California-Based Lyft - Business Model and Legitimacy Issues, Market Reactions and Forecasts - Report Example

Lyft

The New Definition of Transportation

Confidential

Executive summary

This report analyzes and evaluates the California-based Lyft, a privately-owned transportation network company, in terms of its legitimacy in the state of California, and also examines the key operational aspects that can be used to judge the company as economically viable, responsible, and mindful of its employees and customers. Lyft was started in 2012 by John Zimmer, currently it president, and is headquartered in San Francisco, California. John Zimmer is one of the investors who saw a business gap in the taxi services in the San Francisco region, and thought it was a viable business opportunity. Starting up Lyft was one of the investment opportunities he could not have resisted at the time, and that he has no regrets about. The business model used by John Zimmer has seen Lyft witness exponential growth over the past four years of operation. As of the end of 2015, Lyft had successful business operations in over 200 cities across the United States, and a business valuation of about $5.5 million. Peer-to-peer ridesharing is enabled by a mobile-phone application and helps connect passengers who may wish to have a ride with drivers who have cars.

The prices charged by Lyft are not only competitive, but also relatively low, having been set at the level of those charged its fiercest rivals in the industry, including Uber Technologies, also headquartered at San Francisco and started in 2009. This report also analyzes the organizational structure of Lyft, and some of the limitations that it faces, which are believed to be a contributed to more by the horizontal leadership structure, and much less by the business model. Lyft’s travel fees are in two categories; Lyft and Lyft Plus. Both Lyft and Lyft Plus have a base charge, cost per minute, cost per mile, trust and safety fees, with both categories charging equal rate for trust and safety but Lyft Plus having slightly higher rates under base charge, cost per minute, as well as cost per mile than the Lyft category.

Due to the growing concerns over legitimacy of the privately-held transport network companies in the United States as a result of incessant conflicts with firms offering taxi services on an analogue platform, it is necessary to investigate the level of compliance of Lyft with the existing relevant laws of the state of California. The company has had lawsuits at different point since its inception about four years.

Introduction

Every business in the United States is expected to operate through absolute compliance with the relevant laws in all the 50 states, of which California is one. Taxi services are no exception, and, somehow, two of the most successful firms offering taxi services on a digital platform were started in and are headquartered California, and in San Francisco area to be precise. The two firms are Lyft and Uber Technologies. Lyft has grown over the years, but the growth has not been without legal controversies leading to lawsuits. There is need to convince the state senate that despite the challenges, Lyft operates in compliance with the state and federal laws and has the capacity to settle any legal and operational challenges following the right channels. This report will also discuss Lyft’s business model and an overview of its strategies that are aimed not becoming an industry and market beater both within the United States and internationally, but also treating its customer and employees in a dignified manner. The report also recommends some of the action lines that it could use to address some of the challenges it faces.

Purpose and Scope

This report seeks to emphasize the idea that in spite of the numerous challenges and upsets that Lyft faces, the firm can respond positively through creative and innovative actions that can translate in product growth, customer and employee satisfaction, as well as strategic marketing. This will be done through evaluation of findings which must be based on the firm’s current business model, both in the domestic and international markets, and recommending some of the actions that could be taken to form the basis of legalization under relevant laws in the state of California in the soonest time possible.

Procedures

This report will be based on the analysis of a variety of credible information extracted from internet sources and numerous articles, as well as reports from a wide range of credible sources.

Findings

Business Model and Legitimacy Issues

Under business model, this report investigates Lyft’s customer base, source of revenue, products and services offered, as well as the sources of finance for the firm. As a transport network company, the only product or service offered by Lyft is taxi/cab services over short and long distances to destination which can be within towns or locations outside town. Lyft’s customers are riders, and over the past four years of operation, Lyft’s customer base has grown beyond San Francisco, CA, where it started, to over 200 towns across the United States. The customers and drivers are connected through peer-to-peer ridesharing enabled by a mobile phone application. The software has all Lyft’s drivers loaded into it, and the firm keeps updating the application to include any new drivers who may want to have their cars included into Lyft business. The customer opens the application on their phone and taps into the designated driver who will ride to the customer’s location within the shortest possible duration.

