Uber ‘s Sub-Saharan operation is coming up to an estimated million rides a week – no revenue share, no carrier billing

2 December 2016

Top Story

International OTT player Uber probably has nearly a million users a week in six countries in Africa. From its initial launch in Johannesburg in 2013, it has expanded its footprint across the continent. All this has been done without needing to share revenue or use carrier payment systems. Russell Southwood spoke this week to Justin Spratt, Head of Business in Africa for Uber.

Uber is now in six countries in Sub-Saharan Africa: South Africa (in 5 cities); Nigeria (in Lagos and Abuja); Kenya (in Nairobi and Mombasa); and Tanzania, Uganda and Ghana in each country’s capital city. It also has a presence in Egypt and Morocco but these are part of its Middle East area.

It now accepts cash in all of these six countries although South Africa is largely a cashless market. When I spoke to Nate Anderson, General Manager - East Africa, Uber in October  he told me that Kenya had passed the 100,000 rides a week mark. On this basis, making some quick back of the envelope estimates, I’d put the current operation at near to the million rides a week mark.

So is Uber planning to expand to more countries in Sub-Saharan Africa?:”We’re looking to expand our territories by 50%.” When it goes into a country, it sends in a launch team and it starts from scratch:”They do an analysis of the market and see whether the key variables make sense”.

Once it’s happy that there’s market potential, they set up locally and start recruiting drivers and making deals with some fleet owners. As an operation, it employs remarkably few staff compared to some start-ups.

“We are a technology company pairing rider and driver. We have to extract sufficient economies in the process to make it worthwhile for ourselves, the rider and the driver.”

Among other things, those savings come from the ability for drivers to bid for nearby rides thus reducing the time it takes them to get rides and the riders to get a cab:”We’re very fastidious about not price gouging”. In the African context it allows the rider to choose the driver and the price for the ride without endless haggling and also to get into a car in good condition.

So what are the challenges it’s facing?:”In South Africa, it’s about generating demand because there are lots of drivers. In the rest of Africa, it’s about finding drivers and cars that can be financed economically. In Nigeria, there’s no point in bringing in an expensive car if it doesn’t make financial sense.”

For this reason it has made agreements with local banks to finance cars at the right price. In West Africa the deal was done with First Bank and in East Africa with Sidian Bank:”Our aspirational aim is to create entrepreneurs on the continent. They should be able to build a sustainable business, stay with us and give better service. In Sub-Saharan Africa, this is a full-time job and a business, not a part time job as it might be elsewhere.”

Uber is not alone in the market. Safaricom has invested in Little Cabs through its VC fund Spark. There’s Taxify which has a footprint in South, East and West Africa, an Estonian company that has raised over 1.,5 million euros from various investors. There is also Mondo which operates in East Africa and is Dubai-based. Uber views the competition as a good thing as it keeps the market and pricing sharp and raises overall consumer awareness which grows the market.

On this theme of how Uber sees itself making a positive contribution, Spratt cites a deal Uber did with the New Jersey town of Summit. There was not enough parking at the transit station and they were proposing to build a significant amount of extra parking. Uber persuaded the local authority to subsidise Uber to deliver passengers to the station.

The trip now costs US$2 each way compared to US$4 a day for parking and the town council spends US$167,000 on subsidizing the difference and not US$10 million on a new parking lot:”We want to see collaboration between Government and existing transport businesses…We want to work with regulators on a stronger basis. We can work out a low cost model for sustainable mass transport. If we drive prices down, people will use their cars less.”

And the relevance to Africa?:”We don’t have Uber Pool yet but when we have sufficient scale (on a route at a time of day), Uber can take multiple passengers to a destination. It really changes with market sizing and then benefits everybody.” It might sound unlikely but imagine being able to take 10-20% of cars off the road at peak times in major African cities through shared rides.

And what’s Uber Eats which so far only launched in South Africa all about? It's a food delivery service but why do it?:”It’s a logical extension of the business. We can use marginal capacity at low peak parts of the day. It’s not a complex business play. It’s very straightforward.” There’s also a delivery service called Uber Rush in the United States. Rides, food and goods delivery are all ways of getting business for drivers and keeping them busy.

For those not familiar with Uber, you download the app and it works anywhere in the world where Uber operates. You enter your credit card details once and that’s it. A rider is offered three different price levels. And for all the countries listed above you can pay cash.

As someone who wants to see the development of online content and services happen quickly in Africa, it has two key lessons. Firstly, it has grown to scale relatively quickly and made itself indispensable to its users. Secondly, it has done all this without needing to have any direct relationship with a mobile operator.

The riders and drivers consume data on their smartphones but errrrr, that’s it. No revenue share, no carrier billing. Read the tea leaves.

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