The Challenge for Africa’s Ride Hailing Startups As China’s Didi Chuxing Arrives South Africa

The Challenge for Africa’s Ride Hailing Startups As China’s Didi Chuxing Arrives South Africa

Two of the most difficult technology sub-sectors to make money are ecommerce and ride-hailing. They look increasingly easy to start but once you begin, you will realize one thing: accumulating leverageable factors is hard, and attaining efficient marginal cost positioning largely hopeless. So, what great companies do is to use those vehicles as one oasis and quickly activate double plays where they can capture value. Without AWS, Amazon would not be a $1.54 trillion plus business, if it has relied only on ecommerce. 

Ecommerce is hard especially in Africa where marginal cost challenges make it an offline business. Yes, if the cost of logistics still dominates the transaction/distribution cost, making the operations bounded by geography, it is nothing truly online. As I noted years ago in the Harvard Business Review, we have a long way to go before we can fix most of the frictions in the sector. My summary is that ecommerce is a wasteful venture at this time in Africa unless you have free money to be throwing at it before things improve. And do not call it an online business because there is nothing in it that is truly online: serving an extra customer does not end with a click. It costs real money to reach that person in an area with no postal services.

So, the news today is that China’s Didi Chuxing is coming to Cape Town, South Africa to battle Uber and Bolt. As we already know, most local ride-hailing companies in Africa have exited or severely diminished. They have struggled to make money and without unlimited funding treasury, mainly possible in China, Europe and US, most pivoted.

DiDi South Africa is part of the world-leading transportation platform DiDi Chuxing, which offers a full range of app-based transportation services to more than 600 million users across Asia, Latin America & Russia.

DiDi South Africa understands the challenges communities and the transportation industry face with the evolution of urban mobility (rideshare) and as a result is committed to creating the freedom and convenience to go places, open up horizons and give access to new experiences through our platforms.

Our mission is driven by a dedicated team, who understand the operational landscapes of the rideshare industry. DiDi exists to help South Africans move freely and to unlock their potential and that of the cities they live in. 

Ride hailing has limited IP-anchored moat and requires massive scale to trigger the virtuous accelerating returns. If you have options, do not waste time on it, unless you are using it to support a one oasis which you want to remain a category-king (think of Innoson Motors starting one in Nigeria)! But as a pure play business in Africa, it looks dimmed as Uber, Bolt and now Didi converge.

Those companies know what they are doing: I have called it geographical positioning where if Amazon invests $1 billion in India, Wall Street investors add $20 billion market cap for its Indian exposure even though it may not be making money therein. Jumia did the same when it battled Konga as it ramped up expansion in Africa, while losing money, and over time, investors stopped funding Konga, because they felt that Jumia had won! Typically, having access to that truckload of money is not common for most African startups. So, that makes such a playbook challenging: you do not need a business where after raising $400 million, you will still need more money to show results!

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One thought on “The Challenge for Africa’s Ride Hailing Startups As China’s Didi Chuxing Arrives South Africa

  1. I can address this post in about five or six different ways, but let me just keep it simple, because plenty things are involved.

    Those two sectors have very low barriers to entry, that’s first step in erosion of value, because you cannot command decent margin as an operator, certainly not when a lot more people are developing their own platforms and launching, turning everything into a dog fight.

    Another thing is that an ‘elitist’ business such as these cannot run in a vacuum, and to fill up the space, you need critical mass of the population to have above-average purchasing power; you cannot scale ecommerce and ride-hailing businesses in economies where people count their money before spending.

    So, to make ecommerce and ride hailing truly a business here, they have to be bundled as part of the full package, and never as standalone; which points to the One Oasis Strategy again…

    Both are necessary sub-sectors, but you do not need any special talent to run either, so anyone joining the fray is coming there to destroy value, with little or no chance of capturing any, and the bleeding continues.

    To fix the mess, you will have to frame it differently, then come up with brand new stories; not for the average guys.

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