As Lyft begins a large-scale advertising campaign to try to continue gaining market share versus Uber in the U.S., its geographic ambition is rising.
The company is expected to enter Canada as soon as the end of this year and, if things go well, could potentially move into Australia and New Zealand, according to three people who have been involved with or briefed about the discussions at the company. The moves would mark the company’s first ever Lyft-branded international expansion. The interest in Canada came after managers lowered their estimate for what it would cost to launch in new cities, based on the company’s recent experience in the U.S., one of these people said.
Lyft executives generally don’t expect that they can beat Uber in those international locations. At a minimum, the forays would serve another purpose: preventing Uber from making too much money in areas where it has almost no competition. The concern is that Uber would be able to use prospective profits from those markets to hold back Lyft in the U.S.
In addition to Canada and Australia, two other such markets that Lyft has studied for possible expansion are the U.K. and Mexico, said one of the people familiar with the discussions.
Cities including Toronto and Vancouver have been considered as a starting point for Lyft’s Canada plans. British Columbia, where Vancouver is located, has prohibited ride-hailing companies from operating in the province, but officials there have said it is likely to allow them before the end of the year. That could provide the perfect opening for Lyft, according to one person who has been involved with Lyft’s planning for the country.
The idea that Lyft would expand internationally would have been hard to imagine at the start of this year. The company is a distant No. 2 to Uber in the U.S., and it has had plenty of work to do to get its finances in shape to go public someday. (The company has said it had a loss of about $130 million in the first quarter this year, down from $150 million in the fourth quarter of last year.)
But Lyft has benefited as Uber executives were distracted by a bevy of scandals and the loss of their CEO. Those problems also prompted some consumers to abandon Uber for Lyft. In addition, Lyft enjoyed surprising “organic” growth—new business acquired without big investments in marketing. That growth has happened among both riders and drivers who sign up as more people in the U.S. become familiar with ride-hailing through word of mouth, and as more people begin to use both Uber and Lyft and compare prices.
International expansion is old hat to Uber, which was founded in 2009 and launched in Canada in 2012, the same year Lyft began operating in the U.S. Aside from Canada, internationally Uber has a strong position in the U.K.; parts of Latin America (namely Brazil and Mexico); India; Australia and New Zealand, and sub-Saharan Africa. But in China last year and in Russia in July, Uber decided to merge with bigger competitors so that it could focus on other regions. It is also behind in Southeast Asia and might need to sell its operations there.
Persuasive Argument
Lyft’s shift in thinking about international expansion is tied to Jaime Raczka, who runs Lyft’s new markets in the U.S., according to a person who has worked with her. She led the company’s expansion into more than 100 U.S. cities earlier this year and currently oversees the profit-and-loss statements for nearly 200 cities, though most of them are small compared with top markets like San Francisco and Los Angeles. She reports to operations chief Woody Hartman. (See an org chart of Lyft executives.)
Ms. Raczka found an ally in Lyft’s growth chief, Ran Makavy, who has been in favor of international expansion, according to two people familiar with his views. In recent months, though, she told Lyft CFO Brian Roberts, a skeptic of expansion, that such a move wouldn’t break the bank, according to one person briefed about the discussions. Mr. Roberts is the company’s most powerful executive after Lyft’s co-founders, Logan Green and John Zimmer.
Ms. Raczka’s argument, this person said, centered on a key metric known as “cost per incremental ride,” or CPIR (pronounced “sih-per”), which is a term for calculating how much money it would cost to increase the number of rides Lyft handles in a particular city, often from marketing expenses or financial incentives for drivers and riders. Based on Lyft’s recent experience in smaller U.S. markets where Uber previously was the only ride-hailing provider, Ms. Raczka determined that expanding to new cities, including in certain parts of Canada, might only have a CPIR in the low single-digit dollars versus the high single digits that the company had previously projected, this person said. Lyft’s optimism also comes from the belief that spending money on online advertising and a driver-referral program would help the company ramp up quickly and hit 10% market share in any location.
“Uber can’t defend against that first 10% to 15%,” this person said. In other words, it would cost Uber too much money to boost rider or driver promotions enough to kill a new and well-organized competitor. For their part, executives at Uber believe it is easy for competitors to buy market share but another matter to sustain it when they aren’t operating as efficiently as Uber is, thanks to Uber’s greater scale.
‘Project Empire’
A 10% to 15% market share may not be enough for Lyft to make a profit in many markets. But in the U.S. overall, Lyft has been making gains in recent years and is now at between 20% to 30%, according to assessments by Lyft and Uber. Its strongest territory is the West Coast, including Lyft’s hometown of San Francisco. In the biggest U.S. market, New York, Lyft has found it difficult to make a big dent. A campaign last year known internally as “Project Empire” had little impact. Lyft spent a lot of money on coupons for riders, but ended up “subsidizing rides too much” and attracting a lot of riders who had no loyalty to the brand, said two people who were involved in the initiative. There also are more competitors in New York than just Uber.
Some top Lyft executives believe the company can make up the difference with Uber over time and even surpass it across the U.S. Doing so would require improving customer retention and having enough business to support drivers who essentially drive full time rather than only part time. Mr. Roberts has said internally that Lyft could potentially achieve parity with Uber by 2021, according to a person briefed about his views. Co-founders Mr. Green, Lyft’s CEO, and Mr. Zimmer, Lyft’s president, have echoed such views publicly.
In the past, many people in the industry, including some at Uber, wrongly left Lyft for dead. Amid its success this year, Lyft has launched the U.S. brand advertising campaign in the hopes that more people will choose to use Lyft over Uber because they feel more affinity for its seemingly friendlier approach, including encouraging riders to have conversations with drivers, and pioneering the ability to tip drivers. (Uber has since added that option.) Not everyone at the company is happy about the ad campaign, according to several people familiar with the disagreements, given that it may be hard to distinguish between the effects of the ad campaign and the impact of other things, including Uber’s ongoing challenges. The price tag of the campaign, according to one of these people, is in the tens of millions of dollars.
