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The challenges of rideshare apps in Latin America by 2020

Rideshare apps like Uber and Didi expanded in Latin America, but investor confidence in them falls.

In the 2019 Q2 report, Uber announced that the company had lost more than $ 5 billion. According to Business Insider, the most significant expenses the company had were in the area of ​​research and development. At the same time, other billions went to marketing, operations, and compensation expenses to drivers. Despite the red numbers, Uber continued with its investments in Latin America.

In August 2019, Uber CEO Dara Khosrowshahi explained in an interview with CNBC News the company’s plans in Latin America. In summary, Latin America is one of the largest markets for ridesharing. The increase in Gross Domestic Product (GDP) attracts companies, while the growth of Latin American cities makes the region one of the best places for rideshare apps.

Khosrowshahi stressed that Buenos Aires is now the fifth-largest city for rideshare applications. The name of Uber is known and loved in Latin America. Uber plans to bring one service and then add more services to the company.

We observed these types of movements in August 2019, when Uber announced the start of operations of the Jump anchorless bicycles. The same is intended by the company with Uber Eats, which is already part of the daily vocabulary of Americans. The challenge is to do the same in Latin America, in a sector where Uber must compete with the Colombian unicorn Rappi.

To achieve this, Uber must spend money on investment and execute its project. However, the company relies on the prestige of its brand and the platform it has built locally.

“There is no reason why we cannot be as successful in Latin America as we are in the United States.”

Dara Khosrowshahi, CEO of Uber

Uber’s competitors in LatAm

Dara Khosrowshahi is not the only executive who shows his optimism towards Latin America. Other companies have also opted for the Latin American market this 2019. In March this year, Waze announced its Waze Carpool rideshare service in Mexico.

Waze Carpool is an indirect competitor of Uber, although the business model is a bit different. Unlike other transportation services, shared trips in Waze Carpool are made by drivers who are Waze users, no salary is paid, and no income is involved; Also, there is a limitation of two trips that the driver can offer per day. Waze’s bet is to fill the empty seats of the 30 million cars in the streets and avenues of Mexico circulating daily, to remove the vehicles that are on the road.

For its part, the Chinese rideshare company Didi Chuxing entered the Latin market through Mexico in March 2018. Subsequently, it began its expansion in Latin America at the end of that year, after acquiring 99, the leading rideshare platform in Brazil. Didi spent $ 900 million on the operation, about $ 600 to buy the shares of other investors and $ 300 million more for the expansion of 99, which, with these movements, reached unicorn status.

In February 2019, Reuters announced that Didi was hiring personnel in Chile, Peru, and Colombia, while other reports indicated that the number of hiring of the company reached one thousand, giving clear signs of its expansion intensities.

In mid-2019, Didi Chuxing made its first significant expansion in the region after announcing that it would double its presence in Chile and Colombia. Didi is the leading rideshare company in China, and Latin America is currently a key market in its expansion ambitions.

Mi Yang, who leads Didi’s operations in Central and South America, mentioned that Chile and Colombia are “two important centers of growth and innovation in the region.”

In this year, in old acquaintance returned to the Mexican market of rideshare: Beat. In past years, the Greek app tried without much success to enter the country. Now with a more developed market and with the support of Mercedes Benz, Beat became in three months, the third most used transport application in the country, only behind Uber and Didi. In November, Beat announced its expansion to more cities in Mexico.

Currently, Beat is the most popular transport application in Greece and Peru, as well as being the second most used application in Colombia and Chile.

“Our goal is to become the strongest mobility application in Latin America in the coming years,” by offering an incredible transportation experience at very competitive prices. “

Nikos Drandakis, CEO of Beat

Regarding the case of Mexico, Carlos Lieja, General Director at Beat México commented that “In less than a year, Beat has established itself as a key player in Mexico, because after the successful launches in Mexico City, Guadalajara, and Monterrey, it is now ready to move more Mexicans in these new markets.”

The rapid expansion of digital services has allowed Latin America to be an increasingly attractive market, and some competitors regret not realizing it before. This is the case of Cabify CEO Juan de Antonio, who considered it a mistake not to have started its expansion in the Latin American market.

In 2017 and 2018, Latin America represented 83% and 65% of Cabify’s revenues. The first countries where the Spanish company operated were Peru, Mexico, and Chile. Lima was the first market in Latin America of Cabify, when they officially entered on October 17, 2012. Cabify was the first application in the market at the local level, and since then, it has built a brand that is associated with security, transparency, quality in the service.

Recently, Cabify has partnered with Easy Taxi, which has allowed it to extend its services to a sector of the population with fewer resources, which does not usually have a credit card.

The rideshare market is fragmented in Latin America

A large number of competitors in the rideshare market indicate that Latin America is currently a relatively developed market and promises to grow as more and more people in the region are included in the digital world.

However, the number of competitors is also an indicator of how the market has been fragmented in recent years, so these types of applications are becoming less attractive to investors.

Since its release, Uber has lost a third of its value. The company started with a cost of $ 45 per share in May, while in November, the company’s purchase value was below $ 30.

Suspicions about the company’s lousy business also came after the announcement that Uber co-founder Travis Kalanick sold most of his shares in the company in early December 2019 and will leave the board of directors at the end of the year. But, if the market is flourishing, why are there so many concerns about the future of companies like Uber?

Autonomous cars are a matter of medium-term concern not only for rideshare companies but for car manufacturers in general. Uber has spent large amounts of money in the research and development of this technology. However, other companies are also doing the same. And these have an advantage over Uber: they are car manufacturers. Companies like Ford or Toyota would have the benefit of already having a production line that allows mass production of these cars.

Not all analysts agree with the most fatalistic scenarios of companies like Uber. For Stifel analyst, Scott Devitt, low Uber stock prices are a great “buy.”

For Devitt, the fight between competitors in the rideshare market has been less and less aggressive. In contrast, Uber has proven to have a route to become profitable in an accelerated manner, in addition to setting clear goals for 2021.

The challenges of rideshare companies in Latin America

The Latin American market has shown to be mature for rideshare applications. Now Didi Chuxing, Uber, Beat, Cabify, and other competitors must prove to be ready for the Latin American market, which can be quite complicated.

One of the main concerns of users and drivers is the security that these platforms can guarantee. In early December 2019, Uber published a report in which he pointed out that in the United States, more than six thousand platform users and drivers said they were victims of sexual assault. In Mexico, a platform driver was recently arrested, accused of rape.

The platform has implemented security measures to reduce these incidents, such as the option to record audio or verify the identity of those who pay in cash.

Security problems affect not only users, but also drivers who create WhatsApp groups to warn of dangerous routes or areas to avoid.

In the first half of December 2019, a group of protesters demanded Didi support to locate the driver José Fuentes, who disappeared after finishing his last trip. After several days of searching, the driver’s body was found in a state of decomposition and with firearm impacts.

Didi currently uses facial recognition to verify the identity of drivers, but it is clear that these measures are not yet sufficient for the region. It will be missing the rideshare companies innovate in these aspects.

By Juan Paulo Pérez-Tejada

I've studied Linguistics at the National School of Anthropology and History. I'm interested in NLP and Full-stack web development.

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