Uber's strategy right now is to maximize horizontal integration across as many markets as possible. They're leveraging cheap credit and an infusion of private money (mainly from Middle Eastern investors looking to diversify their portfolios) to expand as quickly as they can in local transportation.
This growth, combined with their subsidization across all their products, is producing huge near-term losses. However, I think it's a prudent investment. Uber needs to solidify its moat in an industry that offer little in terms of differentiation beyond price. By trying offer as many services as possible, Uber's trying to make itself the go-to hub of local transportation, and in doing so, start to change its role from a dispatch middleman to a full service transportation platform.
And so, I think in the years following IPO, we'll slowly see them reduce their efforts for horizontal expansion and slowly turn the lever back towards profit. This will happen slowly and differently across markets, with price rises starting in regions they have the strongest foothold, but will slowly trickle across all markets. The hope for them is that through this rapid expansion, they've bought enough leverage to raise prices without losing too many customers.
It's interesting how little of this strategy involves providing a better service. But I don't think they're alone or even special from this perspective (e.g. similar to the rise of Microsoft).
I think the prevalence of "business strategy", as opposed to product/service improvement, in the growth of corporations, warrants much more scrutiny than it gets. After all, corporations should serve society - how do strategic mergers, acquisitions, lobbying, PR do that?
As an end user of Careem, I'm waiting for the impending doom of price increase and bad service.
Uber and Careem are the only two service providers in my country (Pakistan); before Uber entered, the prices were quite high because Careem had no competition and they cashed in their monopoly. Uber entered the market and caused a price war driving prices per km down significantly and causing both providers to add new features to cater for the local market as well. However, Uber is usually thought to have a low quality of service here; drivers on their network quite literally abuse the platform; they will refuse to drive to the destination if they don't want to go there; they will use tactics to get the ride transferred from them if it's not profitable enough for them. The end result is that the customer receives a slightly cheaper but vastly inferior service from Uber. Compared to this, Careem's quality assurance and customer care is a winner.
With Uber buying Careem and eliminating competition, I can't imagine how much pain it is going to be to call a ride now, if they absorb Careem's customer-base completely and close its app. I thought there were anti-competition laws that prevented this from happening; I guess they don't apply if both the companies are foreign and the deal is happening overseas.
The rules still apply if both companies are foreign and the deal is happening overseas. The competition regulator in all the territories the companies operate need to give their approval. Take the Disney Fox deal as an example. The Brazilian regulator required that Disney divest it’s sports offerings in Brazil alone because otherwise the combined company would hold all the football rights.
If you’re wondering why the competition regulator in your country didn’t stop this particular deal there are a few possibilities.
1. They’re funded so poorly they don’t have the resources to investigate the impact.
2. They did investigate but Uber gave enforceable assurances that consumers wouldn’t be impacted.
3. Uber bribed the regulator. Not saying Uber engages in such behaviour on the reg, but it’s possible.
Doesn't this, so close to their purported IPO, fly right in the face of what they consider to be their network effect? Why would they need to buy competitors if not because it's expensive for them to compete against local upstarts who own a smaller market?
Uber's network effect is localized to cities. If Uber attempts to enter a market with a strong local player, the local player stands a decent shot at defending since Uber's global dominance doesn't really transfer over to that particular city.
This is unlike social networks, like WhatsApp, where the network effect is truly global since people often have friends and relatives in distant cities.
$50b in revenue last year is nothing to scoff at. They have levers for profit but instead re-invest every dollar. Your argument sounds exactly like what people said about Amazon years ago.
As great as this will be for the tech ecosystem in the Middle East, this type of consolidation should be blocked for antitrust. It'll be bad for customers and drivers.
But it won't be blocked. Uber and Careem share common investors (aka Saudi) and this would be a huge win for them.
While this is largely true. The Middle East needs large exits like these (e.g. Souq, Maktoob) in order for investors and carpenters to be motivated. The Middle East (except for Israel) is really lacking in this arena.
> Shareholders in Careem, whose backers include Saudi Prince Alwaleed bin Talal’s investment firm and Japanese e-commerce company Rakuten Inc., [...]
