Last week, BRTA finally issued ride-sharing licenses to 9 ride-hailing companies. More players are likely to be in the process.
The ride-sharing guidelines 2017 first came to public attention in 2017. It got approved in January 2018. BRTA started the registration process for ride-hailing companies from July 1, 2019. To that end, 9 companies now have the BRTA license.
The ride-hailing market has grown over the last four years. There are multiple players who are competing on equal foot now. Consumer adoption of the service has seen excellent growth. At the same time, there are challenges and holes in the market.
As the market matures further, there are certain questions ride-hailing companies in Dhaka need to think about and answer. Below are seven questions for ride-hailing companies to ask as we enter 2020.
After a short period of cool post-Pathao layoff in mid-2019, the competition among Uber, Pathao, Shohoz, Obhai, and smaller ride-hailing players has intensified in the past months.
Pathao lost a significant market share to Uber and Shohoz in bike owing to its recent debacle with funding, layoff, and other issues. The company has been trying to claw back with renewed push with marketing campaigns, discounts and so on.
Price remains a key point of competition for ride-hailing companies. Aggressive discounts continue to be a norm in the ride-hailing business.
However, Uber has been trying to control costs in the US and in Dhaka, Pathao, Shohoz, and other ride-hailing players should quickly find a meaningful way to go beyond competing on price. It would be interesting to see how this trend shapes up in 2020.
We’ve previously written about the fact that ride-hailing is largely a promo-code driven market.
Partly it is due to the level of the price competition that exists today in the market as I mentioned in the earlier point.
Partly it is due to the inherent nature of the market. Since ride-hailing is a relatively new service, companies essentially had to provide incentives to improve adaptation. The problem for ride-hailing companies, however, is that the adaptation beyond promo-codes and discounts remains a challenge.
Several ride-hailing operators in Dhaka told us previously that retention is a challenge in the ride-hailing market and that stickiness without discounts remain low. Others would not comment on how they fare without promo-code.
Partly it is an inherent market challenge that in a price point without promo code it is likely that ride-hailing would be unaffordable for many people.
To address these challenges, companies have been trying different things. First, the common thing everything has been doing is promising a safer transportation option.
However, there is no data regarding how much safety resonates with ride-hailing users as a key value proposition.
Second, the companies have been trying diversification - adding more services to the app. The expectation is clear that more services would encourage a user to stick with a service provider for a longer period of time because it offers value in the form of convenience that you could get everything in one app.
More verticals as strong moats make sense but it does not hold when every other player is doing the same thing and when the number of verticals ends with food and ride.
For ride-hailing companies, finding an answer to this question would be critical moving into 2020.
Bike-hailing is not an efficient form of transportation if you consider it as a form of public transport.
Personal mobility is okay which is electric bikes such as Bird in the US, Yulu and Jo Bike in Dhaka but when the proposition is that bike for mass transportation, it is an absolutely unsustainable model at scale for many reasons. More on that in a moment.
Before two points.
One, Yulu and Jo Bike are more of personal mobility services because the user himself is driving the vehicle. You get a Jo Bike and ride it to your destination. But in bike-hailing, I’m not talking about UberPool or bike-sharing where you are sharing the same vehicle, it is a precarious model where one person is carrying another person.
While sharing makes sense to some extent, bike-hailing does not.
One, if you consider large transportation options such as bus, and then compare that with a bike, it is a complete nutjob. Bike is inefficient at multiple levels, in order to carry 30,000 people you need 30,000 more people who would be driving the vehicles. The infrastructure requirement and the impact on the environment are also huge.
Dhaka has a 20 million population. If 50% of them start using bike-hailing service for transportation it would be a mess and regulation would be required to bring order on the street.
There already several research reports on the impact of ride-hailing companies on traffic and infrastructure both in Dhaka and other markets.
Thus, for public transport, bike is a highly inefficient and unoptimized mode of transportation. Contrary to that, the best option is large size vehicles and similar transports.
For a city like Dhaka and a country like Bangladesh, where the size of the population is large and infrastructure is insufficient bike-hailing as a mode of transportation at scale, in the long run, poses a lot of hard questions.
