Quora Question: Why Was Uber So Successful?

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An Uber sign points to drop-off and pick-up location on a city street in Portland, Oregon on March 19. Reuters

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Answer from Ryan Borker, founder, Shortlist:

To start, think about a taxi cab—when you hop in, do you worry about which company it's from or do you hop in? Probably not.

That, in essence, is the Uber / Lyft problem. There really is only one "company," and Uber so far has won across the board: access, driver experience, customer experience, brand and funding. I'll also assume we're talking about the U.S, because the war isn't won globally yet.

Just to give you a sense how successful Uber is:

  • 5 times as many riders prefer Uber to Lyft;
  • Uber was available in over 5 times as many cities as Lyft in 2015;
  • Uber is valued at over $63 billion vs. Lyft at $5.5 billion.

This wasn't obvious. Lyft and sidecar had the better model in a bigger market (P2P ride sharing, now called 'Uber X'). But Uber beat out its competition due a combination of its company-wide adherence to ambition, Lyft and other competitors' missteps, shrewd talent acquisition, and aggressive use of capital to propel it to liquidity. Because most people don't really care about who's offering them a ride as long as it's fast and reliable, small differences in favor of Uber create a flywheel which made their advantage insurmountable. Here's what a better experience using capital looks like and how it makes their lead insurmountable.

More capital buys more drivers which means more availability and more riders who use Uber first vs. Lyft, which means more rides for drivers which allows lower prices since utilization of the drivers is higher and they can earn more per hour. That's the convoluted way in English of saying more efficient marketplaces usually win. It's the same reason that although there are many auction sites, eBay is still the one most people go to most of the time.

It's worth quoting Greylock here:

"If we rewind the clock to 2012, Lyft launched a peer-to-peer ridesharing service, and Uber was a black car marketplace. Lyft and Sidecar's P2P taxis were a bigger idea in a bigger space. And like most marketplaces, it was a winner-take-all opportunity, or at least a winner-take-most. At the time, all three companies were only in SF and everyone was racing towards liquidity, with sights to have a right of first refusal on every other city in the country thereafter. Lyft had a big head start, but Uber was trailing right behind.

Uber began to aggressively put its war chest to work to achieve liquidity as fast as possible. This meant enabling ~5 minute pickups for riders and ~$25 hourly earnings for drivers. First, it guaranteed drivers hourly rates and spent money to acquire drivers. With drivers on the road, Uber focused on filling their cars through paid channels and incentivizing referrals. In a nutshell, the company subsidized fares and gave away free rides until there was enough demand and drivers could earn enough on their own. City by city, Uber implemented this playbook — buying drivers, buying passengers, subsidizing rides — to shave minutes off the pickup SLA and increase driver earnings, propelling Uber to liquidity."

In short, Uber burned cash to get more drivers and more customers on the road. As availability went up and the marketplace became stable, Uber got closer to profitability and could scale faster.

I will expand on the perspectives of Uber drivers, customers, former employees of both Uber and Lyft, venture capitalists and industry insiders. While each of the five offered different explanations for Uber's success, there does seem to be a coherent portrait of Uber when all perspectives are considered in conjunction.

DRIVERS

According to drivers, the distinguishing factor between Uber and Lyft is company culture. Interestingly, more than half of ride-sharing drivers drive for both companies.

Drivers consistently characterize Uber as a ruthlessly efficient company that demands professionalism and precision. Specifically, Uber advises drivers to sport collared shirts, open doors and place bags in the trunk for their riders, not unlike chauffeurs. Uber encourages the average driver to consider their role a career, which fosters a company culture that values ambition above all else.

When Uber communicates with its drivers, it uses a demanding, arguably callous, tone. This communication style extends to the top of the organization, one of the most infamous examples being CEO Travis Kalanick's response to drivers who may lose their jobs to self-driving cars in the near future, "Look, this is the way the world is going." Although somewhat flippant, Kalanick's comments were accurate.

Fortunately for Uber, its company-wide traits of efficiency, precision and ambition have more than compensated for what they lack in tact. In contrast, drivers characterize Lyft's culture as friendly, forgiving and laidback. Rather than chauffeurs, Lyft wants their drivers to be "good friends" for their riders. This is likely the reason that Lyft's drivers are more satisfied than Uber's. Drivers also noted that they felt more appreciated at Lyft.

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While drivers may prefer Lyft, this has not improved the company's bottom line or market share. As a result, Lyft has taken recent steps to become more like Uber. Drivers have not embraced some of these changes. In February, Lyft's Power Driver Bonus barred drivers of 2010 (and older) models from qualifying for the bonus. One driver went as far as calling this change a "slap in the face." Another driver characterized this change as a betrayal of the Lyft ethos.

According to another driver, Lyft is "...becoming more like Uber...it reinforces a sort of Uber image of providing a 'baller on a budget' product versus 'your friend with a car.'" The consensus is that mimicry will not differentiate Lyft, and may in fact cement its status as laggard vs. Uber. While Uber may not be drivers' favorite company to drive for, drivers recognize that Uber's company-wide culture of efficiency, precision and ambition, in addition to its wider availability, have set it apart in the ride-sharing space.

CUSTOMERS PREFER UBER TOO

"Kitschy," "cheesy," "annoying," and "embarrassing," were some of the words customers used to describe their Lyft experiences in 2014. Although the giant pink "carstache" and mandatory fist bumps were intended to foster a sense of comfort between drivers and riders, these quirks unintentionally alienated potential customers as the ride-sharing market matured.

