by Tom Jackson

UBER UBER ALLES

How Uber is bringing innovation to SA’s taxi sector

Uber-Taxi.jpeg

When taxi-hailing mobile application Uber launched in San Francisco in 2010, few foresaw the growth of the company into an international behemoth straddling more than 220 cities in 45 countries on six continents, with a valuation of US$18 billion.

Now the company is making its mark in South Africa too, with as yet none of the negative publicity it has attracted elsewhere in the world.

Uber, which says its mission is “nothing less than a revolution in the way citizens of the world move, work and live”, is simple, yet has proved devastatingly effective. Through the smartphone mobile application, customers can request rides and then track the location of their vehicle on a map. Initially focused on full-sized luxury cabs through its UberBLACK service, in 2012 the company went a little more downmarket, with uberX, offering lower prices and directly challenging traditional taxi services.

Uber is not a conventional taxi business, owning no taxis and directly employing no drivers. Rather, it is a matchmaking service, matching drivers with customers and taking a cut.

The model has brought the company huge success. It received its first funding in 2010, and every round since has proved yet more lucrative. In 2011 Goldman Sachs was among the investors as the company brought its total funding to US$49.5 million. In 2014 it raised US$1.2 billion, valuing the company at US$17 billion. Last year, it was named tech company of the year by USA Today.

Looking further afield

Its international expansion began in Paris in 2011, and has since escalated dramatically. South Africa became Uber’s first African destination last year, with a launch in Johannesburg in August followed by Cape Town in October and Durban in February this year. Since then UberBLACK has been joined by uberX, and the company is looking further afield. It has already established itself in Lagos, Nigeria, and is also casting glances at Kenya.

“Since launching in South Africa last year, the uptake has been incredible,” says Uber general manager for Johannesburg, Alon Lits. “In a short space of time, we are doing thousands of trips per week, with hundreds of drivers on our system. Riders are constantly amazed that they can get such a stylish ride at their doorstep in a matter of minutes—simply with the tap of a button.”

Uber’s success both in South Africa and elsewhere can be put down to a number of factors, primarily safety and convenience, as well as its pricing and payments systems, which allow users to choose the level of service and removes the need for cash. With every driver on the service known and tracked by the app, the chances of incidents are heavily reduced, while the ability to track a driver in real-time is convenient for the customer and provides peace of mind that the ride will arrive soon. Uber general manager for Cape Town, Anthony le Roux, says it is these benefits that set the company apart from traditional taxi companies.

“A large part of Uber’s success stems from the fact that we are offering an unprecedented level of safety and convenience when it comes to transportation,” says le Roux. “Everyone needs to get around their city and we are adding to that transportation ecosystem; giving riders more choice and drivers more economic alternatives. Our safety features are the gold standard: on requesting a car, you see the driver’s photo, name and car licence plate. You are also able to share your route with your friends and family so they know exactly when you are arriving.”

He says Uber also benefitted from the fact it could, as a technology company, move and adapt quickly, tweaking anything from pricing, to car type, to mapping, in order to best suit customer demands.

Devoid of issues

The launch in South Africa has thus far been devoid of any of the issues that have mounted for the company in a number of other countries. In September, Uber was banned from operating by a German court because its drivers lacked licences, with the company subsequently forced to reduce prices.

In Maryland in the United States, a court ruled it was not merely an app but a “common carrier”, requiring it to jump through the same regulatory hoops as normal taxi companies. Taxi drivers in Paris, London, Berlin and Madrid have blocked traffic in protest against Uber this year.

It is a typical example of disruption in an over-regulated industry whose incumbents have been very comfortable for a very long time. Taxi drivers who are required to spend thousands on taxi licences are concerned about the effect of Uber on their business, while slow moving incumbent taxi firms have felt no need to revolutionise their way of doing business as they have faced no real challenge before.

Uber has changed all that, and the customers appear to like it. As do many drivers, with the San Francisco Cab Drivers Association (SFCDA) reporting that in 2013 one-third of the city’s 8 500 taxi drivers gave up driving registered cabs in favour of using private transportation startups like Uber. As the American investor Marc Andreessen says, “Uber is software that eats taxis”.

Le Roux says Uber is not surprised by the opposition it has faced in a number of places, but feels this is inevitable when an industry is being disrupted so suddenly. He says services like Uber are actually beneficial to both customers and drivers.

“We are changing the way people think about getting around, so this type of disruptive technology is bound to cause resistance where existing structures have not seen any real advancement for many years,” he says. “In South Africa we have partnered with a significant number of drivers and provided them with the tools to build their own small businesses. Our mission is to provide a safe and reliable transport option to riders and greater economic opportunity to drivers. The growing number of partner drivers, driving on the platform, is testament to that.”

Though local taxi drivers seem to be taking the arrival of Uber in their stride, unlike their counterparts in Europe, the arrival of the multinational giant has also had an effect on similar services already operating in South Africa.

