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Ride-hailing titan Uber has agreed to purchase Careem, a Middle Eastern ride-hailing, delivery, and payments firm, for $3.1 billion, according to Bloomberg.
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The agreement marks Uber’s first-ever acquisition of another ride-hailing company.
Here’s what it means: The agreement is a significant departure from Uber’s longtime approach to international markets. Over the last few years, Uber has tried to grow organically and out-compete local competitors in China, Southeast Asia, and Russia, before eventually conceding and selling its business in exchange for a stake in companies — Didi Chuxing, Grab, and Yandex, respectively. Here’s what we think is behind this change in strategy:
- Uber must look to international markets to facilitate growth, as ride-hailing appears to be maturing in developed markets. In developed markets, the ride-hailing market may be maturing: In its recent IPO filing, Lyft argued that "it is uncertain to what extent market acceptance will continue to grow, if at all." For Uber, a lack of growth opportunities spells trouble, especially since it remains locked in a price warwith Lyft and has lost market share to its rival in recent years. In Europe, meanwhile, Uber is competing head-on with Daimler-owned MyTaxi and may soon be going up against the newly formed BMW/Daimler mobility joint venture. Steep competition and slowing growth has ultimately led ride-hailing firms in developed markets to turn elsewhere for new revenue sources.
- Buying Careem will vault Uber into the leading position in the burgeoning Middle Eastern ride-hailing market. Careem counts about 30 million users and 1 million drivers across the 90 cities in the Middle East that it operates in, making it the leading player in the Middle Eastern ride-hailing space. In comparison, Uber operates in only 20 cities in the region, and through June 2016 it had only 395,000 users. Acquiring the leader in the Middle Eastern ride-hailing space will give Uber the pole position in a large market: Research & Markets projects the North African and Middle Eastern ride-hailing market will be worth $7.3 billion by 2023.
- The Middle East is one of the only areas of the world where Uber could carve out a dominant position in a high-growth market. In India, Uber is locked in a fierce competition with Ola, while the company has altogether exited other high-growth markets like Southeast Asia and China. Uber appears willing to try and grow its business organically in South America, but the highly fragmented nature of the region’s ride-hailing market will likely prevent it from gaining a leading position anytime soon. Careem appeared to be Uber’s best (and likely only) chance to acquire a dominant player in a developing market.
The bigger picture: The maturation of developed markets won’t just impact Uber, as such, this aggressive move could signal the beginning of an aggressive period in which established ride-hailing firms quickly enter lucrative, developing markets through major acquisitions. Two regions where we could see a flurry of activity are South America and sub-Saharan Africa. Both of these regions are quite fragmented, but they are also home to a large number of major cities that can become revenue drivers for ride-hailing firms.
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See Also:
- THE AI IN TRANSPORTATION REPORT: How automakers can use artificial intelligence to cut costs, open new revenue streams, and adapt to the digital age
- Why China’s ride-hailing market has space for new entrants
- Uber Freight will face challenges in Europe
Source: Business Insider – nshields@businessinsider.com (Nicholas Shields)