The Digital Disruption Is Here. The digital disruption is showing up in a very traditional industry, the auto industry. How? General Motors, with the $500 million investment in Lyft, is creating a wider-ranging strategic partnership that will include a rental program for drivers of the car-sharing service and the creation of an on-demand autonomous car network. Lyft and GM began their talks about three months ago at the Los Angeles Auto Show according to John Zimmer, Lyft president and co-founder. The move is part of a larger effort to increase the company’s heft via a number of alliances, such as one with Didi, Ola Cabs and GrabTaxi, in what amounts to a global anti-Uber effort.
Why GM And the Lyft Partnership? Lyft added GM to its arsenal because according to Zimmer, “GM is the largest automaker in the U.S. We both see the future of transportation through a network versus ownership, and this is a step in that direction.” What’s most interesting is to note that GM is looking to the shift away from its main business until now — the sale of cars — to a more service-oriented one.
How Much Has Been Invested in Lyft? The investment is part of a larger funding round of $1 billion for Lyft, including a previously reported $100 million from Saudi Arabia’s Kingdom Holding Company. Other existing Lyft investors will also participate, including Janus Capital Management, Rakuten, Didi Kuaidi and Alibaba. Post-money, Lyft will now be valued at $5.5 billion, which is still a fraction of the $60 billion-plus valuation of its rival Uber. So far, the startup has raised $2 billion since its founding in 2013
According to GM president Dan Ammann, Even for GM, $500 million is a lot of money, but investing in different business models [is] going to be an important part of our future. The car industry is going to change more in the next five years than in the past 50, noting it was eventually moving away from ownership and toward a more software and service business.”
But now, Lyft has something Uber does not yet have — the significant backing of a major U.S. automaker. In May, Lyft did garner an investment from Bill Ford, executive chairman of the U.S. automaker, but it came from a personal venture fund.
What About Self-Driving Cars? The partnership also marks Lyft’s boldest declaration yet that it intends to operate with self-driving cars in the future. Uber is already plowing significant resources into its own autonomous driving research, but it looks like Lyft will outsource this technology to GM. Google, the leader in autonomous driving tech, has also held talks with multiple carmakers about partnerships, including, reportedly, a big one with Ford.
For GM, the investment puts it squarely at a major crossroads. The Detroit behemoth has already made a recent push toward ride-sharing and self-driving cars, but it has moved slower than German rivals Audi and Daimler. In October, GM said autonomous fleets of its electric Chevy Volts would be on the road in 2017.
Presumably, that will be part of the “Autonomous On-Demand Network” that GM and Lyft said they planned to create, noting they “will work to help make this integrated network of on-demand autonomous vehicles part of people’s daily lives.”
What Does This Mean for You? What that means is unclear as yet, with few details about when and where and how. More concretely and immediately, GM and Lyft said they will also offer “rental hubs,” allowing Lyft drivers to rent cars on a short-term basis. While neither Lyft nor GM would confirm whether the deal was exclusive, Amman noted that the partnership would require a “deep level of cooperation and integration.” Neither he nor Lyft president and co-founder John Zimmer would comment as to whether this was a prelude to an acquisition.
On the other hand, what it does mean is that a business that has traditionally been in the business of selling cars is now transitioning into a service business. Which is a true indicator of the power service-oriented economy. How is your business shifting? Is it standing still, doing the same things it’s always done or is it looking into the future at a new version of itself? Perhaps it’s time for some new years resolutions?
@DrNatalie, VP and Principal Analyst, Constellation Research
Covering Marketing, Sales and Service in a Digitally Disrupted Business World