Emerging rivalry in the ride-sharing economy: Kenya and South Africa.

Shingie Chisoro Dube

Entry of the mobile technology ride-sharing service, Uber, into passenger transport markets across the world has brought disruptive competition with substantial benefits to consumers. Uber has rapidly grown its footprint in Africa with operations in eight countries including Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Uganda and Tanzania.1 Building on a previous article in this Review2 this article looks at the growth of Uber and the performance of direct rivals to Uber following entry of new app-based ride-sharing services and adoption of similar technology platforms by existing incumbent metered taxis.

Mobile technology ride-sharing services are two-sided digital platforms that enable two different sets of users, drivers and passengers to interact through the same platform.3 Ride-sharing platforms actively connect drivers with customers facilitated by a cashless payment system through the use of credit cards or mobile money. Successful platforms attract both drivers and customers concurrently in order for the platform to create value for participants.4 Passengers are attracted to a mobile application with many drivers and drivers are attracted to a platform with many potential passengers.5 Ride-sharing easily matches demand and supply with the effect of reducing market transaction costs.6

In South Africa, Taxify entered the market in 2015 and recently re-launched its brand in April 2016 in an effort to access a wider market.7 In 2016, Zebra Cabs, an incumbent metered taxi company adopted the electronic taxi hailing technology to launch the Zebra Cabs app, a direct rival to Uber.8

However, the above rivals to Uber have made very little progress in drawing in new demand and facilitating customer switching. Taxify has struggled to penetrate the market since entry in 2015 forcing it to re-launch its brand in 2016.9 In South Africa, Uber has established a strong brand among local customers having entered the market in 2013. Uber enjoys first mover advantages in the ride-sharing digital platform which has rapidly grown to attract more drivers and passengers in South Africa’s main cities. In order for new players to become effective competitors in the ride-sharing economy, it is important that they develop frictionless platforms that are able to attract both drivers and customers at the same time. Government’s efforts to regulate for mobile ride-sharing services in 2016, have had little effect on the ability of rivals to compete with Uber.10 Interestingly, Uber has grown despite the absence of specific regulation and the associated regulatory challenges that have arisen.

In Kenya, Safaricom which is the largest telecommunications operator in partnership with Craft Silicon, a local software firm, launched an app-based ride-sharing service called Little Cabs in July 2016. Little Cabs introduced free Wi-Fi to passengers in addition to the option to process payments using M-Pesa, the mobile-phone based financial service.11 M-Pesa is the most widely used mobile money service developed by Safaricom with 70% market share out of 14.2 million active mobile money users in Kenya.12

Unlike the position of rivals in South Africa, Little Cab promises to be an effective competitor to Uber in Kenya’s ride-sharing economy. Little Cabs’ competitive advantage lies in Safaricom’s ability to leverage its market power in the mobile money industry into the ride-sharing business given the similar network effects in the ride-sharing business. Safaricom developed and controls the ubiquitous mobile money transfer service, M-Pesa, placing it in a good position to deploy the payment solution into the mobile ride-sharing business, an advantage which rivals including Uber cannot readily match in Kenya.

It is currently not clear whether Uber can use the M-Pesa payment solution. Most people in Kenya do not make use of credit cards which is the primary means of payment in the Uber system in South Africa, for example. In 2015, only 34.7% of the population in Kenya had credit cards whilst the majority, 58.4%, had mobile money accounts.13 This is different from the South African market where 54.9% of the population had credit cards in 2015 and 14.4% held mobile money accounts.14 South Africa’s developed banking system could be a key factor behind Uber’s growth in South Africa, and specifically the presence of a large banked population. In Kenya, M-Pesa’s attractiveness to both markets - ride-sharing users and mobile platform users – could mean that rivalry will develop based on how well Safaricom is able to leverage its presence in mobile financial services, and its large mobile money subscriber base in competing with Uber. Specifically, it would have to ensure that along with its strong presence in mobile services, there will also be sufficient demand on both sides of the two-sided rise-sharing platform. In this context, Uber already has significant first mover advantages in terms of its brand and established relationships with drivers as well.

A PDF copy of this article is available here.

NOTES

  1. Agbugah, F. ‘Ghana becomes the first African country to sign an SOU with Uber’ (17 June 2016). VenturesAfrica.
  2. Chisoro Dube, S. ‘Uber: a game-changer in passenger transport in South Africa’ (November 2015). CCRED Quarterly Competition Review.
  3. Rysman, M. (2009). The Economics of Two-Sided Markets. Journal of Economic Perspectives, 23(3): 125-143. 
  4. Evans, D. and Pirchio, A. (2015). An empirical Examination of Why Mobile Money Schemes Ignite in Some Developing Countries but Flounder in Most. Coasse-Sandor Institute for Law and Economics Working Paper, 723.
  5. See note 4.
  6. PricewaterhouseCoopers (PwC). ‘The sharing economy’ (December 2014). PricewaterhouseCoopers (PwC).
  7. Writer, S. ‘Taxify relaunched in South Africa to take on Uber and metered taxis’ (25 April 2016). Mybroadband.
  8. Ziady, H. ‘Transaction Capital plans to dominate SA’s metered taxi industry’ (11 May 2016). Moneyweb.
  9. See note 7, and SA Taxi. ‘New Zebra Cabs service constitutes fresh investment in metered taxi industry, taking it into new terrain’ (10 May 2016). Press Releases SA Taxi website.
  10. See note 7.
  11. Gauteng Province Roads and Transport. ‘Media Speech by Gauteng MEC for roads and Transport, Ismail Vadi, on the licensing of Uber partners’ (16 May 2016). Gauteng Province Roads and Transport.
  12. Okunola, F. ‘Safaricom launches its weapon of choice on the on-demand taxi market in Kenya’ (06 July 2016). Pulse.ng.
  13. Robb, G. and Vilakazi, T. (2015). Mobile payments markets in Kenya, Tanzania and Zimbabwe: a comparative study of contestability and outcomes. CCRED Working Paper No. 8/2015. 
  14. World Bank. (2015). The Little Data Book on Financial Inclusion 2015. Washington, DC: World Bank.
  15. See note 14.