When Lyft announced on Monday (Jan. 4) that it had just closed a $1 billion round of funding—which included $500 million from General Motors—it struck some as puzzling. Why would an automaker like GM want a big chunk of a car-on-demand service? Did Toyota ever make a huge strategic invest in Yellow Cab? The answer lies in huge imminent changes within the car industry, as it inches its way from a product business to a service business.
The other half-billion came from more traditional investors, with the Kingdom Holding Company dropping $100 million (bringing Kingdom’s total Lyft investment to $250 million) and the rest coming from Janus Capital Management, Rakuten, Didi Kuaidi and Alibaba. This all brings Lyft’s current valuation to about $5.5 billion.
Where’s the strategic link between a car-maker and a ride-sharer? The statement Lyft issued said that GM and Lyft “are creating an Autonomous On-Demand Network. GM is at the forefront of autonomous vehicle development and Lyft is the leading innovator of software to automate ride matching, routing and payments. Together, the companies will work to help make this integrated network of on-demand autonomous vehicles part of people’s daily lives. Lyft and GM will also work together on a series of national rental hubs where Lyft drivers can rent short-term vehicles, unlocking new ways for people to earn money without having to own a car.”
Just a few years ago, the idea of not having to own a car would be anathema to GM. Today, it may be the only route for GM to hold on to relevance as soon as 2020. Services like Lyft and Uber are using seamless payments to transform cabs into an effortless transportation service, once that finds you based on your mobile device. After all, the most least pleasant aspects of using a traditional cab is hailing it and stopping at your destination and awkwardly paying for the ride.
Hard as it may be for some to envision, the urban lifestyle reality of not owning a car is slowly creeping its way into the suburbs. Why own a car? Why pay for a car for 24-hours-a-day when a huge chunk of that time it’s sitting in your employer’s parking lot, your driveway/garage or someone’s parking lot? What if you could take your car to work and then let someone else have it until you need it many hours later to get home? How much could you save if you only pay for the car when you need to be driving?
If the rental price is low enough and the responsiveness is fast enough, it starts to look attractive.
By the way, the other huge change for cars is found within the answer to another question: Why drive it at all? Driverless cars are becoming reality, as each new year’s model delivers more automation, more “I’ll keep you within your lane automatically” features.
And that brings us to this week’s investment. When most cars are rented or leased—and driving becomes a service, replacing the car as a product—the person paying for the lift doesn’t choose who makes the car. That decision is made by the driver or the driver’s employer. So instead of having to sell its cars to consumers, it needs to influence the purchasers of fleets of cars by entities such as Lyft and Uber.
All of a sudden, that half-billion dollar investment starts to make a lot more sense. The idea is to make sure that when the auto world finishes shifting into its next generation, Detroit is still—to even a limited degree—in the driver’s seat.