Isn't a public Saudi Arabian fund already heavily invested in the Softbank Vision fund, which in turn has invested a lot in Uber? [0] I don't know who the respective principals are of these funds but that seems noteworthy to me (especially at these valuations).
Saudi fund is led by the crown prince MBS. Prince Alwaleed bin Talal is a cousin of the crown prince but definitely not a friend. He was even arrested a few years ago under the order of the crown prince.
logicx24|7 years ago
This growth, combined with their subsidization across all their products, is producing huge near-term losses. However, I think it's a prudent investment. Uber needs to solidify its moat in an industry that offer little in terms of differentiation beyond price. By trying offer as many services as possible, Uber's trying to make itself the go-to hub of local transportation, and in doing so, start to change its role from a dispatch middleman to a full service transportation platform.
And so, I think in the years following IPO, we'll slowly see them reduce their efforts for horizontal expansion and slowly turn the lever back towards profit. This will happen slowly and differently across markets, with price rises starting in regions they have the strongest foothold, but will slowly trickle across all markets. The hope for them is that through this rapid expansion, they've bought enough leverage to raise prices without losing too many customers.
deogeo|7 years ago
I think the prevalence of "business strategy", as opposed to product/service improvement, in the growth of corporations, warrants much more scrutiny than it gets. After all, corporations should serve society - how do strategic mergers, acquisitions, lobbying, PR do that?
creato|7 years ago
In other words: sell at a loss, run all the competition out of business, then raise prices?
m3h|7 years ago
Uber and Careem are the only two service providers in my country (Pakistan); before Uber entered, the prices were quite high because Careem had no competition and they cashed in their monopoly. Uber entered the market and caused a price war driving prices per km down significantly and causing both providers to add new features to cater for the local market as well. However, Uber is usually thought to have a low quality of service here; drivers on their network quite literally abuse the platform; they will refuse to drive to the destination if they don't want to go there; they will use tactics to get the ride transferred from them if it's not profitable enough for them. The end result is that the customer receives a slightly cheaper but vastly inferior service from Uber. Compared to this, Careem's quality assurance and customer care is a winner.
With Uber buying Careem and eliminating competition, I can't imagine how much pain it is going to be to call a ride now, if they absorb Careem's customer-base completely and close its app. I thought there were anti-competition laws that prevented this from happening; I guess they don't apply if both the companies are foreign and the deal is happening overseas.
nindalf|7 years ago
If you’re wondering why the competition regulator in your country didn’t stop this particular deal there are a few possibilities.
1. They’re funded so poorly they don’t have the resources to investigate the impact.
2. They did investigate but Uber gave enforceable assurances that consumers wouldn’t be impacted.
3. Uber bribed the regulator. Not saying Uber engages in such behaviour on the reg, but it’s possible.
rak00n|7 years ago
philsnow|7 years ago
DevX101|7 years ago
This is unlike social networks, like WhatsApp, where the network effect is truly global since people often have friends and relatives in distant cities.
emilsedgh|7 years ago
My understanding was that they only had a few billion dollars left and were burning > 1B a quarter.
And they are still not profitable right?
On what basis exactly are they going to IPO? What's the angle for buying shares of a company that is losing so much money?
googlemike|7 years ago
maxerickson|7 years ago
For "investors", they are gambling that either the shares go up before they sell or that Uber builds a profitable business after they buy.
alphast0rm|7 years ago
likeabbas|7 years ago
bagacrap|7 years ago
unknown|7 years ago
[deleted]
Ozzie_osman|7 years ago
But it won't be blocked. Uber and Careem share common investors (aka Saudi) and this would be a huge win for them.
slorward|7 years ago
jcfrei|7 years ago
Isn't a public Saudi Arabian fund already heavily invested in the Softbank Vision fund, which in turn has invested a lot in Uber? [0] I don't know who the respective principals are of these funds but that seems noteworthy to me (especially at these valuations).
[0]: https://www.cbinsights.com/research/saudi-arabia-pif-tech-in...
httpz|7 years ago
gms|7 years ago
lyime|7 years ago
dawhizkid|7 years ago
jonas21|7 years ago
mrnobody_67|7 years ago
hex20|7 years ago