Uber is not the only one that has tried to shake up the market, with local companies Snappcab and Zapacab (now defunct) also attempting to corner customers and drivers in Johannesburg and Cape Town respectively. Le Roux denies that Uber has had a detrimental effect on competition, rather believing the service provides greater choice.

A sharing economy

“Our technology truly brings the sharing economy to the people of South Africa. We invite choice and competition—it offers more choice to customers, improves service, and encourages innovation. Competition and choice mean we all have to keep on our toes, and every day try to improve our service and products,” says
le Roux.

While Uber’s disruptive technology has been a precursor for huge, international growth, the company’s way of doing business allows it to be flexible while launching in as many places as possible and cornering as much of the market as it can.

uberX arrived in South Africa earlier this year—in Cape Town in June, Johannesburg
and Durban in August—as the company continued to build on its launch of UberBLACK last year. With both services in operation, there is an Uber option for whatever type of transport a user requires.

“Uber is always looking for ways to provide access to safe, reliable and efficient rides where they are needed most,” said le Roux. “uberX was launched at a time when South Africans were looking for a service with all the convenience and safety of UberBLACK, but at a lower, more accessible price point. In many cases uberX is more cost effective than owning your own vehicle, never mind more convenient.”

Le Roux says uberX is popular because its price point makes Uber more accessible to more people, while UberBLACK is popular for a more luxurious ride.

“The more options we can provide, the more transportation providers we can then partner with. This furthers our mission of providing safe and reliable transport options to riders and greater economic opportunity to drivers,” he said.

A resounding success

Lits says the service has been a resounding success in South Africa so far.

“We have been blown away by the reception so far to uberX and we are very excited about the prospects going forward,” he says. “uberX has also added another price point to customers, making Uber more accessible to the people of South Africa. uberX is changing the way that people move around their cities and is providing South Africans with a safe, reliable and convenient transport solution in their cities, replacing the need for car ownership.”

The way the company handles its ever-expanding global business is different to other companies of its size. With its financial muscle, when Uber launches in a new country or city, it can afford to launch big. For the first week or so of the rollout of uberX in Cape Town and Johannesburg, customers were offered free rides as a means of getting them signed up to the app. Uber compensated its drivers the full price of the fare. The company also says it will keep its prices at the low level they are currently, effectively undercutting traditional taxi companies. This is where the company uses the majority of its funds.

However, once this initial launch phase is complete and users have got over the initial barrier of signing up to the app, the company adopts what is called a “lean startup” strategy. All city teams comprise just three people, keeping costs low. Uber then relies on the stickiness of its product and the ability of these three, relatively well-paid individuals to push the business on.

The city teams comprise a marketing manager, who focuses on building the Uber brand, driving signups, customer support and adoption of the product, and a driver operations manager, tasked with growing supply of drivers and data analytics to ensure Uber can match demand with supply. The small team is led by a general manager, who works with the rest of the team and helps drive the business forward from a strategic perspective.

“You can achieve huge efficiencies with this structure and this team can support a city which completes thousands of trips on a weekly basis,” Lits says. “We are also able to leverage off the global Uber network and expertise in the rest of the world to help provide best practice locally and scale the city efficiently.”

Plotting growth

The ability to leverage off the global network is indeed helpful, and Uber employs an international launcher, Patrick Studener, who works with the launch teams to get the company off the ground in a city before shooting off to another prospective launch destination. However, afterwards the teams are largely left to themselves to plot growth in their respective cities.

“Launching any new option obviously requires a significant amount of planning to ensure the launch process is seamless, our partner drivers are happy and the product
is well received by the public,” says le Roux. “That being said, Uber moves and evolves quickly, so no time was wasted in planning and launching the uberX product into the South African market place.”

Its South African launch complete, and the teams now left to get on with the task of building their customer bases in Johannesburg and Cape Town, Uber is now looking further afield in Africa. In July the app was launched in Lagos, Nigeria, entering a second African country, while moves to launch in Nairobi, Kenya are well underway.

Following a technique it used in South Africa, when it used former South African footballer Mark Fish to help promote the launch of services, Uber employed major Nigerian hip-hop artist Ice Prince to inform Lagos residents of the app, and offered users US$12 off their first rides.

Explaining the procedure behind picking Lagos as Uber’s next African stop, Lits says: “Our goal is of course to offer the Uber platform everywhere. When we decide to launch in a city we first look at a number of factors: smartphone penetration and network quality, supply of vehicles that will fit the Uber brand and the real opportunity to give passengers and drivers more choice.

“It also made sense to launch in Lagos because of its population (21 million) and size (999.6 km2). Further, Lagosians are also progressive and tech savvy and in particular love products that are cool, exclusive and offer a new experience—and Uber is doing just that.” 

Tom Jackson

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