Lyft took a bet on people wanting to be friends with their driver. Imagine having to fist bump your bus driver or subway driver: human beings are generally just uncomfortable around strangers.

This isn't trivial. To contextualize how bad this branding and discomfort is, the fact that Uber has more accidents, driver assaults on passengers, alleged kidnappings, and hammer attacks matters less than making customers feel embarrassed.

It wasn't until late 2014 that Lyft took corrective measures, but by then it may have been too late. As of a 2016 survey, less than 10 percent of respondents had even used Lyft in the past sixth months and an even smaller amount considered it their favorite ride service. As Tech Crunch notes "...users aren't choosing a Lyft or an Uber based on friendliness of feature set, but based on price and availability." Uber understood this from the get go, while Lyft dragged its feet and miscalculated when it continued to position itself as the friendly, quirky, ride-sharing provider. Once again, the flywheel wins.

FORMER EMPLOYEES

Although Uber outperformed Lyft in 2014, it was not until the following year that their dominance reached staggering levels (see chart). It should come as no surprise, then, that this increased level of outperformance coincides roughly with when Uber poached both Lyft's COO (Travis VanderZanden) and VP of Operations (Stephen Schnell).

Nonetheless, Uber has been no stranger to controversial, ruthless and frankly dirty tactics to crush its competition. For this reason, I personally think Uber is a "morally bankrupt" company…many insiders here agree.

Following his departure, Lyft sued VanderZanden and alleged that he "downloaded [98,000] confidential Lyft documents to his personal Dropbox account...before he and Lyft parted ways. The documents contained sensitive information about the company, including financial data, customer data, and future company plans." Lyft also claimed that VanderZanden recruited Lyft employees to join Uber with him. If Lyft's allegations are true, it makes sense that Uber's performance exploded while Lyft lagged behind. It should be noted that VanderZanden countersued Lyft for "invasion of privacy, alleging that the only way Lyft could have known he transferred certain documents is if the company snooped in his personal files." A trial has been set for August 2016.

Most recently, a former Uber employee, Morgan Richardson, claimed that Uber "contacted her...in response to a BuzzFeed News article about leaked internal data...and 'asked her a series of questions' and 'began to accuse her of taking certain screenshots and giving them to the media.'...[then] 'a male individual showed up at her apartment and began banging on the door...[he] identified himself as an Uber investigator from California' but did not provide any identification." Richardson contends that the man entered her apartment even though she refused, and continued to intimidate her. "At one point, he asked ominously, 'Do I scare you?' Then he said to her, "this is not going to go away you know.'"

This type of behavior has been less than atypical of Uber. For example, senior vice president of business Emil Michael exhibited similar behavior when he threatened to dig up dirt on Uber's media critics in 2014. Although somewhat uncouth, these actions are highly congruent with the company-wide culture of "ambition above all else" that Uber drivers have identified as the company's defining feature.

Finally, everyone's heard stories of Uber employees offering cash to Lyft drivers to switch and drive exclusively to Uber. They cancelled hundreds of rides on Gett and thousands of rides on Lyft, costing both the drivers and the company money.

Venture Capital

From the perspective of VC's, Uber crushed their competition because they used money as a weapon while their opponents used it as a tool. Specifically, Uber was able to capitalize on investors' desperation for returns in the zero interest rate environment between 2010-2015. As Simon Rothman of Greylock Partners states,

"The overhang of cash pushed the market pendulum to swing from fear to greed, and with it came unprecedented round sizes, valuations, and total capital raised."

Rothman is worth quoting at length:

"Uber raised $9 billion in equity and another $1.6 billion in debt over 15 rounds in a six-year period...At small dollars using money is a financial decision. At Uber's big dollars using money is a strategic decision. The company's use of money as performance enhancing drug was beautifully aggressive. It was offensive and defensive at the same time...Uber began to aggressively put its war chest to work...In a nutshell, the company subsidized fares and gave away free rides until there was enough demand and drivers could earn enough on their own."

Uber didn't crush Lyft and Sidecar only because they had more money. They crushed their competition because their use of money was aggressive and on point.

INDUSTRY EXPERTS

Industry experts tend to agree with the perspective laid out by Rothman. Juniper Research, for example, attributes Uber's dominance to their aforementioned aggressive growth tactics. Analysts expect the market to double in size, in terms of revenue, in less than four years. I suspect that industry insiders tend to overemphasize the statistics and underplay the reasons behind those statistics. For example, one expert reported that Uber provided 7 times the rides that Lyft did, but neglects to include the roughly 6,000 fake Lyft rides Uber employees allegedly booked over the same period of time.

CONCLUSION

Uber beat out its competition in the United States due to a combination of its company-wide adherence to ambition, Lyft's missteps, shrewd talent acquisition and Uber's aggressive use of capital.

People want a cheap, reliable, fast ride service. That requires penetrating the market in terms of riders and cabs. Uber built a winning playbook to get these quicker than everyone else, enabled by capital. Their ruthless, dirty tricks helped wreck their main competitors brand and experience.

As a result, we now believe it a given that Uber has won the round…for now.

For what it's worth, all's not lost for Lyft and other competitors. The next big market is self-driving cars, and while industry gossip suggests Uber currently has the best team by far (hiring out of Carnegie Mellon), Lyft's partnership with GM (who just bought Cruise) means that there's still a hope for Lyft fans.

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Quora Question: Why Was Uber So Successful? | Business