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Why Rideshare? An Economic Analysis of Lyft

Why Rideshare? An Economic Analysis of Lyft
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Victoria Giardina profile
Victoria Giardina December 18, 2018

From taxis to shuttles, planes to trains, buses to ferries -- and everything in between -- a majority of individuals benefit from services like Lyft. In an economic perspective, public tra

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From taxis to shuttles, planes to trains, buses to ferries — and everything in between — a majority of individuals benefit from services like Lyft. In an economic perspective, public transportation increases efficiency and provides a rather accessible and time-saving option to allow consumers to get from point A to point B, increasing their utility. From taxis to shuttles, planes to trains, buses to ferries — and everything in between — a majority of individuals benefit from these types of services.Lyft is an innovative ride-sharing company that has been driving up its total revenue and speeding forward past with competition since its start in June 2012.

Advancements in technology have been beneficial to Lyft. Green and Zimmer lived on opposite coasts of the United States and learned that they had similar interests in environmental protection and transportation via a mutual friend on Facebook. Initially, Lyft was called Zimride, and it was an experimental transportation project inspired by Green’s trip to Zimbabwe, a region with a high demand for transportation sharing services. This need was the catalyst for Lyft, which now has a market capitalization of $7.5 billion and operates in more than 600 cities, according to Shontell and Lebowitz.

It is imperative to recognize why a transportation service company would be of such high regard in the economic spectrum. What truly makes Lyft diverse and innovative, especially in the competitive market of transportation services? An explanation for Lyft’s success is how efficiently it incorporated the factors of production into its development since the date of its founding. Green and Zimmer have expressed a brilliant skill set in entrepreneurship, especially considering their ability to discern the need for their privately-held company based on emerging consumer tastes. The founders of Lyft both wanted to promote environmental conservation, an element that would greatly benefit the majority of individuals who enjoy the fruits of Earth’s precious resources.

In The Story of Lyft, the founders say “no one even thought about cars and the economic, environmental, and social problems they were going to cause in the future.” The ability of government to coerce and implement legislation, such as cap and trade programs, and the Clean Air Act of 1990 may have been a small step to aid in environmental protection, yet it is quite difficult for governments to place heavy restriction on day-to-day essential functions such as driving and other forms of transportation, as McConnell, Brue, and Flynn said in their economics text. Green and Zimmer realized that they shared a love for protecting the environment and decided to base the mission for their brand around a widely-shared benefit for society.

Although not in reference to a public good, Lyft creates a positive externality to society as a whole. Some individuals may not directly benefit from Lyft’s transportation services, but because Lyft helps decrease the amount of pollution exerted from vehicles by its method of ride-sharing, it results in cleaner air to third-party individuals who were neither drivers nor drivers. Ironically, this is an example of a “free-rider” problem. It is evident that both the transportation environment and the actual environment are of utmost importance to the founders, expressing cleverly-incorporated entrepreneurial abilities.

Furthermore, Green and Zimmer have experienced moments in their professional careers where instead of steering forward, they were driving in reverse. In a Success! How I Did It podcast featuring Logan Green, he mentions that he did not want to simply transport individuals from their work to a client; instead, he had a vision to provide a more peer-to-peer based connection while on transportation. According to Business Insider, the driver’s personal vehicles accomplish this vision in a closed-carpool based system. Because Lyft has this mission in mind, it creates a personable and friendly culture to facilitate engagement with the drivers. The idea of implementing a more user-friendly and laidback system may be more comforting, yet it comes with the opportunity cost of being more efficient. In a survey comparing Lyft with the main competitor, Uber, both ride-sharing firms are relatively the same in regard to price, level of service, and professional factors. However, when it comes to convenience, Uber is statistically higher than Lyft, with a 75% rating as opposed to Lyft’s statistical rating of 48%. Because Lyft drivers use their own vehicles and pay for their own gasoline, they are not always willing to be accessible, causing a slight incentive problem amongst employees. On the contrary, Uber provides a less personable atmosphere with strict transportation to a consumer’s destination with black cars and limousines that are “uninteresting” in the eyes of the founders. Daring to be different, Green said that Lyft did not earn any revenue in the first three years, based upon Business Insider statistics. It is apparent that the founders of Lyft compromised efficiency for creativity, leading to a pitfall for their firm and a leading obstacle in its development.

Lyft’s ride-sharing platform promotes relatability amongst people, environmental protection within society, and an easier means of transportation for consumers with a click of a button on their electronic devices. While it faces competition in the private sector, it is undoubtedly a successful firm built from the ground up. It truly takes a clear vision and a shared entrepreneurial capacity to hit more green lights than red lights in the pursuit of driving forward in the economic perspective.


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