Companies like Shohoz and Pathao should start paying attention to these more serious and long term questions as the market grows and matures.
Many ride-hailing companies call drivers in fancy names such as Driver Partners, Heroes, Entrepreneurs, and Independent professionals and so on. These are just that, fancy names.
In reality, the leverage these drivers have against these platforms is limited and meaningless to the extent that there are now increasing pressures from regulators and ride-hailing drivers across markets for fairer relationships.
In California, we have seen a new regulation titled AB5 is in making.
In Dhaka, Uber drivers went on to strike with various demands just a few weeks ago.
This will be the norm as the market matures and ride-hailing companies try to get a leash on discounts and promotional offers for the drivers and customers in order to improve their numbers.
Ride-hailing drivers are no entrepreneurs. These are gig workers and a growing number of studies show that gig work at its current form where workers don’t get any benefit from the platforms is unsustainable at the scale of society and is outright bad for gig workers both financially and mentally and thus should bring equally negative outcomes for the ride-hailing companies or companies who are using the model at scale.
Deploying robots to drive the car or autonomous vehicles are different discussion altogether, which Uber and a few others are investing in.
In his bestselling book Lost Connections: Why You’re Depressed and How to Find Hope Hardcover, journalist and author Johann Hari explains the impact of changing nature of work and the rise of gig works where future of workers is always uncertain on the workers and it is devastating because these drivers have little control over their income and security. And it does not make them hopeful.
There is logic that ride-hailing platforms are basically markets where platforms simply match demand and supply. But that narrative overlooks a lot of other important aspects.
If you pay attention to the market, the current form of relationship between drivers and ride-hailing companies, where ride-hailing platforms take a commission of between 20%-30% from drivers basically because these platforms control the demand in the market, does not add up.
Apart from making the market efficient for customers meaning users and thus controlling the demand, the ride-hailing companies add little value to the transaction for the drivers.
In fact, the improvement in the form of efficiency that ride-hailing companies bring to the table benefits users more than they benefit drivers.
Drivers give a commission of 20-30% of their earning only because ride-hailing companies can dictate the orders/demands and in exchange for this commission these drivers don’t get anything in return, at least in the current form. This is not how markets operate, even if you parallel ride-hailing platforms with the daily laborer market, it does not make sense.
The relationship between drivers and platforms is not mutually beneficial in its current form. In order to build meaningful businesses, every stakeholder involved in the transaction has to get something that they are happy with and that makes sense for them. This is far from the case in ride-hailing today.
This is a question ride-hailing companies have to answer going forward. Should they treat drivers as employees or offer them insurance and gratuity and other benefits and if so what should be the relationship called?
A recent whitepaper published by ULAB Center For Enterprise and Society estimates that the total market size for ride-hailing services at USD $300 million.
The report estimates that the market will reach $1.0 billion in 5-7 years. Numbers regarding the state of ride-hailing companies are hard to come by.
The numbers that are available publicly are hard to verify due to the private nature of these companies. According to a report published on The Daily Star, the active weekly drivers on Pathao is about 39,842. There are data about drivers on platforms such as Shohoz and Uber.
The current markets for ride-hailing services are mostly in Dhaka, Chittagong, and Sylhet - these are mostly urban markets.
Dhaka is a large market. More than 20 million people live in Dhaka. The need for transportation is there. Chittagong and Sylhet are relatively smaller markets. Even with these three markets, the number of potential customers for ride-hailing, particularly bike-hailing, is likely to be limited if the cost is not optimized.
Since it is hard to optimize bikes, there are questions about how big is the market for bike-hailing.
The current predictions from the companies are mostly based on optimism that the market will grow owing to the rising income and spending power of people. But there are lots of holes in that analysis.
There are two challenges for ride-hailing companies when it comes to the question of market size.
One, bike-hailing at price points without discount has to be optimized in order to be affordable to a large number of population, even in Dhaka. There is little alternative to building a huge consumer tech company without mass adaptation. How will ride-hailing companies approach this optimization?
