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The colossal cost of competing with UberA recent financial forecast from Lyft details the hundreds of millions of dollars it is prepared to spend to compete with Uber, and the cab-hailing app is not alone
Intensifying competition in the ride-sharing economy is driving taxi booking apps to spend every penny they have - and some that they don’t - just to keep up with the industry’s $40bn darling, Uber.
In a financial forecast intended for potential investors, Lyft, one of Uber’s most direct competitors, detailed the extent to which it is willing to splash the cash to take on its older and larger rival.
The San Francisco-based start-up - which last week announced it had raised $530m in its latest round of funding, giving the three-year-old company a $2.5bn valuation - said it expects to generate $1.2bn in sales this year, leaving it with revenues of $300m once its drivers have taken their share and around $170m after operating expenses such as taxes have been paid.
But the document, which was first seen by TechCrunch, also revealed that Lyft would spend $200m this year - taking it to a $30m annual loss - followed by a further $250m next year trying to lure drivers and users away from the competition.
Three-quarters of this year's $200m will go towards drawing in new customers, using initiatives ranging from ride discounts to referral incentives, while $50m will be directed towards growing its network of cars, such as the recent promotion that handed out $1,000 bonuses to new drivers, which the company said “brought the biggest wave of applicants in Lyft history” with thousands of qualifying applicants.
Lyft is not the only company to ply riders and drivers with cash to lure them to its business. Addison Lee, the 40-year-old British minicab firm, offers all new drivers a £1,000 bonus.
While Addison Lee declined to comment on the costs associated with increasing competition from other taxi apps, the cab company has invested in redesigning its app, an updated version of which was recently launched as other services such as Hailo, GetTaxi and Kabbee enter the market.
Uber and its peers were also named as a possible reason for the recent decision by Carlyle, Addison Lee’s private equity owner, to cancel its attempted £800m sale of the business, choosing instead to expand into New York.
While Addison Lee’s chief executive, Liam Griffin, has denied the cancelled sale was related to Uber’s growth in the UK, noting that only 8pc of its business overlaps with Uber’s operations, the London firm’s website seems to address competition from Uber head on, stating that “we disrupted the industry (before disrupting industries had even become a thing)” and stressing that prices are fixed with no surge charge at peak times - an Uber practice that has landed the business in trouble before.
It’s no surprise that competition is hotting up, Addison Lee’s head of marketing and product innovation, Nick Constantinou, told The Telegraph that “London is the world’s biggest taxi market – worth an estimated £2.7bn”.
And while some companies might be willing to spend all their income on clutching on to a corner of the cab community, Mr Constantinou said that ultimately “the emergence of Uber has been good for business, as it has made more people aware of on-demand private transport services”.
source: http://www.telegraph.co.uk/finance/news ... -Uber.html
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