Detailed breakdown of Uber’s business model in Kenya puts spotlight on weaknesses

Latiff Cherono has just published an indepth analysis of what exactly it takes for an Uber driver in Nairobi to cover the cost of doing business. Here’s a snippet,

In this post, I try to understand the root cause of the disconnect between how the customer (who defines the value), Uber (the service that controls the experience) and the driver (the one who provides the service).

He accompanies his analysis with a detailed breakdown of costs and revenues, such as the table below, and others in his post.

And concludes:

The incentive for any person who starts a business is to maximize their profits. As such, we should expect that Uber drivers will approach their business in the same vein. However, the data provide by Uber to the driver is limited and prevents them from making informed decisions about generating revenue. For example, drivers do not know the estimate distance of a new trip when they accept it via the app. They are also penalized for not accepting rides (even if that trip may not make financial sense to the driver). All this is by design as Uber wants to maintain a steady supply of “online” vehicles on their network. One may argue that Uber is not being transparent enough with its independent contractors.

My thoughts:

Nairobi, Kenya isn’t the only ‘developing’ country context where Uber is creating unhappy drivers (and customers, one assumes) due to the design of their system. While most of the first world challenges to the company have come from the perspective of the formal economy and its regulations and laws regarding revenue, tax, employment status et al, the same cannot hold for the entirely different operating environment where the informal sector holds sway. And taxi driving is one such service.

Kampala, Uganda has it’s own challenges for Uber, including:

Uber drivers are reportedly leaving the service, switching off the Uber apps or not picking calls from corporate clients and those paying with a credit card. For the first four months after its launch, Uber was offering drivers incentives that saw them earn between Ush200,000 ($57.1) and Ush350,000 ($100) a week.
With increasing competition, drivers say that Uber’s incentive structure has been changing. In the first four months, Uber drivers were getting Ush15,000 (about $4) per hour, but this has since been scaled down to Ush10,000 ($2.9) and to Ush4,000 ($1.1) in incentives.

There is so much to be unpacked here, including the entire section on Uber’s own perception of how the market works, upto and including how to introduce time limited incentives, that I’ll follow up on it subsequently.

In this post, I wanted to highlight Latiff’s analysis and hard work pulling together the operating costs data, even as I leave you with this snippet from the article:

Uber’s commission in Nariobi was reduced from 25 to 20 per cent following protests by drivers in August, accusing the taxi hailing service of working them like slaves.

As I wrote earlier in the year, Uber could have done so much more in these markets, particularly on the path to formalization. Instead, they’re continuing on their journey as yet another smartphone app making life even easier while squandering the potential for real world change for the less privileged members of our societies.

Uber’s app lowers barriers to formalization for unorganized taxi industry in Kenya

Nairobi Taxi stand, Kenya. February 2016 (photo: Niti Bhan)

This interesting article in the Kenyan news made me think about the role that an app like Uber could play in markets where there’s a high proportion of informal & unregulated business activity.

As with much technological advancement, resistance comes with change. Mpesa and the internet were once thought to be passing fads and have later changed industries. Uber’s disruptive strategy strayed from the normal operations in the local taxi industry. However, its benefits cannot be slighted. The app organizes the industry while creating a registry of taxi operators complete with their personal details and revenue earnings.

[…]

Deal with the local taxi organization or the app. Under the current laissez-faire model, the taxi associations are unregulated with the government unable to protect the consumers. Uber has stepped in to shape an unstructured industry into a formal operation.

What’s really interesting here is that same elements of the sharing economy that disrupt the more structured, formal markets in the industrialized world, are those that could provide structure and organization to the chaos of the cash based, informal sector in the developing world.

In effect, the gap between teh formal and the informal required something that could provide flexible, negotiable business models and organization structures in order to bridge effectively. Prepaid business models are one that work for the informal sector’s cash flows but they don’t provide any facility for an industry to organize – here, taking the necessary elements of flexiblity, negotiability, and reciprocity one step further into an app, the Uber solution offers information neatly captured and accessible at your fingertips.

