Uber: Transport sector's 'M-Pesa' moment?

Uber, a transport company, has drawn the ire of conventional taxi operators in nearly every market it has entered. Nairobi has been no exception.

Uber’s technology-driven business model, which seeks to provide timely, low-cost and satisfactory service, has landed in town with a bang.

The American multinational company works by allowing consumers with smartphones to submit a trip request, which is then routed to Uber drivers, who use their own cars.

Since entering the Kenyan market in 2014, the firm has ruthlessly eaten into the conventional taxi market, which has already been facing rising competition in recent years. Taxi drivers have been steadily losing market share to professionally-managed companies that offer a more orderly service.

Bigger threat

But now, mobile technology poses a much bigger threat than any other previous changes in the industry. Uber greatly capitalises on this, and conventional taxi operators have said they are not going down without a fight.

While they agree that it is futile to fight technology, they do not think technology is the reason Uber has upended them. According to them, Uber operators enjoy undue advantage.

For instance, they say, Uber drivers do not pay parking or other city charges, which enables them charge customers less. In other words, they believe Uber is deliberately setting low prices to drive them out of business.

But despite their protests and claims of an unfair market, conventional taxi operators appear to have lost the public’s sympathy.

Kenyans have been busy on social media platforms asking “old school” drivers to innovate, rather than resort to violently trying to oust Uber operators.

Moses Nderitu on Twitter, for instance, said: “I will keep using Uber. We cannot continue to be fleeced and given poor service at higher costs. Innovate or perish.”

But does the US application offer Kenyans a more efficient and cost-effective alternative? To answer this, we took a ride in an Uber cab.

It started with a simple request for a cab from the Uber app downloaded on my phone. The app has been synced with Google Maps, which allows you to choose an exact location to be picked from and dropped off.

The app also allows you to get a cost estimate, but this figure changes depending on traffic and any applicable discounts.

My pick-up location was Nairobi’s City Stadium, and the destination was Kencom bus stage in the central business district. The cost estimate was Sh300 to Sh400.

When I completed the request, the app sent me a message bearing the driver’s photo, his contacts, the make of his car and its number plate. The message also indicated that I would be picked up in 10 minutes.

The pick-up time was based on distance, but since traffic was heavy, the cab arrived in 20 minutes.

When he got to me, the driver, who asked that I call him George for fear of reprisal, apologised for the delay. I got in. We exchanged pleasantries. His cab was a clean, nice-looking sedan car.

George looked well groomed and his demeanour was inviting. They work 12 hours a day, he said. He fit in with the ambiance in his car. Slow music wafted softly from the radio, and George told me the choice of genre and volume was entirely mine.

“Here, we really believe the customer is king,” he said.

Had the ‘war’ with conventional taxi drivers affected his business? He scoffed. The uproar, he said, had only helped popularise Uber.

“Business for us has even improved, and they have made matters worse for themselves,” said the 32-year-old, who six months ago worked for a different taxi firm.

The ride cost me Sh350. A receipt was automatically generated and sent to my email, along with a request to rate my driver.

Roaring business

Uber is what some people would describe as the perfect example of disruptive technology.

Harvard Business School professor, Clayton Christensen, coined the term disruptive technology to describe an innovation that displaces an established technology and shakes up the industry, creating a completely new industry.

Other scholars, such as Joseph Schumpeter, would describe Uber as a form of creative destruction, which occurs when something new kills something older, for example, the way mobile phones killed telephone booths.

“To economic observers like us, this dispute is music to our ears. It is an experiment being conducted for us for free,” said University of Nairobi economics lecturer XN Iraki.

George believes the conventional taxi business is “the old order”, and must give way to the new way of doing business in the industry — using hail-a-taxi apps, such as Uber, or Easy Taxi or Lyft. He wants conventional taxi operators to embrace technology.

 

Uber itself has been saying this wherever and whenever its disruption has kicked off a storm of destruction.

“Our technology is open and pro-choice, and we are keen to offer it to a broad number of taxi drivers to boost their occupancy rates and chances for profit,” said Samantha Allenberg, Uber’s spokesperson in Nairobi, who added that the company has been engaging taxi associations since last year to find a way to partner with them.

“In fact, many taxi drivers are already using our technology to boost their incomes, and we would welcome more who wish to join their colleagues. We do not feel that it should be about Uber or Taxi, but rather Uber and Taxi.”

