Car-sharing rivals Uber, Lyft tussle over driver recruits

The Lyft app is displayed on an Apple iPhone during a Lyft ride in Washington, D.C. Lyft has expanded its ride-sharing service into New York and is abandoning its trademark pink mustaches in the process, taking on rival Uber.

Photo credit: BLOOMBERG
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SAN FRANCISCO -- Uber Technologies Inc. and Lyft Inc. are racing to recruit drivers to spur the growth of their ride-sharing businesses. Stefanie Leifer recently found herself caught in the middle.

Leifer has worked for San Francisco-based Lyft, the mobile application that lets people hail rides from cars festooned with pink mustaches, for the past year.

In May, she picked up a passenger who was working for Uber and tried to convince her to switch sides, she said.

That same month, Uber dangled a $500 bonus to Lyft drivers to attract them to Uber instead. The 34-year-old part-time attorney gave in when Uber offered her a $1,000 bonus and a guaranteed $45-a-hour for driving at peak times during the month of June.

Leifer worked exclusively for Uber last month and is now ferrying passengers in a Lexus IS250 for both services in San Francisco, highlighting the grab for drivers as the companies work to up- end the transport industry.

"This competition is very good for me," Leifer said in an interview, adding that she's "making more money now than as an attorney."

Drivers are independent contractors who can work for multiple companies at the same time. They typically own their car and can make as much as $8,000 a month, depending on how long they're on the road and excluding insurance, gas and other costs.

While Lyft drivers tend to drive part-time as they pursue other careers, Uber drivers usually work full time.

New York

The rivalry for drivers is unfolding across the U.S., as both companies rush to expand services -- most recently in New York.

Lyft was poised to start operating there last week, bringing more competition to Uber -- though its effort is on hold amid opposition from New York state authorities.

As they seek to attract drivers and expand into new cities, the companies have garnered new war chests of cash from investors this year, with Lyft collecting $250 million in a funding round in April. Uber last month raised $1.2 billion at a $17 billion valuation.

Some of that money is now going toward attracting drivers, who are key to Uber and Lyft's ambitions to crack open the U.S. taxi and limousine market, estimated to be an $11 billion industry, according to IbisWorld Research.

In their recruitment efforts, the car-booking companies aren't only taking on each other, but also taxis, local limousine services and other car-sharing apps such as Side.cr and Hailo Network, their founders have said.

Breaking open

"The battle for drivers is intense," said Lyft CEO Logan Green, who founded the startup with John Zimmer in 2012. While Lyft has to tussle with Uber and the taxis, "it's great for drivers and ultimately for passengers," he said.

For Uber, more drivers are important to establishing itself as the biggest car-booking provider, boosting opportunities for drivers and the value of the service for customers, co-founder and CEO Travis Kalanick said in May at the Re/Code technology conference.

"The more drivers on the system, the more trips per hour a driver can do," Kalanick said. "It means pick-up times are low, prices come down."

While Uber is the market leader, it's also facing challenges on multiple fronts.

Kalanick agreed last week to limit the company's peak-pricing tactics and cap fees during emergencies in New York, potentially restricting revenue. Cabbies have staged protests against Uber in cities from London and Paris to Madrid and Berlin. Uber has also faced lawsuits in the U.S. and regulatory scrutiny in other cities, such as Seattle.

Taxi drivers, claiming ride-sharing service Uber was operating illegally in San Francisco, Calif., demonstrate in July 2013.

Photo credit: REUTERS

U.S. battle

The race for drivers is confined to the U.S. for now, since Lyft doesn't operate internationally. Uber has rolled out its service in 75 U.S. cities including Miami, Austin, Texas, and Orlando, Florida, and is in a total of 39 countries.

Lyft is in 68 cities in the U.S. Uber and Lyft declined to comment on their total number of drivers. Uber, which has a high-end car-booking service for limos and luxury cars, primarily competes with Lyft through its lower-priced car-sharing option, UberX.

