James Currier explains why Lyft lost to Uber despite similar network effects. He points to supply-side dynamics: Uber's diversification into DoorDash gave it cash to outspend Lyft on driver incentives, while regional network effects can collapse fast. His fix: identify key supply nodes and give them equity to lock them in.
Sure. What's up, James? Thank you for your time and your insights. It's nice to hear an East Coast perspective and hearing a lot of West Coast. My question goes back to an earlier comment you made around Lyft, and it sounded like their network effect is kind of staggering a bit. I was hoping you could kind of share some more insights on that and maybe how we can, as marketplace operators, make our network effects a little bit more defensible.
Yeah. So I I think what happened with, if you go back to NFX and type in like NFX Uber, you'll get an article that we wrote 4 or 5 years ago about Uber and how their network effects just aren't that defensible. And yet nobody's been able to challenge them because of their size and scale. And what has happened in the last couple years with Lyft is that as their network effect in their various regions has diminished, as their market share has gone from 60% to 50 to 40 to 30 20% market share versus Uber in various cities around the US, those individual network effects, which are regional, have collapsed. So you look at Boston, Boston used to be the number 2 tech center. It's now number 4 or 5 because the city's tech ecosystem just collapsed after enough people were stolen out of it into San Francisco and New York. And the same thing's happening to Lyft and Which is unfortunate because I prefer the brand and I prefer the management to the Uber. And I was an investor, but I mean, obviously I got out years ago. But what ends up happening is the fewer, you know, the fewer drivers you have, the longer the wait times and the fewer drivers you have, the more you have to pay them to keep keep them on the network. And so, and the less money you have in the bank, the more margin you have to take in order to keep going. And so your prices end up being higher. So if you look at Lyft and Uber in San Francisco, you know, over the last year I've had to move off of Lyft onto Uber just because it's always cheaper and they're always faster just because of a network effect. And so the way that Lyft would've managed through that, I don't think it's savable anymore. I think they've got billion of debt and like they're burning half a billion a year. And I think they got $2 billion in the bank or something. So that gives them about 2 years of cash unless they fire half the people, which they probably could. But anyway, you know, the only way to do it is to keep incentivizing the supply side. It turns out that this is a supply-side market, that as long as you have supply, you will have a lot of demand. But the problem is finding and retaining your supply side. And so they just needed to have focused on that. And that's how Uber ended up becoming more indefensible. Now, the other thing Uber did was they got into the DoorDash business, which ended up being the better business, which was hard to know, you know, 13 years ago, you know, 14 years ago. But turns out that DoorDash has the higher frequency and the higher AOV. And so that has really propped up Uber in order to get their metrics to the point where they can sustain on the rideshare side. Long enough so that Lyft just dies. So in terms of making your stuff more defensible, you've got to figure out who the key nodes are and do whatever it takes to keep them there. Like, you know, you think about, you know, if you go to the article on NFX called Network Bonding Theory, that's like the motherlode of sort of interesting thinking about this. It's not an article that a lot of people reference because it sounds so boring, but there's actually a big example about Messi in there and his network, you know, sort of adding that node into a network and its effect on that network. And if you start to think that way, you'll realize that there might be in your marketplace, there might be 8 or 10 people who you're willing to like give them 2% of the company each in order to keep them on your marketplace. Because if you do that and the other nodes on the supply side coalesce and then all the demand comes to you and you end up winning and you only gave up 14, 15% of your company, do that with them rather than doing with the VCs. And, you know.
