Why Uber and Lyft are taking advantage of the advertising business

Making money by connecting users to attractions is a notoriously difficult business. Uber and Lyft lose a lot of money every quarter.

When both companies were flooded with venture capital funding in their early years of operation, it wasn’t much of a problem. Thanks to VC funding, Uber and Lyft were able to offer users extremely low fares while paying their drivers.

Then they became public. Lyft made its market debut in March 2019; Uber followed up with an initial public offering that May. These IPOs meant that the two companies now had to prove to investors that they had viable business models and could turn a profit.

This is where advertising comes in.

Last week, Lyft announced the creation of Lyft Media, its advertising arm. Lyft, which acquired a company in 2019 that makes monitors to run digital ads on cars, is looking to sell ad space on in-car tablets used by drivers, on digital display panels and its bike docking stations and through in-app sponsorships. Lyft will compete with Uber, which entered the advertising business in 2019 and sells ads through both its main app and Uber Eats, as well as offering display ads on its cars.

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

“We’ve seen carpooling happen [just] ridesharing on Uber Eats and delivery mechanisms, for now maybe deliver beyond food,” says Arjun Kapur, CEO and founder of Comcast’s venture group, Forecast Labs. fast company.

“But you know,” adds Kapur, “there are 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 would leverage the assets and capabilities of the existing business?

For the two largest companies in the US, the answer appears to be advertising. It makes sense, considering that millions of users look at their phones when booking travel. Uber and Lyft have captive audiences among their drivers, who are either looking at their devices while riding or sitting in cars that have plenty of room for digital ads.

“Essentially, it’s a situation of ‘We’ve got it, why not use it,'” says Randy Nelson, head of mobile insights at mobile app market intelligence firm Sensor Tower.

It also helps that both companies have unique access to their users. Uber and Lyft could boast to advertisers that they have the ability to target ads to specific customers, based on things like ride history or food orders.

“They probably know a little bit about the person and can get more access to the data and try to be a little more sophisticated than general taxi advertising,” says Kapur. “Even the tiniest layer of data on that can tip the scales for brand advertisers who want to put a lot more money into it.”

This could be an extremely lucrative opportunity for the ride-sharing giants. Uber’s ad division generated revenue of $141 million 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 with the your new unit.

The generation reaching their prime as consumers has markedly different views on advertising today, so advertisers are reworking their strategies to connect with them, and that’s where these in-vehicle ads could look attractive.” says Sensor Tower’s Nelson.

It’s unclear where drivers will fit into all of this. Lyft said a portion of its display and tablet ad revenue will go to its drivers, though it did not specify how much. Grether told Uber’s investor day that some drivers who had installed advertising screens on top of their cars increased their earnings by about 20% on average.

Still, ad revenue likely won’t be significant for drivers at first, says Jeremy Goldman, director of marketing and trade briefings at Insider Intelligence, noting that as ad sales increase (giving drivers a new source of income), companies could use this growth as a rationale for keeping wages low.

“I don’t even expect that to happen this soon,” Goldman says, acknowledging that it takes time to grow market share and develop the technology. “It’s much more of a tactic to say, ‘Look what we’re doing for you, we’re bringing you into this whole program.'”

Kapur argues that the ads could do the exact opposite, providing another mechanism by which ride-sharing companies will be forced to compete for drivers.

“There will be a supply and demand problem between the two [companies] that they should fight,” says Kapur, “so I would imagine if one does and it works and it provides more revenue for drivers, everyone will rush to that because they don’t want to be the only place where drivers don’t want anymore use. . . . This could cripple the entire core business.”

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

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