For now, the battle is lopsided. Uber, led by sharp-tongued technologist Travis Kalanick, operates in nearly three times as many markets as Lyft, whose co-founders Logan Green and John Zimmer have crafted a friendlier image by attaching fuzzy pink mustaches to cars and encouraging passengers to greet each other with fist bumps. Uber also has four times as many employees and five times the amount of funding from investors.
The ridesharing battle between Uber and Lyft has taken a fierce turn with the companies recruiting each other's drivers, offering refunds on commissions and canceling rides to clog the system. WSJ's Scott Austin has details on digits. Photo: Getty Images.Forget Apple vs. Google. The fiercest battle in the tech capital may well be between two heavily financed upstarts plotting the demise of the taxi industry—and each other.
Uber Technologies Inc. and Lyft Inc. operate just blocks from each other in San Francisco, yet their bitter war has spilled into dozens of cities where they are racing to provide the default app for summoning a ride within minutes.
Lyft has crafted a friendly image by attaching fuzzy pink mustaches to its cars and encouraging passengers to greet each other with fist bumps. Getty Images
The two rivals are undercutting each other's prices, poaching drivers and co-opting innovations, increasingly blurring the lines between the two services.
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But this is more than two tech darlings duking it out. It's a battle for a key role in the future of urban transportation. Many commuters now rely on Uber and Lyft to get around rather than taking cabs, buses or trains and, in some cases, their own cars.
The loudest opposition to the ride-sharing apps comes from regulators, taxi drivers and local taxi commissions, which have moved to ban the companies from operating, offering proof that a multibillion-dollar transportation industry has entered a phase of rapid transformation.
Meanwhile, the potential market for these companies may stretch beyond rides. Investors who bid up the value of Uber to $18.2 billion in June are betting it can expand into being the backbone of a logistics and delivery network for various services—a kind of FedEx for cities.
But a market-share lead doesn't assure success. By dreaming up new ways to move passengers from point A to point B, Lyft and other ride-sharing startups have created new arenas of competition.
Uber vs. Lyft
Troubling Tactics Alleged: Lyft alleges that 177 Uber employees have ordered and then canceled more than 5,000 rides on the Lyft service since last October. Read more about this latest twist.Plus:
The Return of Commissions -- With a Twist
The rivalry extends to the recruitment of new drivers, the lifeblood for the services as they attempt to build the biggest networks with the the fastest pickup times. A Lyft spokeswoman said Monday that representatives from Uber have abused its service in the past several months with the goal of poaching drivers and slowing down its network. Passengers who identify themselves as working for Uber frequently order a Lyft and then ride for only a few blocks, sometimes repeating this process dozens of times a day, she said.
Many of these representatives may actually be Uber drivers motivated to get a bounty by referring a new driver. According to an email Uber sent to drivers in May that was reviewed by The Wall Street Journal, the company offers $250 for referring a new driver to its service; $500 for referring a Lyft driver; and $1,000 for signing up a Lyft "mentor," an experienced Lyft contractor who helps train new drivers.
A spokeswoman for Uber denied the company is intentionally ordering Lyft rides to add congestion to its competitor's service, but confirmed the company does offer recruitment incentives. "We recently ran a program where thousands of riders recruited drivers from other platforms, earning hundreds of dollars in Uber credits for each driver who tries Uber," she said.
Another salvo in their battle occurred last week, when both companies unveiled similar carpooling services within hours of each other. The two offerings, Lyft Line and Uber Pool, will both let passengers ride with strangers and split the bill, lowering the cost of regular commutes.
Pooling customers may mean fewer rides and less revenue for ridesharing companies at first. But over time, the appeal of cheaper commutes could entice new customers to sign up and boost usage by existing riders, said Mr. Zimmer, Lyft's president.
Lyft has been developing a carpooling model for several years and acquired a team to lead the effort months ago, Mr. Zimmer said, adding, "I think it's flattering when other companies look at how we're innovating and want to do similar things."
An Uber spokeswoman said that company has been working on UberPool for several months and filed patents involving carpooling late last year.
Regarding the competition, the Uber spokeswoman said: "Uber was first to market by years, back in 2010 when nobody believed any of this was possible. We now have competitive clones on each of the five continents where we operate, and that competitive spirit is good for consumers and for the marketplace."
Lisa Gansky, an investor in smaller ride-sharing startup Sidecar, said that new features can gain popularity so quickly that it makes sense for Uber and Lyft to match one another in case something becomes a big hit. Last week, Sidecar also said it has been testing a carpool feature for several months.
Given all the money Uber has raised, it could afford to buy Lyft and end the rivalry. The smaller startup was valued at $700 million in a round of funding in April, and Uber just banked $1.2 billion from investors in June. But Mr. Kalanick has been dismissive of other startups, instead pursuing a strategy of building the most popular features in the marketplace.
The most successful clone in ride-sharing is UberX, which Uber launched in 2012 to pair amateur drivers with passengers. Up until then, Uber was a high-end car service offering Lincoln Town Cars and white-glove treatment. But just months after Lyft launched and began to popularize the concept of ride-sharing, Uber introduced its own service, becoming in the process a more affordable transportation network for a wider variety of customers.
For its part, Lyft has borrowed heavily from Uber. Uber originated a real-time map showing nearby drivers, and the design of Lyft's app is similar. In addition, Lyft's "prime time" prices for peak-demand times are a variation of Uber's surge pricing.
The startups also compete in lockstep on pricing. Both companies have squeezed their profit margins to reduce prices and add more customers. Lyft earlier this year went so far as to forgo its 20% commission on rides. 
On Monday, Lyft said it is reintroducing commissions but will base them on how many hours its drivers work per week. A driver who logs 50 hours or more won't have to share any fees with Lyft, for instance. At the other end, one who drives fewer than 15 hours will share the full 20%.
The company also said it will begin keeping 20% of "prime time" pricing, a policy change that could rattle Lyft drivers who are used to keeping all of those extra fees for themselves.
Mohan Lama, a former yellow cab driver in San Francisco who now drives for Uber, believes more drivers will stop using Lyft when the company begins taking commissions again. "The day Lyft will start commissions, their drivers will stop working," he said. "Lyft is in a trap."
Courting drivers has also meant offering them an array of benefits, from insurance to new-car financing. This past March, Lyft and Uber each announced in the same week they would add insurance between rides, rather than just covering the time a passenger is in the car. Those moves helped placate regulators, who have raised questions about the culpability of ridesharing startups when accidents occur as drivers are on their way to pick up passengers.
At times, the fight between Uber and Lyft has gotten nasty. In March 2013, Mr. Kalanick challenged Mr. Zimmer on Twitter about Lyft's offer of an insurance policy. The back-and-forth ended with Mr. Zimmer asking Mr. Kalanick to stop by his office. The Uber CEO responded by tweeting, "you've got a lot of catching up to do... #clone."
The ease with which Uber and Lyft can imitate each other's features highlights the ride-sharing industry's low barriers to entry, said Thilo Koslowski, an analyst for Gartner Inc. Because Uber and Lyft don't own cars or employ chauffeurs, they are essentially matchmakers between drivers and passengers, he said.
But investors who have poured a total of nearly $2 billion into the two companies are betting the apps will have staying power. Millions of people are now used to riding with Uber, and the app is still one of the most popular programs in Apple's App Store.
"Organizing demand is remarkably hard and extremely powerful," said Bill Gurley, a partner at Benchmark and a member of Uber's board. "Being installed on someone's iPhone on the home page is a pretty sticky place to be."
Write to Douglas MacMillan at douglas.macmillan@wsj.com
