Nairobi’s taxi hailing startups: too much of a good thing?

To say that Nairobi’s taxing hailing industry is getting busy would be to understate the fact. Startups are flocking to the space at such a rate it is now high time to wonder whether the whole thing is sustainable.

When Disrupt Africa reported in March on the battle between Easy Taxi and Uber for Nairobi’s streets, casual onlookers may have been forgiven for thinking it was as simple as that. But it isn’t.

Last month, we told you about Maramoja, which began life as “Uber for Kenya”, but after losing its first mover advantage pivoted into allowing people to order taxis from their phones based on their social connections. And yesterday, we brought to your attention MyTaxi, by far the lowest budget of the four.

You could have forgiven MyTaxi co-founder Mark Manyuru – and Maramoja chief executive officer (CEO) Jason Eisen, for that matter – for lying awake at night pondering the combined purses of global titans Uber and Easy Taxi and wondering why on earth they decided to go into competition with them. Manyuru himself notes the two are “formidable opponents”.

Too right. Attend an event in Nairobi and you’ll be confronted with Uber’s deep pockets in the form of thousands of shillings worth of free credit if you sign up for the app – the major hurdle to usage Uber needs to overcome for its incredibly sticky product. Drive the streets of Nairobi and Easy Taxi adverts every few metres remind you of the extent of the company’s financial backing.

So why do these companies do it? Are they on a hiding to nothing? What persuades them to launch businesses in this busy sector? Let’s take a look at the possibility that this town really could be big enough for (at least) the four of them.

Following an international example

Uber is an international behemoth that bestrides the tech startup ecosystem across the world. Everyone wants to be Uber. The vast amounts of funding the company has received, the absurd valuations, the sheer speed and comprehensiveness of its rollouts across the world, and the fact the “Uber model” has been adopted for everything from couriering to home cleaning services makes it a perfect target for idealisation for startups.

Everywhere, not least in Africa, there has been a push to “do” Uber before Uber could manage it. In South Africa, Snappcab and Zapacab got there first. The former survives (just), but the latter is now defunct in the wake of Uber’s eventual arrival. Eisen freely admits Maramoja was originally conceived as “Uber for Kenya”, before delays cost it the chance of getting that off the ground. The idea of enjoying the kind of success that Uber has is a nice one to have. But the fact remains that Uber is already in Kenya. Why even try to challenge it given its resources?

Uber isn’t all that (or at least it wasn’t)

Yes, it’s a great product. But Uber in Nairobi has still had its limitations. For all the talk of M-Pesa integration, it was still only possible to pay for Uber rides using a bank card until they announced a cash test at a press conference in Nairobi earlier today. This has been a serious limitation in Kenya, where large portions of people do not have bank cards. While M-Pesa payments were still not an option, Uber cannot claim dominance based on functionality. This may now change.

Nor can it claim dominance based on service, given that many of its drivers do not actually know their way around the city (trust me, this is true). Uber goes to great lengths to repay customers should they have had an issue, but this does not negate the fact that problems have occurred. GPS is also sometimes an issue, though this is the case with all the companies given often unreliable connectivity.

Differentiation exists

These issues will make companies feel they have a chance to compete with it. Prior to today, Easy Taxi had a march on Uber as it allowed users to pay with cash and M-Pesa, a huge benefit in Nairobi. For customers not happy with being picked up by drivers they don’t know, Maramoja leverages on social connections to make them feel safer. And for users that don’t want to just be lumped with the first driver that accepts the job, MyTaxi gives them a choice of available drivers and their individual rates.

Apparently, there is room for differentiation even in something so simple as taxi hailing apps. And in a city like Nairobi where this concept is still relatively new and customers are coming to it for the first time, there is no reason why a first time user should not decide the Maramoja way of doing things, for example, is their preferred option. The only issue here for the likes of Maramoja and MyTaxi is shouting loud enough to make themselves heard given the size of Uber and Easy Taxi’s marketing budgets.

The market is large, and getting bigger

Nairobi, technically, has 3.1 million people living in it. Allowing for inevitable discrepancies, plus the ample suburbs, this number is clearly much higher. Manyuru is not wrong when he says the market is “huge”, though he almost certainly is with the daring claim it could actually have at least 20 taxi hailing apps competing with each other.

He also has a point when it comes to addressing different parts of the market. With its limitation to bank cards, Uber is certainly high-end. In allowing payment via M-Pesa and cash, Easy Taxi is ever so slightly more lowbrow. Maramoja comes in third. MyTaxi believes it can make a success of its business by targeting the lower end of the market in terms of customers and drivers using lower prices points. He may be right. With the market as big as it is, and likely to grow much further, and with each player operating in slightly different niches, it could be the companies are not competing against each other as much as we all might think.

Money may talk

All that said, however, as noted above, Uber and Easy Taxi have much deeper pockets than everyone else. This causes several problems for the likes of Maramoja and MyTaxi. First, can they raise enough awareness of themselves to ensure drivers and customers come to their services when they are far, far more likely to have heard of Uber or Easy Taxi first.

Secondly (though this relates to the first), can they obtain enough customers at this point in the market’s development to make sure they are still in business by the time it has reached a maturation point, when every Nairobian has a smartphone and people are calling taxis through their apps as a first point of call. Staying power will be crucial. Uber and Easy Taxi have the funds to be in for the long haul.

Third, and again this links back, can Maramoja and MyTaxi persuade investors to back their startups given the competition. Somewhere in that SWOT analysis they are inevitably going to have to write: “Erm, our major competitor is Uber”. That could be enough to put many people off putting money in, giving the risks. That has certainly been the case in South Africa. MyTaxi says it is targeting local microfinance institutions to raise funding. It remains to be seen if many investors are as brave as these erstwhile CEOs in tackling the international spending power of Easy Taxi and Uber.

Time will tell. Competition is a good thing, and as noted above there is enough evidence to suggest these smaller firms stand at least a chance when it comes to developing sustainable businesses in the current taxi hailing app environment. But they’re also in for one hell of a fight.