The ridehailing industry is entering a new phase of competition: loyalty.
Lyft, which officially filed for its IPO Friday, and Uber have been working hard to court both drivers and riders.
Since last fall, the two firms have introduced monthly subscription plans and loyalty programs designed to attract repeat riders. And now the Wall Street Journal is reporting that Lyft and Uber both plan to offer cash to their best drivers that they can use to purchase stock at yet-to-be-determined IPO price.
Since Lyft and Uber launched about a decade ago, the ridehailing industry has consisted mostly as an expensive slugfest for market share. Both companies have spent considerable cash trying to sign up drivers and gain customers.
But many customers and drivers have been content to just play one company off the other. Depending on rates and bonuses, drivers often work for Uber on Monday and then switch to Lyft for Tuesday. As a result, retention has been non-existent.
In the early days of Uber, the company offered $2,000 or $5,000 to just complete a few rides on the app. Today, Uber spends as much as $1.3 billion in one quarter alone on incentives, promotions, and sales and marketing, according to a report by CB Insights.
Yet Uber only retains about 20 percent of its drivers after one year, which amounts to a 12.5 percent monthly churn rate, the report said.
Uber and Lyft have largely been able to offset these costs because the overall industry has grown so rapidly. But U.S. market growth rate is slowing, which puts pressure on both companies to either generate new sources of revenue or cut costs.
Asia offers the best growth prospects but Uber has pulled out of Russia, China, and Southeast Asia though the company has acquired stakes in local competitors. Lyft has only expanded to a few cities outside of the US and only in Canada.
To manage spending and promote profitable, sustainable growth, Lyft and Uber need drivers and customers to stick to their platform.
In October, Lyft launched its All Access program that allows customers 30 rides (of up to $15 each) for $299 a month. Uber Rewards provides customers different levels of benefits. For example, Uber Platinum riders can lock in prices for certain routes, cancel rides without paying fees, and earn “Uber Cash” to use on its Uber Eats food delivery platform.
The companies’ plan to offer stock to drivers is particularly bold because regulators have traditionally frowned upon offering equity to independent contractors. Uber and Lyft don’t consider their drivers full time employees, which means the companies don’t have to pay them benefits like health care.
However, on demand companies are increasingly realizing that they must offer their gig economy partners something more than promises of flexibility and extra cash.
Last year, Airbnb wrote to the U.S. Securities and Exchange Commission, requesting the agency allow the company to issue stock to hosts.
“Airbnb believes that twenty-first century companies are most successful when the interests of all stakeholders are aligned,” the letter said. “For sharing economy companies like Airbnb, this includes…our hosts who use our marketplace to list unique accommodations and experiences.”
“As a sharing economy marketplace, Airbnb succeeds when these hosts succeed,” it continued. “We believe that enabling private companies to grant hosts and other sharing economy participants equity in the company from an earlier stage would further align incentives between such companies and their sharing economy participants to the benefit to both.”
As Uber, Lyft, and Airbnb prepare to become public companies, they will likely face scrutiny on how they compensate their contractors at a time when economic populism is sweeping across the world. Democratic congressmen in Washington, DC and presidential candidates have called for government to guarantee jobs, healthcare, and livable wages.
So offering stock may just be a first step to finding alternative ways to compensate gig workers without sacrificing the business model that has made on demand services so successful.
CONFLICTS: This report is being published by SharesPost Research LLC and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost Inc. SP Investments Management is the investment manager of the SharesPost 100 Fund, a registered investment company, and other funds.
Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction. This report does not constitute an offer to provide investment advice or services. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.
Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that these companies have endorsed, supported, or otherwise participated with SharesPost. Company “thesis” is the opinion of SharesPost and is not a recommendation to buy, sell, or hold any security of such company.
Investors should be aware that, at any given point in time, the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest in any of the issuers discussed in the report. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, investors are cautioned to carefully consider the investment objectives, risks, charges, and expenses before investing. For a prospectus containing more information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.
ANALYST CERTIFICATION: The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.
Analyst compensation is based upon various factors, including the overall performance of SharesPost Inc. and its subsidiaries and the performance and productivity of such analyst, including (1) feedback from clients of the SharesPost Financial Corporation and other stakeholders in our ecosystem, (2) the quality of such analyst’s research, and (3) the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost Inc., including brokerage sales.
DISCLAIMER: This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.
Any securities offered are offered by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost Inc. Certain affiliates of these entities may act as principals in such transactions.
Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid, and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks. You should complete your own independent due diligence regarding the investment, including obtaining additional company information, opinions, financial projections, and legal or other investment advice.
Investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.
SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, SharesPost Investment Management, the SharesPost 100 Fund, and the SharesPost 100 List are all registered trademarks of SharesPost Inc. All other trademarks are the property of their respective owners.
Copyright © SharesPost, Inc. 2019. All rights reserved.