
Uber to Seal $3.1B Deal to Buy Careem This Week - heshamg
https://www.bloomberg.com/news/articles/2019-03-24/uber-is-said-to-seal-3-1-billion-deal-to-buy-careem-this-week
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logicx24
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.

~~~
deogeo
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?

~~~
TuringNYC
Good for Uber, but I'm disappointed as a customer. I did extensive travel
overseas in Qatar and the Careem app was excellent. They had a clear local
strategy with local customization to capture users. For example

\- [Local flavor] Using a button called "Yallah" instead of "Go"

\- [Local Knowledge] Pre-coding airport pickup locations (unlike Uber which
had you try and figure it out directly with drivers, who often did not speak
English.)

\- [Local Knowledge] Understanding that many parts of the world do not have
street addresses!

~~~
plumeria
It would be great if Uber accepted plus codes
([https://plus.codes/](https://plus.codes/)) when setting a destination.

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m3h
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.

~~~
rak00n
Why isn't Lyft going for foreign markets as aggressively as Uber?

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m3h
I think that would be because Uber has some USD 24 billion invested in it
while Lyft has raised nearly USD 5 billion (figures from Crunchbase). With
deep pockets, Uber's right move is to spend fast and monopolize as much of the
market as possible. They do this by buying out competitors or offering massive
discounts on their pricing to out run their competitors. They can afford to
figure out how to be profitable later.

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philsnow
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?

~~~
DevX101
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.

~~~
adventured
Uber's network effect isn't localized at all.

Try getting someone to keep 27 different ride hailing apps on their phone, and
convincing that person to maintain them all and remember which accounts
correspond to which cities.

Uber only doesn't have a national network effect if you view people like
software in appraising their potential behavior. Actual human behavior is
thus: I have zero interest in maintaining many ride hailing accounts, I have
zero interest in having numerous ride hailing apps on my phone, I want as few
as reasonably necessary.

If you can get people to keep two or three ride hailing apps on their phone
for one country, that's pushing the limits of consumer behavior. They do not
want to bother. They also do not want to be negatively surprised by a new
competing service, which limits their willingness to experiment when there are
existing known solutions. They'll choose well-understood Uber at 75%-85% good
enough rather than risk having a bad experience in regularly trying out a new
upstart. Actual consumer behavior functions as an enormous competitive moat in
fact.

~~~
govg
I think it's a very small segment of their customer base that actually
requires cab hailing services in 10+ cities. Most people working day jobs will
not visit more than that many cities over the course of the year, and Uber
possibly serves most of them.

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emilsedgh
How much capital does Uber have left?

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
$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.

~~~
jussij
That $50b figure is not their revenue, but their gross bookings.

For example Uber's last quarter revenue was $3 billion on some $14 billion in
bookings, with a loss of about $800 million.

~~~
Gustomaximus
My understanding;

$14 billion is revenue

$3 billion is their earnings after driver costs.

~~~
jussij
Why that $14 billion can not be called revenue is Uber specifically structures
it's business to make sure their drivers form no part of the business, instead
they insist all their drivers are independent contractors.

They do that specifically to reduce their running costs and hence maximize the
profit on their actual revenue.

That would be like saying all iPhone App developers are working for Apple,
when in fact all Apple does is take 30% of each and ever dollar these App
developer earn in sales.

Likewise Uber just puts it's 30% Uber tax on every dollar it's drivers earn.

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Ozzie_osman
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.

~~~
slorward
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.

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jcfrei
> 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).

[0]: [https://www.cbinsights.com/research/saudi-arabia-pif-tech-
in...](https://www.cbinsights.com/research/saudi-arabia-pif-tech-investments/)

~~~
gms
Al Waleed’s investment fund is private, not public.

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lyime
Interesting... sounds like a side deal with the Saudi sovereign fund.

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dawhizkid
I’m guessing Lime soon too.

~~~
hex20
Doesn't Uber have a large investment in Bird?

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dawhizkid
No. They did invest already in Lime.

