How Does Lyft Work: A Deep Analysis of Lyft Business and Revenue Model

The Inspiring Story of Lyft

Lyft was initially founded with the name Zimride by Logan Green and John Zimmer in 2007. Both of them met through a mutual friend, when John Zimmer revealed to one of his friends, that he is searching for opportunities in the ride-sharing business for long trips. 

Logan got this message and became excited. When both of them started working together, they first created a business model. And decided Lyft would be the go-to service for people finding friends for sharing rides. 

“Finding Friends with Cars” was the main idea behind Lyft. And that was enough for disrupting the ride-sharing industry.

An idea is all you need. There are a number of big brands that started with just an idea and are creating wonders today. Want to see examples? Here are 5 Innovators That Disrupted Their Industries With just an Idea.

As per the initial business model of Lyft, people would contact drivers to use their vehicles to move them to their destination and after the drive completes, riders would be charged for their journey. 80% of the fare would go to the individual doing the driving while the rest was designated for Lyft. 

At first, Logan and Zimmer presented Lyft as an auxiliary of Zimride, without giving it a whole different identity. However, when they realized the rising popularity of ride-sharing, they dropped Zimride altogether and Lyft was the main service they advertised in the year 2012. 

From starting its operations in 2012, with an amazingly impressive strategy and a full-fledged plan that astonished everybody since its launch, Lyft has seen impressive growth. To understand how Lyft did it all and What principles it followed, let’s dig into Lyft Business Model.

Lyft Stats and Facts: Funding and Major Milestones

• Lyft Founders: Logan Green and John Zimmer

• Headquartered in San Francisco

• How Many People Use Lyft: 30M+ Riders

• How Many Drivers Lyft Have? Over 2 Million

• Lyft’s US Market Share: 35%

• Lyft’s Reported Valuation: More than $20 Billion

Also Read: 5 Growth Hacks For Businesses Like Uber and Airbnb

How Lyft Works - Salient Features and Business Model Canvas

Lyft is so successful today because it offered services that no other organization in the transportation business was offering at the time of the company’s inception. And, it doesn’t make a difference in which industry you are, if your services are user-oriented you will eventually succeed. Here is how Lyft works to stay at the top of its game: 

• Lyft matches users who need a ride with the closest drivers.

• They do it in a friendly tone and their tagline says – Find New Friends Everyday.

• A user gets to know the details of the driver and ETA when he requests the ride.

• Live tracking helps the driver find out the exact location of the user from where the ride has been requested.

• Payments for the rides are taken care of by Lyft itself from within the application.

• Lyft takes a commission from each ride and the rest of the ride fare goes to the driver.

• Lyft also has a rating and review system set up for drivers as well as users where they can rate each other’s experience.

• The company also uses surge pricing techniques to expand its revenues.

Now that you know How Does Lyft Works – let’s understand the Lyft app’s complete operations, and see how it works for both its stakeholders to provide value to its customer segment.

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How Does Lyft Work for Passengers?

After a user downloads the Lyft app, he will have to create an account. The process of making an account is quite simple – the app also allows users to sign up using various social media platforms.

Once the app onboarding is complete, a user just have to follow the following steps:

• Enter the Pick-up and drop-off location

• Get a quote based on your trip locations

• Tap on Confirm PickUp

• Get live updates on driver’s location and ETA

• Take cashless ride once the driver arrives

• Rate and review the experience.

Lyft offers an excellent value proposition to customers – by helping them with cabs in a single tap and at economical prices. That was all about How does lyft work for passengers. 

Lyft Value Propositions For Users:

• Lyft offers free rides on specific occasions and users can also avail discounts from time to time on their rides.

• The app make users feel as if they are riding with a friend rather than in a traditional taxi.

• Prices of Lyft are generally lesser than the ordinary taxi fares.

• Lyft’s tagline says – Your friend with a car. It makes users more comfortable with Lyft rides.

Also Read: The Story of Airbnb – How it created disruption in Travel and Tourism Industry

How Does Lyft Work for Drivers?

Lyft app for drivers is just an extension of the customer app. It provides drivers everything that they desire and let them work on their own conditions. Before starting their business with Lyft, drivers have to undergo a profile check process – in which they have to show the company that they are fit for driving by providing their driving license and a few other documents.

Once the verification process is complete, a driver just have to follow the following steps to start working:

• Turn the driver mode on and start getting request

• Check user’s pick up location and accept or decline requests

• Get the optimized route

• Complete the ride and get paid

• Rate and review your experience

Whenever a driver decides to go offline, he can simply turn the driver mode off using the application. That was all about How does lyft work for drivers. 

Lyft Value Propositions For Drivers:

• Lyft gives an additional source of income to drivers.

• Flexible timings. Drivers can work whenever they want and for whatever time they wish.

• Easy payments. Lyft pays 20% of the complete ride cost to its drivers.

• The individuals who love to drive can make new friends and can make money while doing what they love.

Also Read: How On-Demand Mobile Apps are Changing the Face of Businesses?

How Lyft Makes Money? A Detailed Financial Analysis

In 2018, Lyft’s revenue reached $2.16 billion (Net) – which is double the amount earned in the year 2017, which itself was multiple times of 2016 Lyft’s revenue. According to Forbes, Lyft has been moving towards profitability over time. To get more insights, let’s dig deeper and analyze its sources of revenue:

1. Lyft Revenue Per Ride

Lyft generates revenue each time a user takes a ride via its smartphone application. While the majority of the revenue goes to the driver, the company takes between 20% to 30% in net revenues per ride (which was about 27% in 2018). Lyft as of now just works in the U.S. and Canada, instead of its competitor’s more extensive worldwide presence – demonstrating that it has enough growth potential if it expands further universally.

