Uber’s Endgame 📲
The Super App strategy
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Editors note: After publishing, I learned Uber recently announced internally they are deprioritizing parts of this strategy. From Bloomberg (on June 25th, 2020):
In an email to staff on Thursday, Uber Chief Executive Officer Dara Khosrowshahi said that Uber will “deprioritize” several of its finance-related projects, which have included credit cards, a digital wallet and instant payments for drivers.
I’m a dreamer.
Whenever I evaluate a stock, I like to understand where the company is going. As I dug into Uber for this WTF, I pondered, what’s Uber’s end game?
After poking around, here’s what I found:
One app to rule them all
"We really want to be the operating system for everyday life. What that really means is being the one-stop shop for transportation and daily commerce needs." - Manik Gupta, Uber’s most recent Chief Product Officer
We know Uber today for their ridesharing, food delivery, and scooter / bike services. The Financial Times (FT) mapped this out:
While that’s a Goliath in itself, Uber wants to be something much stronger.
They want to be a ‘Super App.’ A suite of services that encompasses everything.
To understand what this means, we can look at Gojek. They are the thriving Indonesian transportation and commerce ‘Super App.’
Everything means everything. Gojek services include pharmacy, laundry, and even massages!
On the surface, this looks like a hodge podge offering. Why have so many things going on?
Users only care about two things: price and convenience. A super app approach helps both. More services in one place = a better customer experience. Uber added color on convenience in their most recent annual report,
“We are making it even easier for our consumers to unlock convenience. We are working on developing a “Super App,” which will combine our multiple offerings into a single app and is designed to remove friction for our consumers...”
In a Spongebob crossover, here’s how strong I view the product offerings right now:
Banking linchpin
Many of these potential services require Uber to do the same thing they are do today: move physical items (people, goods) from A to B. It’s a competitive and unprofitable business, even with Uber’s global scale.
I wonder, by offering more services, how is this not one big money pit?
I believe the answer is in financial services.
Banking and payments offers Uber an opportunity to both make more revenue and profit. Moving digital items (money) is less costly and more replicable than moving physical items. The FT adds,
“The idea is for Uber to provide, within a single app, access to transport, groceries, hot meals, banking and more. In short, it wants to be a “super-app” modelled on apps like Gojek, whose food and payments features have already overtaken its transport business by revenue...
One lucrative area for Uber to expand further is in banking, particularly for its 3m drivers. While Uber struggles to prove that ride-hailing can ever be profitable, the data that business generates could give it a big advantage towards making money through loan services.”
Can it be done?
The banking narrative paints a rosy future for the money losing Uber.
While the concept is powerful in theory, I question, can Uber reach the same depth as Gojek? My initial gut reaction is pessimistic.
For context, in my previous role, I invested in startups. This ‘Gojek approach’ was a key thesis. It led me to Istanbul in December 2017, where I spent time with the Turkish version of Gojek, Scotty.
Me and my now good friend, Tarkan (left), Founder and CEO of Scotty. He talks about his super app strategy here.
I generalize the Gojek approach as this:
Start with a ridiculous pain point (transport in a top 5 most congested city in the world)
Expand to other pain points (e.g. pharmacy, grocery, food)
Offer a 10x better way to pay (GoPay)
Expand and dominate across all consumer financial transactions (e.g. retailer payment processing, small business loans, insurance)
GoJek offered a 10x better way to pay by ushering in digital payments. Before GoJek, cash was king in Indonesia. The payment platform Adyen reported (unclear publish date, I assume 2016),
“Less than 40% of the population is currently online, bank penetration is under a quarter, and the number of debit and credit cards issued is at only 15%.”
Now Uber has done steps 1 and 2. For this narrative to hold steps 3 and 4, how deep can they get people to use their financial services?
In the US and Canada, Uber’s home market, using the Gojek ‘10x’ approach looks unlikely. Credit card penetration is already at ~70% and ~90% respectively.
That said, Uber is a global business. This thesis could play out in other geographies.
Let’s dig deeper
As we progress researching Uber, the financial services aspect is intriguing to me. Additionally, here are the five themes the Witty community is curious about:
Will Uber ever become profitable? What’s the pathway to do so?
What is Uber’s moat?
What happens if / when fully autonomous driving happens?
How does COVID affect Uber’s stock?
If we like the stock, at what price should we target?
If you have thoughts on any of these, or are interested in working together on a guest post, I’d love to hear from you! Feel free to respond to this email.
Note: This content is for informational purposes only. It should not be relied upon as legal, business, investment, or tax advice. Your use of the information contained here is at your own risk. I am not a financial advisor.