Alphabet & Softbank backing Lyft & Uber
Uber’s track record is hardly faultless, but it’s difficult not to admire their endurance. Following a tide of controversy, personnel shake ups and outright rejection by Transport for London (TfL), their position was decidedly bleak. Just as it was starting to look like Silicon valley’s former sweetheart had reached breaking point, huge Japanese conglomerate Softbank announced a multibillion dollar investment in the business. At the same time, Google’s parent company Alphabet revealed that it would lead a $1b funding round for Uber’s long time rival Lyft. The two international tech giants appear to be going head to head in a race to dominate ride hailing, but what does this mean for the industry and the businesses within it?
Lyft-ing the bar
In spite of expectations that Softbank’s multibillion investment would be confirmed by the end of last week, finalising the deal has been far from a smooth ride. Despite a unanimous vote to accept Softbank’s proposal, Uber board members are now speaking up against the structure of the investment. Softbank will receive a 14 to 20 per cent stake in the company, and while some of this will come from new shares, $5b to $8b will be used to purchase existing shares at a lower price. This could reduce the company’s valuation by at least $10b, so you can see why Uber’s board members are a little disgruntled. An anti-collusion agreement is currently under discussion in an attempt to stop dissention, placing even more strain on the negotiations. Lyft has had no such issues, but that’s not surprising given the smaller amount of funding. In light of the huge difference between company valuations, Lyft doesn’t look like a serious threat. But as Uber’s worth threatens to fall, Lyft’s inadvertently rises, consequently pointing to the emergence of a David and Goliath situation. As well as Alphabet, Lyft has also made deals with Jaguar Landrover and Ford, and has received $500m in funding from General Motors. So, while Uber waits with bated breath for major money, Lyft is making considerable headway with big corporations. Interesting.
Can Uber avoid the road to ruin?
Softbank’s hefty investment plans show that companies are still willing to back the ride hailing app despite ongoing controversy. The funding has the potential to help the transportation company to transform its image by opening up six new board seats, releasing an IPO (Initial Public Offering) by 2019, and ending the super voting shares held by company veterans. Taking the company public would be a significant move towards encouraging accountability. By offering shares to the general public, businesses can reach more investors, improve their bargaining power with financial institutions and increase overall credibility. Uber isn’t giving up on its take-no-prisoners expansion plan, and Softbank’s investment would give them even more power to carry it out. From Softbank’s perspective, Alphabet’s financial commitment to Lyft is a stark challenge. An investment war between the two tech giants, using Uber and Lyft as battering rams, could be a double edged sword for the transportation industry. On the one hand, it could drive innovative disruption and healthy competition. On the other, it could create a tug of war monopoly between the two ride hailing businesses that disadvantages every other competitor.
Regardless of the countless challenges that Uber has faced in the last few years, the company is still the world’s most valuable private company. By pursuing the same aim with a new approach, the startup hopes to bring accountability to their questionable history. Softbank’s multibillion dollar promise will be instrumental in making this happen, provided that the two companies can reach an agreement. Either way, the involvement of Alphabet has opened yet another chapter in the ongoing saga between Uber and Lyft. At the moment, each side is playing a tentative waiting game. It’s up to Uber to decide how much it’s willing to sacrifice in exchange for Softbank’s cash. The longer this takes, the longer Lyft has to chip away at their rival’s monopoly. Luckily for them, the negotiations don’t seem to be going anywhere fast.
Does Lyft present a real challenge to Uber? Are Softbank and Alphabet readying themselves for an automotive arms race? Can an IPO save Uber’s crumbling image? Share your thoughts and opinions.