Why Uber and Lyft are getting into the advertising business

Making money by connecting users with rides is an extremely difficult business. Uber and Lyft lose tons of money every quarter.

When both companies were flooded with venture capital funding in their first few years of operation, this wasn’t much of a problem. Thanks to VC funding, Uber and Lyft have been able to offer users extremely low fares while still paying their drivers.

Then they went public. Lyft made its market debut in March 2019; Uber followed up with an initial public offering in May. These IPOs meant that the two companies now had to prove to investors that they had viable business models and could turn a profit.

That’s where advertising comes in.

Last week, Lyft announced the creation of Lyft Media, its advertising division. Lyft, which acquired a company in 2020 that makes monitors to display digital ads on cars, is looking to sell ad space on in-car tablets that drivers use, on digital display panels and bike docks, as well as through in-app sponsorship. Lyft will compete with Uber, which entered the advertising business in 2019 and sells ads through both its main app and Uber Eats, as well as offering display ads on its cars.

That both Lyft and Uber are pouring so many resources into advertising suggests that the companies are entering a new phase on their road to profit.

“We’ve seen shared rides from [just] shared rides to the likes of Uber Eats and delivery mechanisms, now maybe delivering more than just food,” says Arjun Kapoor, managing director and founder of Comcast Forecast Labs venture group. Fast company.

“But you know,” Kapoor adds, “there’s so much you can do with shipping. The question is how do you then create the next billion dollar stream for the business that will leverage the assets and capabilities of the existing business?”

For America’s two largest ride-sharing companies, the answer appears to be advertising. It makes sense, given that millions of users look at their phones when booking travel. Uber and Lyft have captive audiences in their drivers, who are either looking at their devices as they ride around or sitting in cars that have plenty of room for digital ads.

“It’s basically a ‘We’ve got it, so why not use it’ situation,” says Randy Nelson, head of mobile insights at mobile app market intelligence firm Sensor Tower.

It also helps that both companies have unique access to their users. Uber and Lyft boast to advertisers that they have the ability to target ads to specific customers based on things like travel history or food orders.

“They probably know a little bit about the person, and they can get more access to data and try to make it a little more sophisticated than your generic taxi cab ad,” Kapur says. “Even the tiniest layer of data on that can tip the scales toward brand advertisers who want to put a lot more of their dollars into it.”

This could be a hugely lucrative opportunity for the ride-sharing giants. Uber’s advertising division generated $141 million in revenue in 2021, up from $11 million in 2020; Uber CEO Mark Graeter said at an investor day earlier this year that the company could reach $1 billion in ad revenue by 2024. Lyft has not commented on what it expects from ad revenue with its new unit.

The generation that is coming into its prime as consumers has a vastly different view of modern advertising, so advertisers are redesigning their strategies to connect with them, and that’s somewhere these in-car ads can look appealing,” says Nelson from Sensor Tower.

It’s unclear where drivers will fit into all of this. Lyft said a portion of the display and tablet ad revenue would go to drivers, but did not specify how much. Graeter said at Uber’s investor day that some drivers who installed ad displays on their cars saw their earnings increase by about 20% on average.

Still, the ad revenue windfall likely won’t be significant for drivers at first, says Jeremy Goldman, director of marketing and trade briefings at Insider Intelligence, noting that as ad sales grow (giving drivers a new source of revenue ), companies could use this growth as a reason to keep wages low.

“I don’t even expect it to happen this soon,” Goldman says, acknowledging that it takes time to build market share and develop the technology. “It’s really much more tactical to say, ‘Look what we’re doing for you, we’re buying you into this whole program.’

Kapur argued that the ads could do just the opposite, providing another mechanism by which ride-sharing companies would be forced to compete for drivers.

“There will be a supply and demand problem between the two [companies] that they’re going to have to fight,” says Kapur, “so I would imagine that if somebody did it and it worked and it provided more income to drivers, everyone would flock to it because they don’t want to be the only place that drivers don’t want to use more. . . . This can cripple the entire core business.

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