Why Uber and Lyft are tapping into the advertising business

Making money connecting users to rides is a notoriously difficult business. Uber and Lyft are losing a lot of cash every quarter.

While both companies were flush with venture capital funding in their first few years of operation, that wasn’t much of a problem. Thanks to VC funding, Uber and Lyft were able to offer extremely low rates to users when paying their drivers.

Then they went public. Lyft made its market debut in March 2019; Uber followed that May with an initial public offering. Those IPOs meant 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 arm. Lyft, which in 2019 acquired a company that makes monitors to run digital ads in cars, is looking to sell ad space on in-car tablets used by riders, on digital display panels and on its bike docking stations, and through in-app sponsorships. Lyft will compete against Uber, which entered the advertising business in 2019 and sells advertising through both its primary app and Uber Eats, as well as offering ad displays in its cars.

That both Lyft and Uber are putting more resources into advertising suggests that the companies are entering a new phase on the road to profitability.

“We’ve seen rideshares go through [just] Rideshares, like Uber Eats and delivery mechanisms, can now deliver more than just food,” says Arjun Kapur, managing director and founder of Comcast’s venture group Forecast Labs. Fast Company.

“But you know,” Kapur added, “there are only so many things you can do with delivery. The question is, how do you create the next billion-dollar revenue stream for the business that will leverage the assets and capabilities of the existing business?”

For two of the largest US rideshare companies, the answer appears to be advertising. This makes sense, as millions of users are looking at their phones while booking travel. Uber and Lyft have captive audiences among their riders, who are either watching their devices as they cart around, or sitting in cars that have ample space for digital ads.

“Essentially, it’s a ‘we have it so we don’t use it’ situation,” says Randy Nelson, head of mobile insights at mobile app market intelligence firm Sensor Tower.

This helps the two companies to have unique access to their users. Uber and Lyft can 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 more about the person and they can get more data access and try to make them a little more sophisticated than your typical taxi cab ad,” Kapur says. “Even a small layer of data on that can tip the scale of brands wanting to put more of their dollars into advertisers.”

This could be a very attractive opportunity for rideshare veterans. Uber’s advertising division generated $141 million in revenue in 2021, up from $11 million in 2020; Uber executive Mark Grether 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 from its new unit.

The generation coming into their prime as consumers has a particularly different view of current advertising, so advertisers are reworking their strategies to connect with them, and this is where these vehicle ads can look attractive,” says Nelson of Sensor Tower.

It’s unclear where drivers will fit into all of this. Lyft said a portion of its revenue from display and tablet ads would go to its drivers, though it did not specify how much. Grether said at Uber Investor Day that some drivers who installed ad displays in their cars saw their earnings increase by about 20% on average.

Still, ad windfall may not be significant to drivers at first, says Jeremy Goldman, director of marketing and commerce briefings at Insider Intelligence, but companies can tap into it as ad sales grow (giving drivers a new revenue source). That increase as an argument for keeping wages low.

“I don’t expect it to happen all that quickly,” says Goldman, acknowledging that it will take time to build market share and develop technology. “It’s really more of a strategy to say, ‘Look what we’re doing for you, we’re buying you into this whole program.'”

Kapur argues that ads could do just the opposite, providing another mechanism by which rideshare companies would be forced to compete for drivers.

“There is going to be a supply and demand problem between the two [companies] Kapur says, “So I imagine if someone does this and it works and it gives the drivers more income, everybody’s going to rush into it because they don’t want to be one place. The drivers don’t want to use it anymore. . . . It could cripple the whole core business.” .”

This story has been updated to correct the year Lyft acquired Halo Cars, a company that makes monitors to run digital ads.

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