This business model saves time for most customers who find it not only convenient, but also a cheaper option than the traditional taxi services. For Lyft, this business model has been a success since it has been able to grow from a small start-up to a big business without having to own a car. Instead, it is the drivers who apply to have their cars used in taxi business under Lyft.

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Over the four years of operation, Lyft has been permitted to operate in nearly all of the 200 cities within the United States largely without any formal regulatory measures. Different city councils have at different times passed laws permitting operation of Lyft. In 2014, Lyft enlisted the services of Jochum Shore & Trossevin and TwinLogic Strategies to help address matters touching on opposition and regulatory barriers that the firm has grappled with over the years. It also signed temporary operation agreements with a number of cities in order to allow it to operate under given sets of rules for specified number of years before rules could be formulated to regulate operations. 2014 saw several other cities vote unanimously to legalize the operations of Lyft, even if just temporarily as they developed legal frameworks within which Lyft and other firms with the same business model could operate.

Market Reactions and Forecasts

Lyft faces competition from a number of other businesses with the same business model. Despite strong competition from other similar car-service startups such as Uber and Haxi, Lyft has been able to grow from a firm serving tens of customers within San Francisco, to one that serves thousands of customers across over 200 cities within the United States. Its growth has been in terms of revenues and number of rides, both of which have grown by nearly five times. The smartphone application is the sole platform that has formed the basis of growth of Lyft, mainly because of the convenience with which the customers and drivers can locate each other, as well as the fact that Lyft does not have to own any car to run the business or as a way of expanding. The market reception has been impressive over the years. The opposition that Lyft has faced at different points since its conception in 2012 has been staged by taxi operators using the traditional analogue model who have always felt that their competitors like Lyft have an undue advantage, largely because they do not incur any parking fees and many other operational costs. Lyft also has referral services through which hundreds of customers get recommendations for lift Lyft Services for bonuses.

Clearer picture available at http://blogs-images.forbes.com/briansolomon/files/2016/05/Lyft-referral-bonuses-chart.png

Going by the pace of growth since its founding, the revenues and number of rides at Lyft are expected to grow exponentially over the next decade. Lyft’s creative marketing strategy and innovative operations are projected to help propel it to further growth in both finances and the average number of customers served in a month. In the next decade, Lyft expects to effectively grow beyond the American market so as to explore the different markets in different countries. Lyft has been learning from the experiences of competitors, notably Uber Technologies, in the international markets. In the United States alone, Lyft has been able to effectively eat into the market share of Uber Technologies which was founded much earlier and has a relatively larger revenue base from operations within the American market. With a business value of slightly over $5.5 million in just over three years, Lyft’s value is projected to grow by over 8 times in ten years, and will have hit a good number of international markets. To achieve this projected growth, the firm would need to comply with the different regulatory mechanisms in the different countries.

Target Markets and Market Strategies

Lyft’s market strategies are some of the actions geared towards invading the market even more with a view to expanding sales and gaining a stronger competitive advantage against bigger firms in the market operating on the same business model. This is aimed at increasing the firm’s profit making potential, and to ensuring that projected profits and revenues are achieved within preset t timelines. Uber and Haxi are the main competitors within the United States as of 2016. Lyft has a mission of always satisfying the needs and demands of its different customer categories. It is for this reason that it seeks to make it simple for customers to access services by simply tapping on any of the unattached drivers as can be seen on an application that they have on their smartphone. The application makes it possible for a customer to know a driver that is located near them. Only drivers that are unattached at any given point will appear on the application, and once the customer taps on one, it is the driver’s duty to locate the customer within the shortest possible time. This is even made easier by the messaging service which one uses to direct a driver to their location. In many reviews, customers have expressed their satisfaction with the convenient nature of the service offered by Lyft.

