I keep seeing articles explaining why Uber is so expensive and Lyft is so expensive when they used to be much cheaper. The answer is that as publicly traded companies, Uber and Lyft are no longer allowed to play the kind of funny-money games they did when first starting up where they covered part of the payment to drivers to make their service seem cheaper.
Reality Catches Up to Uber and Lyft
When Lyft and Uber were private companies swimming in piles of venture capital money, they paid drivers more than they could earn in order to attract enough drivers to their start up service. Once they were established, and knocked off the incumbent monopoly of taxi drivers, both Uber and Lyft tried to be real businesses by cutting the amount they were paying drivers in order to try and make rides profitable to the company. They never succeeded.
Initially, Lyft drivers and Uber drivers didn’t have many alternatives, but the pandemic boosted the food delivery business enough that drivers found a way to make more money by delivering food. This cut the number of drivers willing to driver for Uber and Lyft as well as the number of hours each driver provided to the driving apps.
Check out my Acorns review
These days, serious gig drivers work both Uber and Lyft, as well as multiple food delivery apps, and even some grocery or package delivery in the form of Amazon Flex, and others. They take whichever offers the highest pay, for the easiest (fastest) gig at any one time.
The reality now is that Uber and Lyft must pay their drivers more in order to compete. Since they can no longer burn piles of money like in the VC days, they have to raise the amount they charge passengers to keep up with those costs.
The end result is a market place that exists almost purely on supply and demand. Uber doesn’t dare raise prices any higher than it already has to in order to cover the cost of the driver for fear of driving away even more business, and neither can it cut the amount it pays drivers in order to generate more profit. In other words, passengers pay essentially, what the driver earns, with a small markup for Uber or Lyft.
Need to find the difference between a rollover and a transfer
Investing in either Lyft or Uber means being able to predict how other investors will stomach continued losses, and when they will get tired of hearing that growth means it is okay to not be profitable.
About the Author
By Brian Nelson – Brian is a former Certified Financial Planner (CFP) and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. At the time of publication, Mr. Nelson did not own any securities mentioned above, however, that may change at any time without notice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.