Ride-Hailing Doesn’t Make Money: Long Live The (Profitable) Superapp

Ride-Hailing Doesn’t Make Money: Long Live The (Profitable) Superapp

Since Uber was founded in 2009, ride-hailing apps have sprung up in almost every corner of the world. However, to date, none of these companies have yet turned a profit. Last month, the company I work with, CanGo, launched a ride-hailing service in Kinshasa, the capital of the Democratic Republic of Congo. While we understand the necessity of investing in building the business, we are less an Uber and more a Gojek: because the secret to winning is to become a superapp.

The unstoppable rise of ride-hailing apps

Almost every major city in the world, especially those with populations over 2 million people, now play host to several ride-hailing apps that all compete fiercely against one another for market share. For instance, Uber has been present in the Kenyan capital of Nairobi for a while, but over the past several years competition has sprung up in the form of Bolt (formerly Taxify), Little Cab, Mondo Ride and inDriver, in addition to startups offering cheaper motorcycle taxis, such as SafeBoda.

The simple reason for this is that it actually appears relatively easy to start a ride-hailing company. First, choose your market and close your seed round from venture capitalists and wealthy individuals (especially those who have never forgiven themselves for turning down Uber back in the day). Second, use that money to build a couple of mobile apps - one for customers, one for drivers. Third, onboard some drivers who own their own vehicles, and then you’re pretty much set to go. The marketing strategy is simple, too - just offer discounted trips to hook users. 

However, these low barriers to entry have also become some ride-hailing startups’ biggest headache. The overriding problem is that neither customers nor drivers feel any loyalty towards a certain ride-hailing app - both will simply use the one that gives them the best rate. If a new ride-hailing company enters a market and offers a better package to drivers, it would take just a few minutes to register as a driver on their mobile application and start earning an improved salary. In reality, many drivers use several different apps throughout the day. Similarly, if the technology is basically the same, then customers will naturally choose the cheapest option, regardless of how long they have been using one or the other.

It’s all too easy for copy-cats with significant venture capital to come along and undercut the incumbent. In June 2019, Bolt reentered London and decided to take just 15% commission from their drivers - half that of Uber. As a result they can offer lower prices to customers and have inevitably gained significant market share from Uber, as the apps and waiting times are almost identical. But is such a business model really sustainable?

For the second quarter of 2019, Uber reported losses of $5.2 billion, while their growth is also showing signs of slowing - earlier this year a huge restructuring program saw them lay off over a third of their marketing team. Many argue that Uber and other ride-hailing apps will only become profitable once they remove the driver from the car, when everything is autonomous, but how long can they wait? Perhaps instead they will finally realise the need to incorporate other services into their business. Indeed, they’ve made the first step by acquiring electric scooter startup JUMP, however, what has become clear is that right now, ride-hailing as a sole service has a long way to go before it is either profitable or sustainable. 

In the end, only superapps will win

Two examples of ride-hailing startups that have seemingly negated these issues are Grab and Go-Jek. Both based in South East Asia, they are superapps, where within the same mobile application customers can choose between several different on-demand services, including taxis, buses, food delivery, and professional services or blue collar workers. Both also offer invaluable mobile payment and banking services to the region. While they began by offering motorbike taxis on demand, it is the other services they have gradually incorporated into their  superapp that means they are nearing profitability or are powerful enough to fight off competition from other ride-hailing companies. 

Go-Jek’s founder and CEO Nadiem Makarim believes that food delivery is now the company’s main business. Makarim has been quoted as saying that GoJek is close to profitability in all its services, apart from ride-hailing, thanks to delivering a staggering 50 million food orders a month. Similarly, Kell Jay Lim, co-chief of staff to the CEO and regional head of GrabFood, claims that success in its food delivery service is also driving the company towards profitability. Grab’s position in the region is also so strong that Uber finally decided to pull out of the ride-hailing war in South East Asia and agreed to the sale of its regional operations to Grab in May 2018 (albeit in return for a lucrative 27.5% stake in the company). 

The superapp seems almost indestructible. Yes, Uber has UberEats for food delivery, but it’s in a different application altogether. If you really want to hook users on your app, surely it makes sense to put all the services in the same place? Because users of Grab and Gojek use the apps for pretty much everything, copy-cats have a very low chance of knocking either of their perch, as has happened and will continue to happen to Uber.

A superapp for Kinshasa

At CanGo we have built Kinshasa’s first ride-hailing app, which was a logical place to start considering Kinshasa is a city of 14 million people (predicted to be the largest in the world by 2075) with a total lack of any modern transport systems. There is also a dire need for safer transport as locals claim the highest chance of being robbed or kidnapped is actually by your moto taxi driver.

But this is only the start - we want to build Africa’s first superapp, we want to do it in Kinshasa, and we want to tailor it towards the lower-class African end user. In the coming weeks we plan to launch on-demand delivery in Kinshasa having learnt valuable lessons in our innovation lab, Kigali, over the past few months. Once we have made Kinshasa a fortress, as Gojek and Grab have done in South East Asia, we plan to roll out the same on-demand services across other Central African cities larger than 500,000 people that have so far also been underserved by technology, and will one day be some of the largest cities in the world.

Ride-hailing still works, and is especially beneficial in cities where transport is broken and/or dangerous, and maybe one day it will indeed become a profitable service, but in order to realise this possibility it should be just the first service of many that a ride-hailing startup plans to offer.