Uber’s problems with women’s safety in India – my 2 rupees worth

In its mindless rush for scale, Uber leapt into the Indian market with their “hassle-free” service of hailing a car with a push of a button on your smartphone. I call this mindless because “will it scale” is an unquestioned imperative for a startup, not something that is thought through. Nobody asks should it scale, or, is this the right place to scale? Neither does anyone look at the compromises made, to the brand and to the customer experience, in this drive to scale. Thus, its no different from the mindless growth of an amoeba, responding to the instincts imprinted on its DNA.

I’m due to arrive in New Delhi next week. Would I use Uber? No. I’d rather walk across teh street to the Sardarji sitting in his tent at the local taxi rank and ask him for a car and a reliable driver. It could be for the day or for the week but I’ll insist on the same guy showing up, without extra company in the front seat, and register my home address and phone number with the taxi rank. For additional peace of mind, I’ll walk back across the road to the guardhouse at the entrance to our apartment complex and point out the taxi fellow responsible for driving me around.

In the neighbourhood where our apartment is located, we are recognized as original owners, not newbies, and the local taxi standwallah isn’t going to risk his future business and his reputation if there’s even a peep of complaint from me. The eyes of the community should be sufficient to keep the animal instincts of the average Delhi eve teaser under control. A little further down is the auto rickshaw stand, under the shade of a large tree where the chaiwallah makes his brew. More strangers come and wait here unlike the taxi stand, but one can still spot a regular or two. At least, that’s how it used to work back when I was taking a scooty to work every morning.

In neither case would I think of wandering around after dark, if I was alone in the vehicle.

Uber arrives.

Why do we hear of women taking these cars at night all by themselves?

Things might have changed in the last couple of years since the horrific news of the bus rape in New Delhi, what do I know? So I did a little digging to see if my premise on why Uber was enabling women to lower their barriers to conventional common sense in India.

“To the extent that the Uber brand name induces a sense of security and this is used as a business strategy, a proper legal regime should allow the Indian woman’s strategy to succeed,” source

Because it needs a smartphone, knowledge of English, and an internet connection, is there an implied raising of standards of who’ll show up at your doorstep? Implicit here is that education and data plans imply greater security?

On the other hand, this knowledge hasn’t helped this lady in Chennai whose Uber driver kept trying to ‘cancel trip’ in the middle of a secluded location.

The internet’s explosive growth in India, coupled with smartphones, mobile wallets and e-commerce, seems to have lowered the barriers to services such as these, which probably leads to a greater acceptance of an app driven service along with the perception that it’s somehow “safer” than hailing a regular taxi on the roadside.

Yet, the very same internet has always provided trolls with the anonymity and impunity with which to harass and abuse women without consequence. This element of the web seems also to have now transferred itself onto the app driven sharing economy.

SOS buttons in a context where the police aren’t likely to jump in their vehicles and race over to save you, nor can they be trusted not to molest you, is a technological solution meant for the VCs back home.

Taking a taxi ride is not the same thing as purchasing a book or making a restaurant reservation. Can you scale trust and local context as instantly as you do an app?

Emerging Markets Competition – this time its technology

Around twenty years ago, when the Indian and Chinese markets first opened up to global brands, many were surprised to discover domestic incumbents were stronger than they had imagined.

Proctor & Gamble’s laundry detergents battled for the Indian housewife’s attention and share of wallet. It wasn’t just their usual competitor Unilever either but indigenous upstarts like Nirma, who’d carved out the low price category all by themselves. Other FMCG brands faced varying degrees of pressure, with a wide variety of outcomes, some of which still haven’t settled down. Even Coca Cola, the planet’s favourite refreshment, wasn’t immune to the local preference for Limca and Campa and Thumb’s Up.

Now, as the African emerging markets similarly capture global attention, there’s a new trend in pushback. Uber’s Nairobi entry hasn’t been unchallenged, as local apps leverage their greater local knowledge of the way things work. Ben Bajarin has already noted that in each of the major emerging markets of the developing world, its local incumbents in e-commerce, apps and hardware who take the lead.

Being overlooked for decades as a serious market seems to have had the same effect in the key sub Saharan economies as being closed off from the outside world had on the Indian and Chinese markets. Local solutions have grown and flourished. Market entry will not be a cakewalk and its a dangerous assumption for new entrants to make.

How can I end this short note without mentioning MPesa, Kenya’s inimitable and ubiquitous mobile money transfer system? Mobile payments have overtaken credit cards as the preferred cashless mode for transactions.

Technology is the new consumer product.