July 9 (Bloomberg) -- Uber Technologies Inc. is facing a fresh pair of challenges in its largest market, from a deal to cap prices in New York to the entry of competitor Lyft Inc.
Uber, which has been operating in the city since 2011, reached an agreement with New York Attorney General Eric Schneiderman to limit its peak-pricing tactics and cap fees during emergencies, potentially restricting revenue. Lyft said separately yesterday it will start offering ride-sharing services on July 11 in New York with 500 drivers, bringing more competition to Uber, which was valued at $17 billion in its latest financing round.
The developments add to a growing list of headaches for Travis Kalanick, Uber’s co-founder and chief executive officer. The mobile car-booking service has drawn the wrath of local taxi industries, with cabbies staging protests against the company in cities from London and Madrid to Berlin and Paris. Uber has also faced lawsuits in the U.S. and regulatory scrutiny in cities such as Seattle, as it seeks more customers by offering new ways to move more efficiently through cities.
``Uber may still do well in the New York market, but these new challenges will make the path harder,'' said Michael A. Carrier, a professor at Rutgers School of Law in Camden, New Jersey.
The entry of Lyft boosts New York’s profile as a key car-service battleground. Uber temporarily cut the price of its UberX service by 20 percent in New York this week, striving to become cheaper than taxis. Lyft’s service in New York will also be more affordable than a taxi, Lyft co-founder John Zimmer said in a phone interview. He declined to compare fares to Uber’s.
Moving into New York is “something we wanted to do for a long time, especially in the outer boroughs, building into a vision of creating a personal transit network at the lowest possible cost,” Zimmer said.
Lyft, based in San Francisco, has seen strong demand from potential drivers and users in New York, where Lyft’s mobile application was downloaded 75,000 times, Zimmer said.
To challenge Uber, which operates an unadorned fleet of vehicles, Lyft is giving up the big pink mustaches that usually hang on the grills of cars so that riders can identify Lyft vehicles. Instead, drivers in New York will be given a smaller version that they can display inside vehicles.
Lyft and Uber are both working to upend urban transportation and have amassed stockpiles of cash to expand operations. Uber raised $1.2 billion in the funding round. In April, Lyft received $250 million from investors including Alibaba Group Holding Ltd. and has been rolling out its service in new cities. New York is the 68th city where Lyft will operate, Zimmer said.
Unlike traditional taxis with fixed fares, Uber’s prices vary depending on demand. Uber agreed with the attorney general’s office to limit pricing during “abnormal disruptions of the market” under an accord. The company sometimes charging as much as eight times its base rate during storms, Schneiderman said.
The agreement is a “thoughtful application of long-established law to new technology,” Schneiderman said in a statement yesterday.
“This policy intends to strike the careful balance between the goal of transportation availability with community expectations of affordability during disasters,” Kalanick said in a statement.
Zimmer said Lyft has an opportunity in New York because 95 percent of the city’s transportation resources cover Manhattan and the airports, leaving boroughs such as Brooklyn and Queens underserved.
To stoke demand, Lyft will offer its service in New York for free for at least the first two weeks. The company, which makes revenue by taking a 20 percent commission from drivers for each trip, will waive that fee for now. Lyft has also temporarily waived its commission in all of its markets. Lyft said it discussed its service with the city government, as well as the New York City Taxi & Limousine Commission.
Lyft doesn’t anticipate any protests as it begins operating in New York, Zimmer said. Lyft’s service in New York will also be a pure ride-sharing one, he said. While UberX is a ride-sharing service in the other 74 U.S. cities where it operates, UberX drivers in New York have a taxi license and follow a more conventional commercial model.
Uber also offers luxury car-booking and other services in New York, including providing helicopter transport to the Hamptons from Manhattan for $2,500 for five people over the Fourth of July weekend.