While people may normally count on Lyft to get them to their destination, the rideshare company is hoping customers won't mind looking at a few ads while on their way.
And, with consumer attention split between so many distractions online and offline, being able to capture a captive audience in the backseat of a car may be a smart strategy for brands and the company alike.
"Lyft's vast transportation network across rideshare, bikes/scooters and more reaches tens of millions of active riders annually," Kenan Saleh, Lyft Media general manager, said. "We offer brands a differentiated and unparalleled advertising ecosystem–from targeted and measurable OOH to direct channels that reach a highly-engaged audience both in-app and during rideshare rides."
Lyft announced a new division called Lyft Media on Monday, focused on its advertising and media business. The initiative builds on its acquisition of the rooftop advertising startup, Halo Cars, in 2019, which puts digital billboards on the top of vehicles. Other potential places that advertising can be shown include tablets in cars, on Lyft-run bikeshare networks (including Citi Bike in New York City, Divvy in Chicago, and Bay Wheels in the San Francisco Bay area), and within the Lyft app itself.
"The announcement of Lyft Media signals how they're trying to keep up with other brands vying to create their own retail media network and use their own first party data to create specific data products for advertisers, which could be advantageous," Ashwini Karandikar, advertising group 4A's executive vice president media, tech and data, said.
The new division also gives Lyft another steady revenue source to help offset losses, Forrester senior analyst Nikhil Lai said.
"For Lyft, high-margin operating income from advertising can offset the cost of acquiring and retaining drivers," he said. "Lyft is running a similar play to Amazon, whose operating income from advertising offsets losses from product sales and subscription services."
But it will face stiff competition. Lyft's main competitor Uber has had its own advertising division, starting in 2019 when it put ads on its Uber Eats options. It has also included ads on top of cars and within its app. During a call with investors in August, CEO Dara Khosrowshahi said the company was projecting its advertising revenue would reach $1 billion by 2024.
"Growing its ad business will diversify Lyft's business model, but it's hardly enough to compare with the likes of Uber, whose Uber Eats business makes that company far more differentiated than Lyft is," Jeremy Goldman, an Insider analyst, said. "Uber has said that its ad business could achieve $1 billion in revenue by 2024. Lyft is trying to hail a ride, but Uber is already in a car and part of the way to its destination."
Brands are also scaling back on marketing budgets, with inflationary costs and a potential recession on the horizon. However, the company believes its can weather any potential issues.
"Transportation is a historically durable category of consumer spending, even in a recessionary environment," Lyft's Saleh said. "We are confident our products and network will continue to prove attractive to advertisers."
And if riders decide they've had enough ads, they can always turn away. The in-vehicle tablets can be turned off during the rides, for example. However in tests in Los Angeles, only 1 percent of customers decided to turn off the screens. In addition, the company discovered that one out of four riders engaged with the tablets, and tips went up by about 28 percent per ride among those who used the tablet in the last quarter of 2021.
"Feedback during pilot testing in Los Angeles showed positive results with 98 percent of riders noting the tablet as positive or neutral to their ride experience," Saleh said.