Uber’s deal with Didi is very bad news for Lyft

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Earlier this year, Lyft spotted an opportunity.

Its biggest rival, Uber, was under pressure from investors to turn a profit, but was spread thin by global ambitions. Uber had committed to spending $1 billion to expand in India, and to losing another $1 billion a year on operations in China.

Lyft, armed in January with a $1 billion funding round (its biggest ever) and a partnership with General Motors, decided to take its own shot at aggressive spending. It poured money into promotions designed to steal business from Uber in the US—rider discounts, driver bonuses, billboard ads. Lyft reportedly promised investors to cap losses at $50 million a month, and, in April, co-founder John Zimmer said the campaign was working. Lyft, he noted, was ”gaining share in all top 20 markets.”

“Multiple trillion-dollar businesses can be built in the US alone on transportation as a service,” Zimmer said last month. “We’re investing in that trillion-dollar opportunity.”

That was all before Monday, when Uber announced its China division was merging with Didi Chuxing, the dominant ride-hailing company in China. In a striking reversal, the biggest strain on Uber’s finances has been lifted, and its fiercest competitor turned into something of an ally. Suddenly, Uber finds itself in a post-China world, its vast firepower free to use against other opponents. In the US, that means Lyft.

Lyft’s position in the global ride-hailing schema is complicated by the Uber-Didi deal, which includes a $1 billion investment by Didi into Uber Global. Last September, Lyft took a $100 million investment from Didi as part of a partnership that would also let Didi riders use its app to summon Lyft cars in the US. The move was widely seen as part of a global “anti-Uber alliance” and a way for Lyft, which hadn’t expanded internationally, to better compete with Uber’s global footprint. Didi’s ride exchange with Lyft went live in April.

“We always believed Didi had a big advantage in China because of the regulatory environment,” Alexandra LaManna, a spokesperson for Lyft, told Quartz in a statement on Monday. “Over the next few weeks, we will evaluate our partnership with Didi.”

But the real consequence of the Uber-Didi merger for Lyft has little to do with these entanglements. It’s simply that Uber now has billions more to work with, and may well decide to invest it in the US.

Ceding China to Didi wasn’t a complete loss for Uber, but it might now want a clearcut victory to reassert its strength. The US is a natural target. Uber already claims to be profitable in North America and, as of July, said it was doing 62 million monthly trips. Lyft said its monthly ride tally stood at 12 million in June. City-by-city, Uber’s market share is also consistently greater, though both companies dispute the exact breakdown.

To the typical US consumer, Uber and Lyft are essentially indistinguishable. They operate in most of the same markets (200-plus cities for Lyft, 220-plus for Uber) and they offer the same variety of rides and services. Where Uber has surge pricing, Lyft has Prime Time. Where Uber has Pool, Lyft has Line. After Uber cut fares in January, Lyft did the same a week later. When Lyft introduced scheduled rides in May, Uber followed suit in early June.

The result is that most riders have little loyalty to one company over another—they’re simply looking for the best deal. And so the supposedly “asset-light” business of ride-hailing has nonetheless proven incredibly cash-intensive.

Uber has always had the advantage here, with its hefty war chest (now more than $13 billion, thanks to the Didi deal), but China took a toll. Now, the resources it once dedicated to the Middle Kingdom are unfettered. Uber could refocus its energies on other international markets—Europe, South America, Southeast Asia—but it could just as easily go after an easy and decisive win on its home turf. Should it choose the latter, Lyft had better look out.