The customer referral strategy has had a positive impact on the growth and expansion of Lyft over the years. Under this program, one earns a bonus for every customer referral they make. The advantage of the referral program is that the referrer is paid a one-off bonus which the company is sure to recoup when the referred customer are pleased by the services offered and decide return on a regular basis. Lyft has several promotional events where it offers a number of rides for free for. For instance, one of the promotional packages is 50 free rides for the first 50 customers. Whenever there is such a promotion, according to studies, customers are always motivated to rush in order to increase their chances of getting a free ride to their destinations. Those who fall outside the 50 slots are always left with no option but to pay the rates, with the hope that they might be lucky one day. There are also promo codes which have different valuation amounts by which the travel fees are subsidized.

Clearer Picture Available at http://blogs-images.forbes.com/briansolomon/files/2016/05/lyft-50-percent-off.png

Lyft engages in collaborations and partnerships which are aimed at expanding capacity. In January 2016, Lyft entered into a partnership with General Motors in an arrangement that would see GM build autonomous cars to be used by Lyft. In the partnership, GM refers to Lyft as its kid brother. Other partnerships include that between Lyft and Waze, crowdsourced navigation app. The increase in the number of partnerships and events by is thought to have the potential wrestling some amount of market share from it major rival, Uber Technologies, which enjoys up to 15 times more rides in a month within the United States market along. Lyft is motivated by the competition, which is basically the reason for having longer-term tactics and trying to enhancing its position in the market by adopting a distinct business culture which puts it in a strategic position to thrive in the competition. Lyft partnerships/collaborations and marketing events are managed by professionals who understand how resources can be balanced to ensure that such activities are successful in terms of increasing sale and expanding Lyft’s market share. The success of the partnerships is ensured by working as closely as possible with the local market with the aim of having a proper understanding of the market landscape.

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Benefits and Opportunities for Lyft

Lyft understands that it is an underdog in the American ride-sharing industry, and that is the reason for coming up with different strategies aimed at increasing its command in both the industry and market. The company uses competition as the basis developing longer-term goals which have always helped it grow in both revenues and number of rides over the four years of operation. Lyft business strategies are mainly cost-efficient, but the products and services are of competitive quality. By collaborating more, and having numerous and diverse promotional strategies, Lyft is projected to keep growing, with business performance analysts predicting that it would be a hit in the international scene when it finally decides to operate beyond the united states. The company therefore uses fierce competition from Uber Technologies and its underdog status as the reason for always striving to be innovative and creative in it approach to marketing its products and services. Fees charged by Lyft are relatively lower than those of the more established Uber Technologies. Below is a comparison that a customer would make before ditching their car for services offered by the ridesharing companies:

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There is no fixed clock-in and clock-out schedules for drivers at Lyft, and that guarantees the flexibility that most drivers prefer. This is an incentive for the drivers who may wish to have their cars included in Lyft business. The drivers choose if they want to pick up customers or not, and a customer has the freedom to chose the number of hours that they want to ride in a week. However, they are always asked to do what they think is right for the business. The fact that there is no specific point from where one can pick up a Lyft is also an aspect of flexibility. The customers do not have to move an inch from their location provided it can be accessed by the designated driver that is coming to pick them. This is the same model that Lyft’s competitors use, except that most customers who have used services of Lyft’s competitors and tried Lyft’s services later have confessed that customer relations at are better at Lyft than they ever saw elsewhere before.

The innovative nature of the operations at Lyft provides a platform on which the company can provide its employees with endless opportunities. One of the opportunities for drivers at Lyft is in their customer service response time. As the company grows, its customer base expands, and the number of calls that they receive from guests who require the services. Lyft can get its customers to their destinations in less than tens, and the expectation of the guests is that their customer service issues can be attended to promptly. Customer service at Lyft operates round the clock, and that help in responding to customer messages in the shortest time possible.

Lyft International Strategies

Lyft is a relatively younger company than its major rivals in the United States. From the beginning, the firm’s ultimate goal has always been to expand its business beyond the domestic American market. Lyft’s resolve with regards to expansion has always been to fight the dominance of its rivals both in the domestic and the international market (Dana). The company’s revenue base has been getting larger and larger every passing year, but it still does not have the financial capacity to effectively beat Uber Technologies in most of the overseas markets. The firm however has the strategy of forming global alliances. Global alliances is a strategy used by Lyft to break into the global market by pooling resources with other international firms already in operation in various countries around the world. For instance, in India, Lyft is in an alliance with Ola, while it has similar alliances with Southeast Asia’s GrabTaxi and China’s Didi Kuaidi. This makes it possible for Lyft customers in the United States to still be able to use the app whenever they travel to the countries mentioned, among others.