Conventional taxi drivers, however, would rather see Uber kicked out of town.

“We cannot be rendered jobless as the Government does nothing,” said the spokesman for the Kenya United Taxi Organisation (Kuto), Mwangi Mubea.

One of the conventional taxi drivers we spoke to, Geoffrey Waweru, 54, said he does not understand how Uber operates.

“These are new things to us. A customer told me that where we charge Sh500, they charge Sh200,” he said, looking perplexed.

The operator, who has been in the business for more than 10 years, said he would charge me Sh700 to City Stadium — a distance Uber had charged Sh350. Mr Waweru said he had to add on the fee of driving back to his spot. Uber charges for the distance covered.

“The owner of this thing [Uber] should sit down with the taxi association and they agree on how they are going to work because if we continue like this, people will get hurt,” he said.

“This is something that is out to finish us.”

When I asked him to save my number, Waweru fished out an old Nokia 3310. George, on the other hand, had a basic smartphone, which is a necessity if you are to succeed in the new taxi business, he said.

“You know, technology is here and there is nothing they [conventional taxi drivers] can do about it. I think they are people who have been rattled out of their comfort zones,” George added.

When he applied for a job as an Uber driver, having been told of its popularity by friends, he had to undergo an ‘interrogation’ in Nairobi.

“They did a background check on me, which included taking my fingerprints and all that,” he said, adding that Uber is keen to recruit drivers with no criminal record.

They also had to make sure he had some knowledge of Nairobi.

George is not an employee of Uber, though. He has been employed by someone else who has a partnership with the transport company.

For every Sh100 that his employer earns, Uber takes a cut of Sh25.

Last year’s round of funding estimated the US firm to be worth $51 billion (Sh5.2 trillion), which made Uber, started in 2009, the world’s most valuable start-up. But the firm has also been facing its own share of competition from other entrants in the hail-a-taxi industry around the world.

And it is increasingly drawing the attention of regulators, with the latest incident being in Paris where the firm was fined 1.2 million euros (Sh136.8 million). The courts in France ruled that the firm had been touting for business much like a traditional taxi would, such as stopping by the side of a road to pick up a client. This is not allowed unless the taxi is part of a regulated firm.

Taxi operators in Cairo, London, Mexico City and several other major cities have also protested against Uber. The complaints are the same: the company is playing by a different set of rules.

Paul Ndichu, the CEO of Easy Taxi, which also operates a hail-a-taxi application like Uber, thinks regulation is critical.

“Regulation and policy for digital and technology-first transport solutions will drive the development of new opportunities in the transport ecosystem, employment and youth engagement,” he told Business Beat. “But change can be hard for some.”

For George, the tussle between his colleagues and conventional operators is not complicated. He does not believe Uber drivers have undue advantage over their competitors. For example, they do not park, so they cannot be told to pay parking fees, he said.

Good to customers

He added that their biggest advantage is not their prices, but the customer service they offer.

The drivers have to treat customers well because at the end of a ride, the app prompts one to rate the driver. If a driver persistently scores poorly, their account is deactivated. Every driver is after five stars, said George.

“Even without the star rating, in this business, you have to be good to customers,” he said.

The least amount George has ever earned in a day is Sh1,800 and the most is Sh7,000. On the weekends, when there is little traffic, business is at its peak.

Conventional taxi operators tend to wait for that one customer from whom they can maximise their profit by charging high fares. Uber, on the other hand, has leveraged on technology to bring in large numbers, so it can afford the luxury of smaller profit margins.

Mr Ndichu said hail-a-cab services offer customers convenience, consistency and affordability.

But one of the controversial issues in Uber is surge pricing. This is when the app increases prices following high demand. The firm says this is done to prevent a gridlock. When demand is high, the price is raised temporarily to get more Uber drivers onto the road.

The company bills customers on both time and distance, which means the best rates are clocked at night and over the weekend. Passengers can also share the costs of a ride — which may mean paying a small premium over matatu fares on some distances. Payments are in cash or through mobile money.

George says they do not have security fears as customer details are logged in the system. Several conventional taxi operators, on the other hand, have fallen prey to criminals masquerading as clients.

But Uber drivers face a problem conventional operators do not encounter often. George did not have enough change for the Sh500 I paid him with. And because he could not park, we had to drive around — at his cost — trying to figure out how to solve the issue. Finally, he asked me to buy him Sh50 airtime.