Two, ride-hailing companies should expand outside of these urban markets because, in order to build scale, Dhaka, Chittagong and Sylhet would not be enough.
It would be interesting to see how ride-hailing companies address these questions.
Almost every ride-hailing company across markets is trying to build businesses with multiple verticals. In Dhaka, Shohoz and Pathao have been talking about super-app for a long time now.
There are several reasons why ride-hailing companies are interested in super-app.
One, growth - there are opportunities to grow in more than one vertical using ride-hailing as a launchpad and first layer of a larger platform to be built eventually.
Two, fund-raising - this is tied with number one, in order to raise money, you have to show growth. The easiest path to growth is adding more verticals. Although this is misleading and based on immature hypothesis.
Three, moat - more verticals would help create competitive moats because a user would prefer to stay with an app if he or she could get most of his tasks done using it.
Fourth, profitability - with the level of competition in the ride-hailing market, there are few markets where ride business is profitable for companies. Food seems to be a higher margin business. Logistics looks even better. Hence these verticals.
Fifth, an incredible opportunity - I wrote before that ride-hailing is like real-world messaging. It offers an unparalleled opportunity to build other services on top of transportation. Since transportation is a daily necessity, the hypothesis is that it should allow one to build other layers on top of one app for multiple services. Cross promoting one service to customers who are taking another service. Such as promoting food to ride users, etc.
There are some successful attempts at Super-app such as WeChat in China. GoJek and Grab are two Southeast Asian players trying to build super-app.
The problem is building a super-app is not easy. It is equally hard to build a viable business in every other vertical.
There are challenges to building a super-app.
First, it is expensive.
Second, the approach to building super-app has been distinct for different markets. For example, Go-Jek mostly acquired existing companies and built collaboration with third party players for launching various of its service such as Go-Pay. And many of its services operate pretty independently. Grab is turning itself into a platform by hosting third party services.
Third, there are independent competitors in almost every new verticals.
For example, Shohoz and Pathao have food and there are independent food delivery players such as HungryNaki and Foodpanda who are burning equally heavily.
In truck, Shohoz has competitors such as Truck Lagbe and others. As a result, it is not easy to build an independent vertical on the side of the ride business.
In fact, it is challenging for ride-hailing companies because of multiple priorities that take away focus.
While super-app is certainly a lucrative idea, none of the local ride-hailing companies has made any meaningful progress towards that as yet.
Shohoz and Pathao claim to be one app for all your needs but in reality, they are not. Shohoz has four verticals and Pathao has three.
In 2020, we can expect that these companies will have a clearer super-app strategy in place.
Ride-hailing and mobility as a sector had a wonderful run in terms of attracting venture capital in the past decade, thanks to Uber and its incredible private market rise.
Uber successfully sold the idea that you could build software scale business outside of pure software. You could build Facebook scale business in the real world and have Facebook type multiples or even better.
However, while this narrative helped Uber to have an astonishing private market valuation, the entire narrative fell apart in the public market.
While there are more reasons for the unraveling of Uber pre-IPO than business alone, multiple business practice scandals and so on, the business owes of the company continue to exacerbate.
This development at Uber affected the ride-hailing market globally. Investors across markets, who were once hugely interested in any type of mobility business, suddenly started to approach the sector more cautiously.
While funding continues to flow to the mobility businesses, it has meaningfully reduced in the last two years. With the recent WeWork debacle, many investors are now looking more critically into the endless losses of private companies.
There are several lessons to be learned from Uber for the local ride-hailing companies.
First, don’t behave like software or pure internet company and spend like one because you are not one. Ben Thompson has a wonderful piece on tech company here.
Second, the funding environment for ride-hailing businesses is likely to be not that favorable and having the fundamentals right would be hugely advantageous. This is more so for companies in Dhaka.
Third, there is certainly an opportunity to build a transportation aggregator in Dhaka and it is no less attractive than super-app. Fourth, there is infinitely more upside to having great corporate governance and a positive company culture than not having one.
What are some other lessons to learn from Uber?
Ride-hailing is one of the earliest markets to take off in Dhaka. It would be interesting to see how it evolves as the market matures in the coming years.