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Firms brace for rough ride in battle of the taxis


Early last year, I requested for a ride on the Uber taxi-hailing app on Nairobi’s Mama Ngina Street, outside the International House.

After several long minutes, I realised the small black car showing the exact location of my Uber driver on the map had not moved. I called the driver to ask if he was lost.

The driver politely requested I meet him outside City Hall, some 150 meters away. This struck me as odd and later as we headed to my destination, I implored him on his earlier reluctance.

“They don’t want us there and I don’t want problems because this is not even my car,” he explained matter-of-factly.

“They” referred to the City’s conventional taxi drivers protesting the entry of Uber into the Kenyan market. The protests had in preceding weeks taken a nasty turn. An Uber driver dropping off a passenger on Nairobi’s Kirichwa Road had had his car blocked by another vehicle.

Four men suddenly leapt out and one of them doused the vehicle with petrol and set it ablaze as the startled occupants scampered for safety.

The night attack was the culmination of weeks of simmering hostilities between conventional taxi drivers and their Uber counterparts.

The Silicon Valley ride-sharing giant had just months earlier made a grand entry into the Kenyan market. After raising more than $16 billion (Sh1.6 trillion) in cash and debt and reaching a valuation of over $60 billion (sh60 trillion), Uber embarked on a global expansion drive in the second half of 2015.

Nairobi - the home of M-Pesa and the much-hyped Silicon Savannah - was a predictable choice after launches in Cape Town, Johannesburg, Durban, Lagos and Cairo. Uber opened offices in Nairobi in mid-2015.

Alastair Curtis, who had supervised Uber launches in sub-Saharan Africa and would later serve as interim general manager of Uber Kenya, was upbeat about the firm’s foray into Kenya.

“We had everyone from hardcore bankers to socialites, from tech start-up jocks to fashionistas – word has gotten out that we have now made it official: Uber has launched in Nairobi and is here to serve you,” wrote Mr Curtis in a post on the company’s blog shortly after the launch.

“The “Green City in the Sun” is developing at a blistering rate with endless possibilities, and we’re incredibly excited to be a part of this growth, providing safe, reliable transportation to all Nairobians, now that we accept cash as a payment option too.”

His words offered a clue to what would follow next. At the time, Uber was launching in a new city globally almost every fortnight, with the standard features allowing users to pay for their rides through credit cards.

In Kenya, however, a country that has disrupted financial payments, it demanded a different strategy hence, the additional payments option with some users even anticipating a mobile money payments feature.

Homegrown taxi app

Not to be slighted, Safaricom in partnership with software company, Craft Silicon, unveiled Little Cab to rival Uber as hostilities in the local taxi industry boiled over.

Little Cab threw a spanner into the works following its launch in June 2016, with the value proposition that it was homegrown, reliable and cost-effective with an introductory price of Sh55 per kilometer.

“Little Cab aims to achieve one million rides in the next six months by entrenching and differentiating ourselves as a homegrown taxi app,” explained Craft Silicon Chief Executive Kamal Budhabhatti during the launch.

“We are also keen on empowering our drivers economically by offering them more returns on investment through value addtions such as free data and phones and favorable rates,” he added.

Little Cab further promised to take the lowest commission - 15 per cent - from their drivers and introduced a lady-friendly category dubbed Lady Bug, with an initial fleet of 40 professional women drivers.

One month later, Uber responded by slashing the fares in Nairobi by a third to Sh35 per kilometer down from Sh60. The move was, however, met by resistance with the firm’s drivers protesting that the fare cuts reduced their margins and reduced them to “slaves.”

Several Uber drivers were said to have decamped to Little Cabs and in November, the firm announced a 50 per cent price cut to Sh30 per kilometer with no flat base charge or price surges.

Little Cab has since announced its intent to venture into the Ugandan and Nigerian markets, taking the battle for customers beyond the borders.

Nairobi is a key market for Uber, considering the city has a relatively robust physical and digital infrastructure and is central to East Africa and vantage for a regional office. In addition, Nairobi is cosmopolitan and is home to numerous expatriates working in private, public and diplomatic institutions from across the world.

In an analysis by tech news site, Memeburn, Uber reports that the number of nationalities to have used the app in Kenya currently stands at 70.

This is more than the 47 and 60 nationalities that used the services in South Africa and Nigeria respectively over a similar period.

Uber is, therefore, more likely to sustain a spirited fight over its foothold in the East African ride-sharing market in 2017 even as the firm continues to bleed in emerging markets.

The taxi wars in Kenya are thus, set to continue long into the New Year as both Uber and Little Cabs dig in their heels. The two firms are, however, likely to struggle to sign up new drivers and riders to justify their business models.

Bloomberg recently reported that in the first half of 2016, Uber made a cumulative $1.27 billion (Sh127 billion) loss, largely owing to subsidies the company gives to its drivers across the world.

The company is reported to have broken even in the United States and Canada but is held back by its fledgling emerging markets division, at times forcing it to pull out.

In August, Uber reported it was exiting China, the world’s biggest Internet market. The announcement came after one and a half years of rivalry pitting Uber against Didi Chuxing, the world’s largest ride-sharing company.

The two companies have had to offer huge subsidies to their drivers to sustain their business models. Uber is reported to have lost $2 billion (Sh200 billion) in the price war before investors decided to throw in the towel.

In Kenya, the firm has the advantage of deeper pockets and can thus, sustain a price war for much longer than its competitor - Little Cabs.

Safaricom also has the extra burden of convincing shareholders that continued investment into ride-sharing services will yield returns in the future.

In addition, new more-resourced entrants into the Kenyan market are set to stoke the competition for the billions to be made in the country’s ride-sharing market.

Early November, Volkswagen (VW) launched a new digital business division - MOIA - that will take on services search as Uber through its own ride-sharing service.

VW, which is Europe’s largest carmaker, further unveiled a vehicle assembly line in Thika from where up to 1,000 units of VW Polo Vivo will be rolled out annually, each retailing at Sh1.6 million.

The firm last week launched its ride-hailing service in Kigali, Rwanda, with an eye on the larger East African market. VW is also at the fore-front of researching electric and driverless vehicles and is reportedly mulling using electric versions of the VW Golf in Kigali.

Liberalisation

Establishing a presence in Kigali provides VW with an alternative base that is almost as central as Nairobi, enjoying the same digital infrastructure and has lesser competition.

From this position, spreading across other cities in the East African region, including Nairobi could happen in a matter of time.

Economist Georgios Petropoulos says regulators are key to an amicable coexistence of traditional taxi companies and ride-sharing service providers and competition among the latter. “The emergence of platforms like Uber makes the market more competitive and benefits consumers through lower prices and better quality services,” he said.

“Liberalisation of the industry may help taxi drivers to compete more effectively with Uber, by improving their services.”

Mr Petropoulos further says regulators should also monitor the labour practices in ride-sharing services and how the services handle sensitive private consumer data.