service will go to hell (see: Government Services). At least taxis, as terrible as they are, are regulated to protect consumers in some way.

Uber, like every tech company scaling for the masses, is your best friend at first – subsidizing services with investor money and making you feel all sorts of loved while they build consumer habits and market share (while snuffing out the competition). Once this power has been realized, they will turn on the monopoly switch and exercise that power for their financial benefit, not yours (see: Google, Facebook, any business that relies on ads).

There are long-term positives and negatives of this cycle that are for another post…but the important thing is that people are aware and don’t get duped into thinking any of these companies really love them. They want to build monopolies, and then they want to exert their power to your detriment.

So, when in doubt, take a Lyft, and keep ride services competitive as long as possible!

13 thoughts on “Why You Should Use Lyft Instead of Uber

  1. Interesting post. One thing.. if uber becomes a monopoly and starts charging prices higher than people are willing to pay won’t other companies (like sidecar) pop up to fill the market gap? Rather than worrying about keeping competitors in business- just pick the service that treats you (the customer) the best – As soon as uber starts price hiking more than what the market is willing to bare – (where profit is available at lower prices) you’ll see other companies pop up to pick up the slack. What you should worry about is barriers to entry set up by the state, which tends to favor larger players already in the market with compliance departments on retainer (aka uber and the taxi service).. Politicians who taxi companies and uber have and will (respectively) bribe are actually the problem — so get people in government who are pro freedom, rather than pro whoever bribes them..

    Point is, the market tends to protect the consumer much better than gov regs. The regs will only keep small players out of the market. the only reason Uber and lyft exist today is due to a huge amount of VC funding – not because the operation itself is expensive but because fighting local governments is, and requires a ton of extra capital on the side.

    Eh, but what do i know, I’m just a penguin.

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    • Thanks for your thoughts Penguin, and thank you for your amusing antics that entertained me so much as a youth at the New England Aquarium.

      I complete agree with you about barriers to entry creating by the stage, which is effectively bribed by big corp. There is a money in politics post coming at some point…

      As for the market sorting things out – I think the issue here is that the services aren’t wildly differentiated, so when there is a monopolist, it is really difficult for new entrants to compete on anything but price. And when they enter and do compete on price, they can be quickly squashed by the monopolist with heavy discounting, so it would pretty much take a VC-firm on a suicide mission to back them while they got to scale.

      – Andrew

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      • Agreed. Great post, thanks for sharing!

        Aside from the doomsday scenario of Uber creating a monopoly and raping us for crowd-sourced rides; some other alternatives:

        – Uber/Lyft conglomerate will continue to innovate and develop as a competitive option in a larger market of transportation where cars (owned, shared, driverless), trains, bikes, etc are constant competition.
        – The government will get in there and start regulating more due to public safety concerns and taxi lobbying. This isn’t so comforting, but it will happen and may prevent gouging.
        – Driverless cars will completely change all of this. You implied they are trying to get a piece of that pie, going to be fun to watch…

        Cheers!

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      • Lyft drivers, in my experience, are overly chatty… not because they are personable and great, but because they know they’re going to hand you a flyer for their side business at the end of the ride, and they think if they make a personal a connection with you, you are more likely to attend their show or go to their surf shop or whatever. Maybe it’s an LA thing.

        Anyway, I for one welcome our new self-driving Uber overlords.

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      • I’m a driver for both companies and I never push products or services to my passengers. I do have to say the Uber fare decrease in Dallas makes me stay away from the uptown/SMU/UTD area, 3.50 minimum charge for short rides. Well after 1.00 safety fee and 20%, I make 2.00 for that ride. Most passengers say sorry for the short ride and they wish they could tip in the app. They know it is unfair. I only turn on Lyft in those areas or I leave the area.

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  2. If the only differentiator is price, then why are people using Uber/Lyft at all? I’ve never used either, but when I’ve looked into it they both seem to be more expensive than traditional taxis. For this reason, I’ve never been able to figure out why these services are so popular.

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    • lyft is your friend with a car who is interested in your well being

      uber is your personal driver who doesn’t talk to you, ever, and makes for awkward drives

      both services provide you the ability to rate drivers and thus prevent shitty people from driving innocent customers around any longer than is necessary to boot them out of the loop of drivers

      taxis… good luck wit dat.

      that is why you should catch rides with Lyft.

      *i am in no way affiliated with uber anymore, but i do drive for lyft when i have the time to and i seriously have had this conversation 10,000x over with customers. 95% of people and 100% of drivers i’ve discussed this topic with vote Lyft, myself included*

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      • At the end of the day, they are services to get me from point A to B. There are times when I feel social and want to strike up a conversation (in which case, regardless of whether you are in a lyft, uber, taxi you can have a conversation with a driver). But most times, I’m just trying to get to work or get somewhere and don’t want to be in a forced conversation.

        With Lyft I sometimes feel like I have to be social and friendly even when I’m not in a mood (I could be tired, pensive, in an introverted mood), but the driver is constantly trying to converse which can end up being annoying.

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  3. I just gotta say: Sidecar is doing it right. No one else is. Taxis are fundamentally unsustainable. They’re needed by few people, infrequently, but EVERY person who goes to school or work needs to be there for Every class or Every shift.

    That’s why I sthink this is a horible false dichotemy, where the real solution is in carpooling, not taxi services. If Lyfts mentality were combined with Sidecars practical and realistic business model, That would probly be the catalytic step to transforming transportation from the nightmare it often is (I live in California, but anywhere near NYC or Boston can relate immediately) to a much better, far more realistic situation of a much smaller population of car owners, which will produce a virtuous cycle that will make traffic even better.

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  4. Some journalist out there should ask Uber’s president about the time he tried to “expense” a week long trip to Bangkok (before Uber).

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  5. A 40 foot high lychee nut tree grows on the end of our block here in St. Petersburg, Fl. I look foward to them being ripe every year. They’re ripe now, June 4, 08. They look just like the pictures, red when ripe. Tony

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