Madison Avenue rides to the rescue of another ride-hailing giant.
Lyft will this week start to pepper its app with ads, as reported by The Wall Street Journal on Thursday. This mirrors a route taken by Lyft’s biggest rival, Uber, which reported its first-ever operating profit earlier this month, suggesting that advertising will be woven deep into the fabric of future ride-hailing economics.
Imitation is the Highest Form of Envy
Part of Lyft’s business model is simply to beat Uber on price, but lower fares led to a 5% decrease in revenue-per-rider in Q2 compared to the previous quarter, according to the company’s financials released on Wednesday. Cheaper prices did seem to entice new users, however, as the number of so-called active riders (people who’ve taken at least one ride at some point during the quarter) climbed to about 21.5 million from 19.6 million the previous quarter. Still, the company is lagging its pandemic-era financial highs, while Uber has surpassed its pre-2020 rider numbers.
To close the gap, Lyft is taking its cue from its worst enemy:
- Uber launched its ads unit in October last year, with the goal of reaching $1 billion in ad bookings by 2024. Per Insider, the company charges advertisers a premium rate of $45 per thousand viewers, which is higher than most social media platforms, to place their ads.
- Lyft’s Chief Business Officer Zach Greenberger told the WSJ that Lyft will work on bringing video ads to the app as soon as it can, a move which also resembles Uber’s strategy. Uber’s ad chief Mark Grether told the WSJ in June that user data would allow the company to target passengers with video ads.
Repressing the Surge: Lyft’s newest tactic to differentiate itself from Uber is to turn off surge pricing — the feature that jacks up prices in line with sudden increases in demand, or seemingly whenever the app just feels like it. Even Uber CEO Dara Khosrowshahi can be taken by surprise by surge pricing, as earlier this week a Wired journalist informed Khosrowshahi he’d had to pay $50 for a 3-mile journey. Khosrowshahi’s response was Owen Wilson-esque: “Oh my God. Wow.”