Dear readers,

US ride-sharing duopoly Lyft and Uber are both headed for public markets this year. Competition, cash burn and autonomous cars will all be up for discussion before they get there. Drivers should be too.

Neither the hourly rates that drivers earn nor their worker status are topics that endear the companies to the public. Offering participation in initial public offerings will go down well with drivers who can afford to put money away. But it is not enough to quieten those who believe they should be regarded as company employees.

Expect both companies to push back while trying to maintain their status as responsible, mature organisations. Perhaps Uber will go back to advertising driving as a side hustle that can supplement passion projects such as music. Lyft says that most of its drivers drive less than 20 hours per week. Both suggest that driving is not generally a full-time occupation. Both classify drivers as independent contractors.

That has gone down poorly in some of the world’s largest cities. New York recently passed a minimum wage rate that ride-hailing companies had managed to avoid in the past. In London, judges have repeatedly refused Uber’s claim that its drivers should not receive benefits such as sick pay or holidays. The city has already forced Uber to limit the hours that drivers work. That is safer for everyone who gets into the back of one of their cars. It also sounds suspiciously like the sort of thing an employer would do.

Lyft is so far limited to the US and Canada so has not faced London courts. But in the prospectus it filed on Friday last week, the company made a big play of its responsibilities — claiming to view its role as helping to remove cars from cities. It also revealed that it had thousands of lawsuits against it, many from drivers who do not want to be classified as contractors.

The question of driver employment status is particularly acute because neither company has given a precise road map for profitability in spite of almost a decade of operations. While they compete it will be hard for one to raise prices. Spending money on employee taxes and benefits adds to costs and pushes back the prospect of profits.

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More riders meant Lyft doubled revenue last year. It is taking a bigger cut of payments too (27 per cent last year, up from 18 per cent two years earlier — see chart above). Revenue is growing faster than losses, which rose by a third last year. Those are all positive attributes for a company that emphasises growth into more and more cities (see chart below). But it is still spending heavily — meaning a net loss of $911m last year. Investing in Lyft’s IPO means keeping faith that co-founders Logan Green and John Zimmer have a plan. Their decision to award themselves super-voting shares means outside influence from shareholders will be limited. It is worth mentioning that not all founder chief executives with a vision do this. Jeff Bezos is instrumental to Amazon’s sprawling rise but does not have super-majority stock.

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Longer term, both Uber and Lyft are investing in autonomous vehicles. The idea is that one day driver costs will be eliminated altogether. But who knows when that will be. In the meantime, research and development costs are on the up.

The big unknown is the role of cities. If they decide that filling streets with cheap taxi services increases cars and pollution on the road, or want to take more control over transportation strategies then both Uber and Lyft could see car numbers capped. To avoid this, both need to stay on the right side of authorities. Such contortions will be awkward. The illusion of the gig economy as a haven for flexible freelancers has long been punctured by the reality of low pay and insecurity. 

Enjoy the rest of your week,

Elaine Moore
Deputy editor of Lex

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