Lyft has over the years been more concerned more with expanding more within the United States market than with exploring the international market, in the short-term at least. The longer-term goal still remains expanding globally, but the firm has always believed that its strength in the domestic market will be the only way to venture strongly into the international market. Expanding within the United States will provide it with the necessary financial base that it needs to independently launch its global business. At the moment, however, global alliances are used as a way of not only getting extra finances, but also of gaining an understanding of the dynamics in the international market. It helps to introduce it to the international market for purposes of becoming familiar with some of the challenges that make it difficult to succeed there, and some of the things it would do to avoid address such challenges when it finally decides to independently break into the overseas markets. The management projects 2019 to be the years to effectively make statement in the international scene. By that time, the management believes that Lyft would have completed its domestic assignments in terms of catching up with Uber Technology, still the dominant ridesharing company within the United States.

Conclusion

Despite the challenges that Lift has faced in its efforts to expand over the years, the firm remains steadfast in growing its revenues and number of riders. The company has one of the best strategies of attracting new customers in an industry that had for a while been dominated by Uber Technologies. Its marketing and promotional strategies remain some of the best that any firm would need to apply in an industry as competitive as the ridesharing industry in the United States. For Lyft to have grown from a small startup in San Francisco to a competitive firm operating in over 200 American cities, and also witnessed an expansion in revenues to the $5.5 billion that was reported at the start of 2016, just over three years since its founding, one could argue that Lyft has been very efficient in developing growth strategies. The spirit at Lyft is very positive as the firm treats competition as the basis of striving to catch up or, in the long run, overtake its rivals. It is this spirit that has inspired Lyft and catapulted to very high growth levels.

Apart from a few legal suits that Lyft sometimes is faced with, operations at the firm have been largely efficient, but of course not without a few hurdles to always try to overcome. The decision to expand first in the domestic market before finally having a full-throttle approach to the internal market is strategic since it would be the only sure way to build capacity by expanding its revenue base. The global alliance that Lyft has formed with firms in other countries is a move inspired by ambition and positive mindedness. It serves as a much-needed orientation in the markets beyond the domestic one. Additionally, such alliances are necessary for purposes of understanding the dynamics of international operations, while also streaming additional revenues. There is therefore every hint that Lyft would one day be a great international brand, but only if it keeps positioning itself strategically in markets and the industry.

Recommendation

To meet its goals and achieve the legitimate state within California, Lyft would need to do the following:

• In the formulation of laws and policies that would be used to regulate operation in the ridesharing industry, Lyft, as a stakeholder, would need to present their proposals to the Californian senate house so as to strike a balance among all the existing operational variables. This would ensure that all the prevailing conditions are considered in order to avoid situations where laws are formulated and enacted by people who do not have a perfect understanding of what Lyft’s business model entails.
• Based on the success of the existing global alliances, Lyft should be able to establish if the approach is viable in terms of giving the company an all-important exposure to the aspects of the international market. If success is registered, Lyft would need to enter into more of such alliances as a way of trying to understand the dynamics of as many markets as possible (Wogan). Concentrating only on the three or four alliances that it is part of currently would not expose it to the international conditions maximally.
• Lyft should not shy off from markets which are believed to be strongholds of a rival. There is always no such thing as stronghold in business. When consumers are presented with alternatives, it is bound to occur to them that there are always better options out there, and that would be the surest way of wrestling significant market shares from the competitors (Dana). This can only be achieved when Lyft is consistently competitive. Lyft has to offer alternatives in different fronts, including exemplary customer services, rapid response to customer calls, quality services that will help retain customers, as well as fair pricing which, at best, should be slightly lower than those of its competitors.
• Lyft needs to intensify its marketing strategies. This can be achieved by actions like being creative in packaging the marketing message, having more promotional events across the United States, as well as having more partnerships. These strategies would promote the Lyft brand, first within the United States, and finally in the international scene.