The companies, which use GPS technology and mobile apps to let drivers find one client after the other, charge a 20 percent commission for each trip.

Customers pre-register with their credit card on the apps to enable a seamless and cashless transaction.

The demand for transportation is big enough for the two companies to co-exist and thrive, said Brian Solis, an analyst at Altimeter Group, a San Mateo, California-based research firm.

"They have different opportunities based on different kinds of clientele," Solis said. "Uber is aimed at professional users, who are willing to pay a premium for a high- level service, while Lyft's competitive pricing caters to those seeking an alternative."

Job perks

Uber and Lyft's fight for drivers has been heating up all year. The wooing starts with the perks each company offers recruits. Uber provides financing for drivers to buy a new car and gives them an iPhone to use its app, which can cost $10 a week in more established markets.

Lyft doesn't provide car financing or phones. Yet unlike Uber, whose drivers aren't permitted to accept tips, Lyft drivers can charge a gratuity at peak times.

The company also plays up its community, using social media to connect drivers and organizing events where they can socialize. As part of that culture, Lyft encourages passengers to sit next to drivers, who are trained to welcome them with a fist-bump and a chat.

Flinging cash

Money has also become a weapon. In May, Uber courted Lyft drivers with $500 bonuses to join and an additional $500 matching bonus to those who successfully recruited colleagues.

Some veteran drivers who mentor others, such as Leifer, were offered a $1,000 bonus. Lyft responded with a $500 bonus for drivers in San Francisco who committed to its service for at least 10 rides.

That isn't winning drivers such as General Weatherspoon, who began working with Uber in the San Francisco Bay Area in April after turning down an approach by Lyft.

"I didn't like the idea of driving a pink-mustached car," said Weatherspoon.

He and several other drivers said they like that Uber targets professionals, with drivers offering passengers water and carrying their luggage.

When Lyft announced it was starting its New York service last week, it said it would give up the mustaches for smaller ones that go inside vehicles.

Last month, Lyft also introduced Lyft Plus, a service with white SUVs that forgoes the mustaches. Lyft Plus is available in San Francisco on an invitation-only basis.

Wooing Jan

Such lures are drawing drivers like Jan Jennings, who recently bought a customized Ford Escape for $34,000 to drive as a Lyft Plus white SUV.

"I'm having the time of my life while making a good income," said Jennings, who has been a Lyft driver for a year. She said she isn't tempted by Uber's bonuses because, like Leifer, she loves Lyft's culture.

Both companies need to create more consumer awareness to ensure drivers have enough demand for their services, leading to Uber reducing prices and lowering its commissions in some instances this year.

Last week, Uber decided to keep commissions while cutting fares by 20 percent in New York for UberX, making the service cheaper than city taxis. By contrast, Lyft is sparing drivers the cost of stoking user demand by temporarily waiving its commission in some cities where it operates.

Downside effect

Still, some drivers said Uber and Lyft are flooding their towns with so many cars that they don't get enough passengers.

Abdul, an Uber driver in Los Angeles who asked not to provide his full name for fear of retribution, said he quit his taxi license a year ago to drive a black car for Uber.

Since then, hordes of new drivers have emerged and "what looked like a dream turned into a horror movie," he said.

"Uber's economic opportunity for partner-drivers is unmatched in the industry," Nairi Hourdajian, a spokeswoman for Uber, said in an e-mailed statement.

Uber and Lyft can afford a pricing war to recruit drivers thanks to the money they raised, said Brian O'Malley, a venture capitalist at Accel Partners. Yet "the question is whether their business model is viable in the long term," he said.

Consumers, who can rate the quality of each Uber or Lyft trip, are the ultimate beneficiaries.

Andrew Blackmon, co-founder of Santa Monica, California-based online tuxedo-rental company The Black Tux Inc., said he gave up his car a year ago when Uber and Lyft made it possible to live in Los Angeles with just a bike.

He and his business partner, Patrick Coyne, now frequently use both services to get around.

"You don't want to end up in a market where Uber is the only player," Coyne said.

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