I honestly can’t believe what I’ve read in two blogs and on Twitter in the last week. It’s as if the tech “ecosystem” took its collective brain and put it in a jar, and then locked the jar out of the reach of everyone, and then started opining about ridesharing.
We’ve seen this movie before. We saw it with Afro. We saw it with Tranzit (later TaxiPixi). We saw it with Easy Taxi. There is no universe in which any of these players beat Uber.
Why? They simply can’t afford it.
No one is running ridesharing profitably anywhere in the world; all ride sharing is subsidised by the company. Uber is estimated to be subsidising the cost of every ride by as much as 30%. The one advantage ride-sharing companies have over the other is amount of money raised. Apart from growth, no one is really interested in any other metric in this space today.
That is why Uber’s strategy in the US was to out-raise Lyft and grow far more aggressively. Travis Kalanick reportedly warned investors that if they invested in Lyft, he would ensure they were never able to invest in Uber, thereby limiting Lyft’s raising capacity.
To date, Uber has raised over $11 billion in equity and debt. Their biggest global competitor, Didi, has raised over $15 billion. Lyft is considered a puny player in this space. They’ve raised $2.67 billion. Grab from South East Asia? $1.43 billion.
What does this have to do with anything?
Well, if you take a hard look at ridesharing in Nigeria, it’s been some version of the same play. Company starts with a splash and low prices or free rides, attracts a lot of attention and hopes of finally “giving Uber competition”, but eventually struggles to stay afloat.
It’s not just the issues with technology or customer care. It’s simply that they can’t afford to keep the service going at the price they’re using to get customers. Once they run out of cash, they have to raise prices, which means they lose customers and eventually close shop.
Today, everyone is excited about the new entrant Taxify, forgetting that the underlying economics of ridesharing haven’t changed. One blog actually posted a picture from what looks like App Annie claiming that Taxify now had more downloads than Uber in Nigeria. However, they forgot to show us the time frame for this data – we have no idea if this happened over the course of one week or the past year. Someone please make it stop.
It is unlikely that Taxify have raised enough capital to sustain the model they’re operating. They might continue to reduce quality to stay afloat; but that would kick a lot of their best users off the service. Most importantly, to keep going, they need to continue to raise capital at attractive valuations. I’m skeptical that they’d find many venture capitalists willing to pit their dollars against Uber’s.
I’m not predicting that Taxify will shut down soon – there are many fates between success and death; but as I have told the numerous people who have come for advice on starting a “local Uber” service, the hard fact is that you probably can’t afford to.
It’s quite possible that Taxify will prove me wrong; in fact, I hope to be wrong about this thing. But I doubt I am.