Uber’s surrender in Southeast Asia is a logical step in reversing the ride-sharing company’s mindless expansion into too many markets and too many businesses. If Uber wants to find a path to profitability, it needs to continue to narrow its focus by getting out of India and abandoning its ambitious autonomous car venture.
In Southeast Asia, instead of battling for market share in the region, Uber decided to sell its local operation. In return, it is receiving a 27.5% stake in its regional rival, Singapore-based Grab Inc., which has more monthly active users in much of Southeast Asia than Uber. Its exit from Southeast Asia follows similar moves in China and Russia through deals that also involved former rivals.
Next, in my view, will be India, where Uber faces stiff competition from Ola, a nimble local rival that is gaining on Uber. Ola operates in 110 cities in India, compared to 31 for Uber. It has over a million drivers compared to Uber’s 450,000 and it offers low-cost options like auto-rikshaws to cater to lower-income Indians. Ola’s wider network and local innovations have helped increase its market share from 53% in July 2017 to 56.2% in December, according to market intelligence firm KalaGato. During the same period, Uber’s share slipped from 42% to 39.6%.
What may look like a shrinking map for Uber operations is actually a good thing for the company and in keeping with a strategy I advocate with my co-author Sanjay Khosla in our book, “FEWER, BIGGER, BOLDER: From Mindless Expansion to Focused Growth.” Growth is not just about doing more; it is about doing better in fewer things. In terms of global expansion, we recommend that companies go deeper into a few markets where they can win instead of rushing to plant flags around the world. Uber is best served by accepting potentially valuable stakes in its local rivals and letting them win in their respective markets.
Uber has planted plenty of flags: Its web site proudly proclaims that Uber operates in 77 countries and 616 cities worldwide. Beginning in 2013, Uber embarked on an ambitious global land grab in an effort to gain first-mover advantage in the ride-sharing business. It often did so without much regard for taxi operators, local regulators or local partners. However, Uber’s expansion into massive markets like China, Russia, South East Asia (and most likely India, as well) has caused it to rack up billions of dollars in losses as it fights battles of attrition against well-entrenched local competitors who understand the local landscapes better than Uber. This is reminiscent of another ill-fated land grab: that of Napoleon who expanded himself to defeat in Russia.
Uber’s global expansion strategy appears flawed in that it can’t “copy and paste” what works in the U.S. into other markets. Instead, local market success call for “copy, translate, and paste” – and local markets require a lot of translation. For example, Grab, founded in 2012, began with hailing taxis only and accepting cash payments from the beginning. (Uber would only catch on to the importance of cash payments two years later.) Later, Grab added private cars and motorbikes and offered additional ways to pay including a mobile wallet. Grab also offers bike sharing.
The story is similar in India, where the local competitor Ola understood the local market better than Uber. Ola allowed customers to pay with cash right from the beginning as most Indians don’t have credit or debit cards. Ola does business in nine languages while Uber only transacts in English. Ola understood that Internet connectivity is spotty in India, so it allows customers to arrange rides by sending text messages. Ola entered the digital payments business, acquired a food delivery company, and leveraged machine learning to optimize traffic on chaotic Indian roads. Ola has also beefed up its war chest with a $1.1 billion infusion from Tencent and other investors. I believe these moves leave Uber with little choice but to withdraw from India as it has done in three other markets.
In announcements to Uber staff, released by the company, CEO Dara Khosrowshahi assured employees that the decision to pull out of the ride-sharing competition in Southeast Asia, following China and Russia, does not signal that “consolidation is now the strategy of the day.” Rather, Khosrowshahi, who took over leadership at Uber from embattled founder Travis Kalanick, explained, “One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors.” Now, he added, Uber is positioned “to compete with real focus and weight in the core markets where we operate,” while gaining “valuable and growing equity stakes in a number of big and important markets where we don’t.”
Withdrawing from overseas markets where it can’t make sufficient inroads isn’t the only weeding out that Uber should consider. On the autonomous car front, Uber trails Waymo, the Google spinoff, which recently announced a new alliance that will expand its driverless ride venture over the next two years. Waymo’s technology also appears to have the advantage, reportedly achieving test results of an average of nearly 5,600 miles before the driver had to intervene and take control; Uber, meanwhile, had difficulty achieving a 13-mile target. Exacerbating Uber’s robotic vehicle troubles was a crash in Arizona in which a pedestrian was killed; Uber subsequently withdrew testing in California.
Uber is not a technology company on par with Google or Tesla and therefore will find it difficult to keep pace with the innovations from Waymo and other competitors. A far better use of its resources and management’s attention is to shore up its home market where Uber, though larger, is facing increased competition from Lyft. In a recent driver survey, Lyft scored higher than Uber in driver pay and satisfaction. And Lyft, after reportedly gaining about one-third market share in the U.S., has expanded internationally for the first time by entering the Canadian market.
While Lyft trails Uber in size and breadth, its growth shows the force of this competitive threat: poaching drivers and passengers. That’s likely one of the many reasons why Khosrowshahi is exiting the massive global markets where Uber can’t possibly win. Next on his list should be India, to stop burning cash there, and to focus on a half-dozen or so markets where Uber’s model works best.
For Uber, fewer, bigger, and bolder could mean growth that’s not only meaningful but also profitable. And that would be the best move for Uber if it really does intend to file for an initial public offering (IPO) in 2019. If and when that IPO happens, Uber won’t be measured by the number of cities and markets it is in, but on whether its model is profitable and sustainable.