Uber and Lyft’s California Threat

Uber and Lyft could be in real trouble, pushing them to come together as one company. I have expected them to become one company by next year unless something dramatic happens.

In July 2017, I wrote why Uber and Lyft will merge. I had put the date as 2022. On LinkedIn, the call was challenged: many believed that antitrust/competition regulators would not allow that. Of course, I gave a reason: these pairs battled until they went to parties – Elance/Odesk (now UpWork),  Groupon / LivingSocial,  Sirius / XM, Rover / DogVacay, and DraftKings/FanDuel. I did not see any core strategic advantage in Uber and Lyft that would keep them profitably sustainable, as they battled each other, destroying value in the process.

According to Fortune, the companies may temporarily shut down their ride-hailing services in California as soon as this week.

The move depends on whether a state judge grants them an appeal or more time to reclassify their drivers from contractors to employees, as has been required by law since January. If they lose or if no ruling is made by Thursday, the services said they would go dark in the state until they have the systems in place to pay and track drivers as employees. The services say they’re not ready for the switch, even though they’ve had almost a year to prepare.

“At first I thought this was an empty threat,” said Mark Shmulik, an analyst at brokerage firm AB Bernstein. “But assuming appeals court says ‘no’, I actually do believe Uber and Lyft will shut down temporarily in California.”

[…]

If voters don’t pass Prop 22, Uber and Lyft likely would pull out of rural areas, which typically have low demand, and raise prices in the state’s urban areas to offset the extra costs. Uber may also try to push more drivers to work for both its rides and food delivery services to reduce costs, Shmulik said.

The risk for these two companies is simple: if California makes this happen, the probability of other states pushing for the same ordinance goes high. And if that scales across America, the business model of Uber and Lyft collapses.

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