Lyft and Uber are in a race to see which company can go public first this year, in part because both Get-a-Ride Services (GARS) have fragile and indefensible business models. Uber, with its preposterous $120B IPO target, will go down in history as the biggest startup disaster ever, albeit one that changed the world in its meteoric descent into oblivion.
In contrast, with a comparatively modest $20B to $30B IPO target, Lyft should be Amazon’s next big acquisition after Whole Foods (which it bought for $13B).
At the time of writing, Amazon’s market cap is $793B. Even if Amazon were to price Lyft at the high end of its target ($30B), it could buy the transportation company for less than 4% of today’s market cap or 3% of its brief historic trillion-dollar market cap (from August/September 2018). That’s a bargain given how much Lyft could accelerate Amazon’s business.
On the surface, this is not a new idea: writers at Inc., Quartz, Business Insider and Medium have suggested that Amazon should buy Lyft in order to use its drivers to deliver packages. However, delivery is at best a tertiary motivation for Amazon to buy Lyft. The primary reason?
Alexa.
Amazon dominates the smart speaker market, but that is not the same as the digital assistant market, as we discuss in our recent mini-report on Digital Assistants.
The Google Assistant and Apple’s Siri have exponentially larger install bases than Amazon’s Alexa because there are more smartphones out there than smart speakers. Smart speakers are toys. Smart homes are hobbies. But smartphones are do-everything, must-have tools. (Meanwhile, both Google and Apple are also promoting their own smart speakers.)
The Amazon Fire Phone failed in 2015, right around the time that Amazon was launching Alexa in its Echo devices. That failure deprived Amazon of Alexa’s fastest route to massive scale.
This is why Amazon has been busy pursuing an omnipresence strategy.
Amazon has forged relationships with car manufacturers including Ford, BMW, Toyota, Volkswagen, and more (as visitors to this week’s CES in Las Vegas will see). It has also worked to incorporate Alexa into other speakers, laptops, Fire devices (tablets, sticks, TVs), wearables, clocks, microwaves, and even toilets.
No matter how many devices Alexa finds her way into, the most pervasive digital gadget in people’s lives is still the smartphone.
When it comes to Alexa, to paraphrase Theodore Levitt’s classic distinction, we shouldn’t confuse an automotive strategy with a transportation strategy.
Car ownership in the U.S. has either already peaked or is about to peak (as we discuss at length in the Center’s Future of Transportation Report). Americans spend a great deal of time in their cars, and that will only change slowly, so having Alexa as a driver’s go-to digital assistant is powerful.
It is also true that as car ownership declines ride hailing will increase, so the population of people using app-driven transportation services like Uber and Lyft will also increase. Plus, distribution by app downloads is a lot easier than by car purchases.
If Amazon acquires Lyft and builds Alexa into Lyft apps, then every time a Lyft user hailed a ride it would be an opportunity to interact with Alexa.
There are additional benefits:
1. Users could ask Alexa for rides rather than tapping addresses into phones, teaching users to rely on Alexa for more things more of the time, even when using a smartphone featuring competitive digital assistants (Siri, Google).
2. Amazon could make discounted Lyft rides a benefit of Prime membership, positioning Prime as even more of a no-brainer than it is today. Increasing Prime membership is a key Amazon strategy since Prime members spend more on Amazon.
Amazon has previously shown that it is willing to take a loss in one corner of its business in order to increase transactional volume elsewhere: discounted Lyft rides could be another example of this strategy. This would also decrease pressure on Lyft to raise its prices to achieve profitability.
3. Amazon/Lyft could create a frequent riders program (like airline frequent flyer programs) where each mile delivered yields Amazon points that riders could use at Amazon or Whole Foods– this would be both a virtuous cycle and a powerful differentiator from other GARS.
4. Lyft user data would expand Amazon’s understanding of its customers, telling them not only what they shop for online but also where they go in the real world. This data would be a valuable resource for Amazon’s fast-growing digital advertising business.
5. New commercial opportunities abound. At the simplest level, if riders used Lyft to go to grocery stores other than Whole Foods, it would give Amazon opportunities for promotions to coax those riders to switch to Whole Foods.
More subtly, Amazon could create a real-world version of its online third-party marketplace. For example, if Amazon a) knows that a customer wants a particular blouse because she has it on her wish list, b) also knows that the customer is in a Lyft traveling near a store that has the blouse for sale in her size, and c) has a business relationship with the store, then Alexa could chime in to alert the rider giving the store a sale, the rider a blouse and Amazon a commission.
Amazon’s goal is not to be the only store in existence that sells everything to everybody. It has a bigger ambition: Amazon wants a piece of every economic transaction in the world, regardless of who sells what to whom and where. Acquiring Lyft would help with this.
6. Since General Motors has a $500M investment in Lyft, Amazon acquiring Lyft would help it to extend its Alexa relationship with GM, also positioning Amazon to benefit from both Lyft and GM’s self-driving car initiatives, which is potentially useful for drone deliveries.
7. As I mentioned earlier, others have speculated that Lyft’s network of drivers could also function as delivery agents for Amazon, perhaps giving riders another discount if they allow the driver a brief detour to drop off a package.
In August of 2016, Lyft unsuccessfully tried to sell itself to a few different companies that included Amazon. Conditions have changed since then, particularly with Amazon’s acquisition of Whole Foods a year later.
Once it bought Whole Foods, Amazon moved from the world of online-only commerce to a world where moving bodies to retail storefronts became just as important as moving goods to homes and businesses. Amazon has also opened physical book stores and cashier-less Amazon Go stores over the last few years.
In buying Lyft, Amazon would make getting bodies to its stores (as well as everywhere else) easier for all, while customers chat away with Alexa during each ride.
1/9/19