Bike Sharing: What does Uber know that Lyft will find out the hard way?

On Monday the 2nd of July, Lyft announced to the media that it was buying up Motivate, the bike sharing company that owns brand names such as New York Citi Bikes and San Francisco's GoBikes.

The price being bantered around is $250 million.

Normally, we wouldn't take much notice of such a buyout, and not due to the price, we took notice due to the fact that Uber passed up this deal. So, the question we asked is WTF? Why did Lyft buy something Uber didn't want?

After all, Lyft copies Uber constantly, in fact, it's a well-known fact that Uber starts something, and Lyft jumps on board soon after, usually with an upgraded version.

Uber Motivate

Motivate is an umbrella holding company that owns and operates docked bike-sharing programs in eight U.S. markets, including New York City, San Francisco, and Chicago.

In April, Uber announced it was in negotiations to buy out the company. This was a very bold move for Dara Khosrowshahi, Uber's CEO that is focused on reaching a successful IPO next year.

However, during the negotiations, certain aspects of Motivate became known to Uber, and they were touching some very sore spots. These aspects included:

City Partner Contracts

The city partner contracts that Motivate has with partner cities can be terminated by the City if the company is bought. This requires that Uber secure an agreement from each city that Motivate operates within, to assure that the contract will remain.

This is not so much a legal headache as a chance for cities that are frustrated with Uber to slip in some red herrings into the works, and either try to coerce Uber into paying more for the contacts, or terminating the contracts so that Uber gains nothing.

Unionized Workers

This is a really sore issue with Uber, where the leading light of concern is in Seattle. The city condoned the rights of Uber drivers to unionize, which is a federal issue since the individual contracts between Uber and its drivers make the drivers independent contractors.

As such, they are not allowed to unionize by definition of the law.

If Uber allows a unionized working unit into its corporate structure, it opens up a crack for the remaining contract holders to consider pushing further their demands for unionization. Something that Khosrowshahi wants to steer well clear away from.

Lyft Motivate

What turned Uber off did not faze Lyft. Lyft enjoys a much better relationship with cities, having never argued with them before, Lyft comes off as a much cleaner partner to work with.

Lyft will negotiate the contracts before taking on Motivate and is ready for this since it still needs to climb a lot to reach halfway the value of Uber.

Officially, Lyft stated in its blog that it would take over Motivate's technology and corporate functions, as well as all its city contracts.

However, Motivate's bike maintenance and service operations are not included in the deal, and they will stand alone.

Motivate Power

Motivate held 75% of all bike share rides in the US during 2017; this makes them an impressive force and one that is going to be hard to beat.

However, the real power that Motivate has are decade-long relationships with cities. Something that Lyft could do with to boost its rideshare status.

Long-standing relationships that took over a decade to forge are hard to break, and that is what Lyft is banking on. Add to this the fact that bike sharing is considered to be a very "green" thing, healthy and environmentally safe.

Cities look towards raising bike sharing issues in an effort to reduce traffic and congestion as well as inner city car pollution.

The Big Mac Surprise

What was it that made MacDonald's so big, it wasn't the hamburgers it was the operational excellence and the real estate, and that is a big surprise here. Lyft gains real-estate as well as possible operational excellence from that real estate.

The use of a docking location in any downtown area is gold, even if it costs money to rent. The fact that Lyft will have access to prime-time curb real estate can and will be incorporated into them rideshare infrastructure as well.

Imagine all the Lyft drivers having a potential curb parking area, services such as Lyft Line can use these curb spaces as preferred stops. This means that all Motivate bike docks are potential Lyft rideshare stops and loading zones.

Take for instance Capital Bikeshare, a service Motivate launched in the Washington area in 2010. Today this company has 500 stations and 4,300 bikes. The bikes are great, but 500 stations! Imagine that, 500 landing zones for Lyft in Washington.

This is the clincher that Lyft sought and now gains, giving them a new advantage over their arch-rivals Uber.

Bottom Line

Lyfts deal includes the danger of unionizing workers, not drivers, but it brings more advantages than dangers. The deal can work with Lyft due to the corporate history and the way Lyft operates.

Khosrowshahi realized that there are some battles you don't want to get into and getting into a negotiation with cities would cost him more time and effort, which are resources he can use for other lucrative offers. Uber is, after all, still four times the size of Lyft.

Lyft gains a lot; it gains city contracts, curbside real-estate, and 75% of all bike shares in the US. Lyft has just jumped up a league and is now on the way to closing its gap with Uber.

As Lyft's President and Co-Founder John Zimmer stated to the press "Bringing together Lyft and Motivate will accelerate our collaboration with cities and deliver even better experiences to our passengers and riders."