Lyft just closed a $530 million round of funding, at a valuation of $2.5 billion. That's impressive, but it opens up the question of why investors are apparently so optimistic about Lyft and its chances in the ride-sharing market when, by almost any measurement, Uber outstrips Lyft by an almost absurd amount.
Uber's most recent valuation puts it at $40 billion, and it has raised $5 billion. That's 16 times the value of Lyft and seven times as much capital raised—all while operating in four times as many cities as Lyft, The new money will probably help Lyft go international, but at the moment Uber doesn't even have to compete with Lyft outside of the U.S. Uber reportedly brings in more than a dozen times the revenue of Lyft—and, just in case that's not enough, Uber has been luring away a lot of Lyft executives and supposedly even had a whole playbook of dirty tricks to use against Lyft.
That's a pretty daunting list of obstacles Lyft faces. So why did major Japanese e-commerce company Rakuten choose to lead the round with $300 million of its own money? There are probably a number of contributing factors, but what it comes down to is the size of the ride-sharing market itself. There's probably enough room for both Uber and Lyft—and even some of their competitors, like Sidecar—to all grow and be successful. Uber may dominate the market overall, but even Uber may not be able to handle the entire market. Just in the U.S. there is a $2.25 trillion personal transportation market, according to Lyft. That gives it plenty of room to grow even just domestically.
New market
It may be hard to remember, but ride-sharing is only a few years old—and the market is still wide open in a lot of ways. Lyft still has plenty of opportunity to compete with Uber for users if it can beat them in price and services, even without PR problems at Uber helping the company out. Arguably just as important is how ride-sharing companies must compete for drivers. Lyft is experimenting with a range of driver perks to encourage people interested in becoming ride-share drivers to sign up with them. Health services, car maintenance discounts and other bonuses may help the company get and retain drivers, even if in many markets Uber is the better-paying service for drivers.
The existence of McDonald's doesn't make it impossible for Five Guys to succeed. Apple's enormous profits will never drive every other computer maker out of business. The same seems to be true for the ride-sharing market. There appears to be enough room for more than one winner—and that's why investors have continued to support Lyft and other ride-sharing startups, even in spite of Uber's dominance.
