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UberX & Lyft B Case Solution
Elfman (2019) states the US ride-hailing sector as a duopoly with Uber and Lyft as the two competitors. The two companies have recently had an IPO. As a result, both companies’ positions have changed. This essay analyzes and compares the operational strategy, capabilities, goals, market positioning, and competitive edge of the two companies in the US. It also analyzes how the IPO has and will bring about a change in the companies’ strategy and competitive positioning.
In April 2019, Uber filed for becoming a public trading company in the New York stock exchange. After Facebook and Alibaba, Uber was said to be the biggest technology IPO in history. The company was expected to be valuated at $120 billion in 2018. However, when the IPO was made, the company was valuated at $75.46 billion with a price of $45 per share. This was a result of several controversies and lawsuits against the company because of its competitive and operational strategies.
Following questions are answered in this case study solution
Vision and Goals
Competitive Edge and Market Positioning
Case Analysis for UberX & Lyft B
In March, Lyft became the first public ride-hail company. It was valued at $24.3 billion. Lyft has a 40% share in the US market according to company documents in 2019 (O'Donnell and Franklin). It had a 22% market share in December 2016 and grew to 39% share in December 2018. The company has over 1.1 million drivers and 18.6 million active customers. Lyft has been focusing on the US and Canadian markets whereas, its largest rival, Uber operates in Europe, Latin America, and India as well.
Several self-inflicted controversies by Uber gave a sizeable opportunity to Lyft to recruit the disappointed drivers working for Uber. This resulted in Lyft expanding its operations to 160 more cities in the US. When Uber was engaged in rebuttals to reduce the controversies, Lyft was upgrading and marketing its services to seize the market share that Uber had lost (Hawkins).
2. Operational Strategy
An operational strategy helps develop a plan for the operations function to utilize firm resources in a manner that ensures value creation and goal achievement. A well-developed operations strategy entails a long-term vision. Therefore, the operational strategy of any firm helps make decisions that help the firm develop long-term capabilities and helps utilize company resources effectively. Furthermore, it is also important to effectively execute the operational strategy. It helps develop customer loyalty, inculcating customer demands into the operating process, developing a customer-centric value proposition, and assuring a positive customer experience (Wandiga, Kilika and James).
Uber and Lyft’s operating model is similar. This is because both companies are transportation facilitators. They connect drivers to riders through a mobile phone application. Furthermore, both companies do not have car ownership and both onboard drivers as contractors of the company, and not employees. However, a comparison below shows the differences between the operational strategies of the two companies.
i. Uber Operating Model
Uber connects customers looking for rides to drivers who want to offer transportation services through their application. Uber does not have car ownership and its operating model is comprised of offering software and marketing services to drivers. The revenue stream comes from a profit percentage for each ride.
Uber’s operational strategy is aggressive expansion. It did not take into account ethical and legal boundaries and expanded rapidly. Its unethical practices in the competition have proved to be the biggest factor in its growth. However, it has resulted in expensive legal battles (Bradshaw and Bond).
Furthermore, a survey amongst Uber drivers showed that they were uncertain about their earnings because of the frequent changes by the company such as surge pricing or discounts for the customers (Bradshaw and Bond).
ii. Lyft Operating Model
The Lyft operating model is similar to Uber. In its recent IPO letter, Lyft claims that it has no competitive advantage over its competitors (Neiger). However, Lyft has not had an aggressive growth strategy as Uber has. It has focused on the US and Canadian markets. During 2017, when Uber was facing several lawsuits and internal conflicts regarding the company’s culture, Lyft gained a competitive advantage where it recruited Uber drivers who were disappointed with the company. During this time, Lyft expanded to 160 more cities in the US than its previous number (Hawkins). This shows that although the operating model of both companies is similar, Lyft has a strategy to offer better services than the competitor to gain market share.
3. Operational Capabilities
i. Minimum Driver Wage
After the companies have been registered as public companies, the California State Senate is working on passing a bill that would convert contract workers into employees. Both Uber and Lyft have an operational strategy that focuses on minimizing costs so as to offer lower rates to the riders. With the bill passed, the companies will have an increased cost structure and other liabilities such as paying for the time that drivers wait for riders. In order to convince the legislatures to not pass the bill, both companies are proposing an hourly minimum wage. However, ever since the companies have gone public, workers are demanding increased pay and benefits (Siddiqui). New York City imposed a freeze on issuing driver and car licenses to Uber and Lyft. This was done to impose pressure on the companies to register drivers as their employees. For Lyft, this freeze has a greater impact since it only operates in the US and Canada and New York is one of its largest markets (Marshall).
