Lyft released the filing for its public offering today, and though many of the headlines focus on how quickly it’s growing (it now has 18.6 million active riders), on how much money it’s losing (nearly $1 billion last year), or on its dual-class share structure, it raises an important question about competitive strategy. In the filing’s section on risk factors it notes that, “Network effects among the drivers and riders on our platform are important to our success,” and that “if we are not able to continue developing our… network effects our business could be adversely affected.”
The Strategy Question at the Center of Lyft’s IPO
Why are some networks so much more profitable than others?
March 01, 2019, Updated March 26, 2019
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Summary.
Lyft released the filing for its public offering today, and in the section on risk factors it emphasized network effects Just how big of a competitive moat do those network effects create? Lyft’s localized network is more vulnerable to competition than a global network like the one that powers Google’s search business. And Lyft’s business is vulnerable to multi-homing, where users and drivers keep multiple apps on their phone. From a competitive standpoint, the market for autonomous vehicles looks more like the market for search engines than the one for ride-sharing. Driving is a bit different in different places, of course, but an autonomous ride in Arizona makes for a safer ride in New York; network effects in this market are likely to be strong and stable. Lyft and its main competitor Uber are left to compete fiercely with little hope of ever locking in impenetrable network effects. All the while they have to find the money and the talent to compete in self-driving vehicles, which is more likely to exhibit winner-take-all dynamics.