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Little Lyft Gets Big Alliance Partners

WITH A VALUATION of close to $70 billion in 2017, Uber is the most valuable privately held company ever. Serving some 600 cities in over 60 countries worldwide, Uber dominates the global car-hailing app market. The number two competitor to Uber in the United States is Lyft, which is also a privately held startup but only worth about one tenth of Uber (some $7.5 billion). What should little Lyft do to compete against the giant Uber? Lyft is clearly the underdog in the fiercely competitive ride-hailing app market. Similarly, to dealing with a schoolyard bully, it helps to have strong friends. Lyft found itself powerful alliance partners for a number of strategic reasons.

Strengthen Competitive Position. Strategic alliances with powe1ful partners enable Lyft to strengthen its competitive position against Uber. In particular, Lyft entered two important alliances. In 2016, Lyft formed an equity alliance with GM, which invested $500 million in the startup. A year later, Lyft announced an alliance with Waymo, an autonomous car technology venture and a subsidiary of Alphabet, which is also Google's parent company. Waymo is also a fierce rival of Uber in the development of self-driving car. When Lyft announced its alliance with Waymo in 2017, Alphabet and Uber were entangled in a lawsuit. In particular, Alphabet alleged that Uber stole proprietary technology when acquiring Otto, a self-driving technology company mainly for trucks, which was founded by a former Waymo executive who headed its self-driving car efforts. Thus, the alliance with Waymo allows Lyft to strengthen its competitive position vis-a-vis Uber. Having autonomous vehicle technology succeed is critical for both Uber and Lyft because human drivers are the biggest cost factor in offering rides. Moreover, autonomous driving technology is also expected to be safer than human driving, resulting in fewer accidents. In addition, since smart traffic guidance can be employed much more easily with self-driving cars that can run 24/7, 365 days a year, traffic congestion and delays are expected to be much fewer, if any.

Enter New Markets. The alliance with Lyft allows GM to tap into the second largest mobile transportation network globally. The goal is that GM's cars will be deployed on Lyft's network, ideally as self-driving vehicles. The equity alliance with Lyft affords GM an entry into the mobile transportation and logistics market.

Hedge Against Uncertainty. The equity investment in Lyft also allows GM to hedge against uncertainty. With network effects supporting winner-take-all dynamics, it is likely that only one or a few at best mobile transportation companies survive in the long run. GM is betting on Lyft and wants to be in this new market because the age-old private car ownership model is likely to shift in favor of fleet ownership and management. Consumers will "rent" a car for a specific ride, rather than own the fixed asset. Noteworthy is that private cars in the United States are used only 5 percent of the time and sit idle for most of the day. Car owners have the fixed costs of purchasing a car, buying insurance, and maintaining the car. All this goes away with the new business model that is likely to emerge. Learn New Capabilities. For instance, Lyft may need to learn how to manage large fleets of cars that it might eventually need to own, a capability held by GM as key supplier to many large car rental companies. In addition, Lyft may want to learn some of the self-driving technology from Waymo. Conversely, the alphabet subsidiary might be motivated to learn more about how to establish and maintain a large mobile logistics network that it can leverage into more precise target advertising for its google partner division, or other new services it might want to offer one day.