This move shows that both Uber and Lyft cannot afford to include drivers as employees in their business model. This is because the companies offer a low-cost transportation facility to their customers. Adding drivers to the company as their employees would increase the costs for both companies. Therefore, both companies do not hold the operational capabilities to change their existing business model and increase the weightage of driver stakeholders.
ii. Expanding to Other Transportation Methods
Uber has been investing in research and development to introduce self-driving cars and flying taxis. This will help customers in reducing transportation time. It will also be a great expansion to the emergency services industry. Uber can expand to introduce ambulances for hospitals (Uber Elevate). This shows that Uber has the operational capabilities to invest in innovative programs and implement its realization. It has already begun experimenting on self-driven cars in Toronto (Rapier and Wolverton).
Lyft does not have the budget to invest in R&D. However, Lyft has expanded to electric bikes to offer cheaper transport services to customers. However, in San Francisco, some of these bikes caught fire. After these incidents, Lyft had to finish off its bikes from the city because they proved to be hazardous to the riders. This move shows that lift does not hold the operational capabilities to deploy a new fleet of bikes just after the one that it deployed did not meet the standards (Statt).
iii. Car Ownership
Just as registering drivers as employees would add up to the company’s operational costs, a car fleet of the company would also increase the costs for the company. The current model comprises of driers with their own cars. They do not get any additional benefits apart from the ride payments. Furthermore, car maintenance and fuel charges are the responsibility of the driver, and not the company (Boada). This shows that if the companies hanged their model to incorporate cars into their business assets, their depreciation and maintenance costs would increase the operating expenses for the companies.
4. Vision and Goals
Uber was founded with a vision of tap a button, get a ride. As simple as this vision was in the beginning, it has helped the company to envision the future as well. Uber is working on vertically landing aircrafts and skyports. With a team dedicated to this goal, Uber has already begun working on its goal to expand its transportation operations (Uber Elevate).
Uber has supported its drivers through the Uber Pro program in which drivers who have completed 3000 rides are eligible for tuition coverage from Uber for themselves or a family member (Wiezbowski and Parekh). In 2017, a former employee launched a blog with allegations against the company regarding gender discrimination and workplace harassment. As a result, several top management figures including CEO Travis Kalanick resigned from their posts (Wong). Even though Uber has diversity goals for its company to be attained by 2022, it is showing slow progress in the attainment of this goal. Currently, 30% of the staff is comprised of white men (O'Brien).
Uber has been hit with a lawsuit by drivers in Australia regarding the company’s illegal practices in hiring drivers. Uber is operating cars without proper licensing of the cars or drivers. This lawsuit just before its IPO in 2019 shows that Uber is not yet working towards a goal of reducing its unethical practices. Even though lawsuits do not impact the company’s profitability greatly, Uber should be developing goals that help improve the company’s image (Phys.org ).
Lyft admitted in its financial filings that it has no competitive advantage over others in the same industry. This is because its competition has more financial, technical, and research advantage. Furthermore, it agrees that its competition has a significantly larger customer base and history (Neiger). However, Lyft has been investing in its stakeholders; the drivers. In the past, Uber has been repeatedly targeted because of low driver pay and no benefits. As a result, before its IPO Uber paid $20 million to settle a lawsuit that drivers filed against the company. Also, the company, despite several efforts from the legislators is not willing to classify its drivers as employees (England).
On the other hand, even though Lyft is also against filing drivers as its employees, it is investing in driver benefits.
The vision of Lyft according to its latest IPO letter is redesigning cities around people. Furthermore, they have a goal of transforming people’s lives economically, socially, and environmentally. In the letter, Lyft has stated that it will help reduce carbon emissions from its transport system. In 2018, Lyft purchased offsets for carbon emissions to neutralize its carbon footprint (Eadicicco). This shows that the goal of the company is inculcated with ethical and socially responsible goals.
The comparison of the vision and goals of the company show that Lyft is focusing on ethical and cultural goals to improve its company’s goodwill. On the other hand, Uber, despite numerous lawsuits against the company regarding the internal culture, and driver’s problems has not stated a goal to address such problems.
5. Competitive Edge and Market Positioning
Lyft and Uber both have positioned their brands differently. From branding to customer experience, both companies aim to differentiate from the other. Uber has a simple black and white logo while Lyft’s logo is pink and white. Lyft originated the carpool business which resulted in the brand being assessed as casual. Initially, Uber only operated black cars and the price point was not a competing factor. As a result, Uber was initially positioned as a luxurious brand (Elfman).
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