Average net revenue per ride of Lyft came in at $3.56, with drivers taking almost 75-80%. 

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2. Lyft Heat Maps – Price Surge Technique

Lyft terms Surge in pricing as Heat maps. Prices of rides increase when there is an increased demand for taxis in a specific locality. It adds huge revenue to the Lyft revenue model. To be more précised, Heat maps are location and time-specific. 

In case of increased demand in a specific area, more cost is charged by the company to users. 

3. Lyft, Lyft Plus, Lyft Premier and Lyft Line – Additional Sources of Revenue

When Lyft started its operations, its services were quite restricted and it had very fewer options to provide customizations to its users. However, now, the company has improved its services and added various revenue sources to the fleet. Below mentioned are the services offered by Lyft to its users:

• Lyft – It is the simplest version of the service that can seat up to 4 travelers and it is competitively priced.

• Lyft Plus – A vehicle that can carry at least six travelers. It costs far more than a normal Lyft.

• Lyft Premier – In this, users get a car like a Mercedes or an Audi with classy interiors and style. It is almost the most costly Lyft alternatives.

• Lyft Line – In this service, you will be paired with a Line driver who already has other travelers in the car heading in the similar way as you.

4. Lyft MultiModal Strategy

Lyft transformed its application into a one-stop multimodal transportation app in a couple of U.S. cities. It is expanding on numerous sets of transportation modes, that not just cars, but also uses a network of shared scooters and bikes for shorter rides.

This multimodal platform empowers TaaS, which gives more alternatives to Lyft users to get by without owning a vehicle. Besides, the Lyft multimodal framework leverages four essential transportation platforms and modes:

• Bikes and Scooters

• Public Transit

• Ridesharing Marketplace

• Autonomous Vehicles

So, that was all about how Lyft makes money. Now, you must be wondering how the company is performing so well in this highly competitive market and is bringing a huge amount of money to the table. Let’s have a look at a few ingredients that helped Lyft made it that big.

How Lyft Is Creating Wonders in the Taxi Industry?

We all know that there were already many popular apps like lyft in the industry when it was founded – like, Uber. So, how Lyft made its brand standout in the US taxi industry? Let’s put some spotlight on how Lyft did it differently for winning user’s confidence.

1. Lyft Used a Unique Concept – The Friendly One

There are various taxi applications in the industry. However, Lyft’s idea was to make it different from the traditional cab system. And because of the same, it operates on a unique concept.

It makes users feel as if they are riding with a friend and not with a cabbie. 

The main idea of Lyft application was presented as finding a friend with a car. This procedure included a great deal of work but the founders of Lyft believed that it is worth it, despite all the trouble. 

This is the reason users get all the required data about drivers before the cab arrives at their location. Other than that, they also have the option to rate the individual who took them to the desired location. Just the ones who get high scores will keep on being drivers for Lyft.

And this unique concept helped Lyft made something big that we all are appreciating today.

Also Read: How Much Does It Cost To Develop An App Like Uber Or Careem?

2. Lyft Made the Cab Hailing Process – Simple and Economical

The second factor which forced users to try Lyft is its economical pricing.

It was always an affordable option to the costly taxi rides. Moreover, when users request the cab to go somewhere they get to know the cost even before confirming their request. 

Knowing the expenses from the earliest starting point makes the whole process extremely transparent. Also, users get the opportunity to pay in the application, which is very convenient when you prefer not to manage cash. Also, this feature enables them to save time as well.

3. Lyft is Always Focused On Solving Problems

May it be by launching Bay Wheels or assisting millions of Medicaid patients with transportation – Lyft always focused on solving real-world problems. The organization is always working to guarantee that access to transportation doesn’t stand as an obstacle in the way of people.

On their company’s official blog post, they recently announced that they got an approval to become an enrolled Medicaid supplier in Arizona, following new state guidelines for non-emergency medical transportation – which made Lyft the very first national ridesharing organization to carry its transportation solution to millions of Medicaid beneficiaries. 

By modernizing the methodology and improving access to transportation to the needful, Lyft always worked on solving the problems with unique approaches.

4. Lyft Always Used Brilliant Ideas – Just Like the Concept of Fuzzy Mustaches

The founders of Lyft always believed in community building while establishing their business. In an industry that was for such a long time dominated by classy and clean cuts, Lyft created a change with its sparkly vehicles and splendid logos. 

Drivers were ordered to put fluffy mustaches on the front of their vehicles while riders were urged to sit in the front with the drivers. This technique is not utilized by any of its competitor up until now and because of this unique ride-sharing idea, Lyft took off with high popularity.

While the lovely pink mustache may have vanished from the Lyft’s logo, it played an important part in the journey of this creative ride-sharing service. From presenting female drivers for the first time in this field to turning into a unique community, Lyft has truly lifted the way in which people share rides! 

Impressed by Lyft’s Inspiring Story? 

So, that was all about How Does Lyft Work. From changing the manner in which people drove around to transforming ride-sharing into a community affair, Lyft made a niche for itself in taxi space. In Spite of confronting several restrictions in the way, it managed to grow with time and transformed into a billion-dollar company not through karma however through its pure business attitude!