Uber v Lyft: A story about making money in the cloud
Lyft raised eyebrows everywhere when it filed its S-1 in preparation for its IPO. It turns out Lyft is spending close to $100 million per year with AWS. In fact, it is a contractual obligation. The media gobbled up this story, and the widespread reaction was that Lyft’s cloud spend was way out of whack compared to non-cloud alternatives. Journalists and know-it-all tech pundits on social media painted visions of hipster bean counters treating the infrastructure budget as though it was made of Monopoly money. Lyft’s engineering team was clearly a bunch of kids in need of adult supervision. While that’s a possibility, perhaps there’s more to this story.
To get to the bottom of this, let’s start at the beginning. Uber invented the ride share market, which is always nice if you can do it. The company methodically established a network of drivers and built a phenomenal infrastructure that could track them and pair them with riders worldwide within seconds. With a three-year head start, deep pockets, and an insurmountable brand with drivers and riders alike, Uber became the “verb” for ride sharing before Lyft was an idea. Uber had a strong moat around its business, deep and wide as any.
By starting slow and iterating toward their ultimate business model, Uber was able to gradually work toward an infrastructure that could support a city, a few cities, regions and then countries. This head start enabled their market domination, with no credible competition. When Lyft started, it had no drivers, no riders and no platform. The company did not have the luxury of starting slow. It had to have comparable infrastructure on Day 1 to have any hope of attracting drivers and riders.
So, what did the company do? Broke out the credit card, created an AWS account and got to work. The founders didn’t wait for data centers to be built and leased. They didn’t wait for thousands of servers to be shipped in literal containers. Instead, they built a container-based microservices platform that allowed the company to rapidly move from prototype to scale. They took advantage of serverless and zero touch AWS services like DynamoDB and Lambda. With little knowledge of Uber’s inner workings, Lyft built its own platform in a fraction of the time and cost. And … it was good!
Six years later, Lyft prepares to IPO ahead of Uber. Though lagging in overall market share, Lyft continues to consistently narrow Uber’s advantage. Lyft has executed superbly and capitalized on Uber’s missteps. But none of this would have been possible without having first built infrastructure that could compete on Day 1. And where Uber could scale out its design using late-stage funding, Lyft had to do all this with its much smaller early-stage funding.
Until Uber files for its IPO, offering insight into the company’s financials, it’s difficult to do a true comparison of whether Lyft could save money today by shifting out of the cloud and into a design similar to Uber’s. But it is abundantly clear that Lyft was able to cross the formidable moat Uber had built as a direct result of their decision to build in the cloud six years ago.
Which infrastructure platform is cheaper on a dollar-for-dollar basis is irrelevant. Responsibly managing cost is always a key priority, but nothing is more important than positioning yourself to compete in your market and grow your business. Lyft is agile, ready to respond with similar speed as the now-competitive ride share market continues to evolve.
While Uber strives to repair its image and scales back its overly ambitious operations across the globe, Lyft iterates with impunity. While Lyft has a minimum spend with AWS, it has the freedom to reallocate that spend as it sees fit at any time. Uber can’t so easily replatform, particularly when it becomes a public company — any major change it makes in design will hit its balance sheet hard. Lyft can throw it all away tomorrow and rebuild in a dozen other ways. Its balance sheet won’t change a penny. Lyft has a nice moat of its own now, thanks to the cloud.