ride sharing apps

Lyft Does More to Woo Drivers As It Preps for IPO

A driver with placards for both Lyft and Uber waits for a traffic light outside South Station in Boston. Photo: Lane Turner/Globe Staff/Boston Globe via Getty Images

Lyft has stepped up to try to making driving for the rideshare service more attractive, offering a series of changes aimed at upping driver’s earnings and goodwill. One change will, by default, give a driver a 5-star rating if a passenger doesn’t rate their driver at all. The other will allow passengers set up their app to tip drivers by default — no extra taps needed after the ride. Finally, it’s also making some changes to the driver home screen, adding in predictive information about ride demand hour by hour over the entire upcoming week. Lyft has said this is just the first of many changes, all coming out of its Driver’s Advisory Council, that it will roll out every month.

It’s easy to to recognize that Uber and Lyft, the two biggest rideshare companies in the U.S., are in a constant battle for dollars of rideshare passengers. If you have both apps on your phone, it’s not difficult to quickly check prices and wait times on both. What the average rideshare passengers may not think about as much is that Uber and Lyft are in equally fierce competition when it comes the person behind the wheel: convincing drivers to drive for their service.

It’s easy (and not uncommon) for drivers to actively drive for both services; it’s not difficult for drivers to scan for rides on both services at the same time. Rideshare driver forums see drivers constantly doing the math about which service ultimately pays better, not just on a per-ride basis, but on a time spent basis as well (i.e., if a drivers takes rides from an rideshare app for an hour, how much money can on average will they make driving for Uber versus Lyft).

And these changes matter. Having a larger network of drivers is vital to remain competitive; a larger network of drivers usually means shorter wait times, good for both drivers and passengers. Drivers try to avoid “deadheading” — that is, driving around without a passenger — as much a possible. Shorter wait times usually mean more people using the app, which means less deadheading for drivers.

Harry Campbell, who runs the popular blog the Rideshare Guy and author of The Rideshare Guide, thinks both changes by Lyft will be well be well received by the driver community. “Default five-star ratings are a smart move because there’s a lot of ratings anxiety that drivers have even though most drivers are never really at risk of deactivation,” he says. (Both Uber and Lyft kick drivers out of their system if their star rating falls below a certain level.)

Default tipping may make even more of a difference. “The default tipping should make for a significant boost to driver’s income,” says Campbell, “so I’m pretty excited about that.” The average price of an Lyft or Uber ride varies wildly by location, but even a $2 tip usually represents an extra 20 percent in a driver’s pocket. Not only will Lyft now allow riders to tip by default, it will also allow riders to tip a driver while a ride is still in progress.

Not only that, but Campbell points out that Lyft has history on its side; it offered riders the ability to give a driver to tip within the Lyft app since 2012. Uber, meanwhile, dragged its feet for years on tipping, a major source of frustration within the driver community for years. Uber finally caved and allowed for tipping within the app in mid-2017, during it’s “180 Days of Change” campaign aimed at upping driver retention rates.

It’s a good time for Lyft to try to aggressively go after drivers. Lyft, according to Campbell, generally has more good will in the rideshare driver community. Lyft has also steadily chipped away at Uber’s lead in the rideshare market, with market research firm Second Measure estimating it now controls about 30 percent of the ride share market, and is growing much faster than Uber (even if Uber is much larger over all).

Still, it’s a long ride for either Lyft or Uber to see profitability. Neither company has seen a profitable quarter since their founding. Uber has burned through more money than Lyft, but it’s also expanded much more aggressively; Lyft only operates in the United States, while Uber operates in more than 60 countries across the globe. And even in the U.S.,  Uber still controls 70 percent of the rideshare market.

Next year will be a vital for both companies, as both prepare to IPO. According to the Wall Street Journal, Uber is seeking a valuation of $120 billion, which would make its initial public offering likely the biggest financial event of the year, but that likely won’t happen until the back half of 2019. (For comparison, Facebook went public with a valuation of $104 billion.) Lyft, meanwhile, hired Morgan Stanley to lead an IPO, hoping to get at the much more modest valuation of $15 billion. And if it can beat Uber to market with an IPO, which appears likely, it may gain a significant advantage in attracting investors eager to get in on the rideshare boom.

What will make 2019 interesting for anyone watching the rideshare market is that Lyft and Uber going public will mean both companies will have to finally reveal their financial details, which to date have either been selectively shared to the press or gleaned from leaked documents. Neither company is close to hitting profitably, but as both are required to fully report on their financial performance in the run up to becoming a publicly traded company, it will become significantly easier to see which is closer to turning that very important corner.

Lyft Does More to Woo Drivers As It Preps for IPO