Why Did Uber Spend $3.1 Billion On A Middle Eastern Rival?

Why Did Uber Spend $3.1 Billion On A Middle Eastern Rival?

2019 was a rough year for Uber. After the ridesharing giant’s disastrous
IPO, big losses, leadership shakeups and major layoffs kept the
company in the headlines and rattled investor confidence. But a mere month and a half
before the negative news started rolling in, Uber announced a major
acquisition, paying $3.1 billion for the Dubai-based ridesharing
service Careem, giving many investors hope that the Middle East
and North Africa region could represent a major growth
opportunity for the company. By acquiring Careem, Uber can claim
a significant region outside of North America, where they are
the dominant player. They’re not the dominant
player in China. They’re not the dominant
player in Latin America. So they really needed that
win in the Middle East. Even though Uber’s had really a
train wreck situation since the IPO, Careem’s been one of the bright
spots over the past year. It was not only Uber’s largest acquisition
to date, but the biggest tech acquisition that the region had ever seen,
by more than a factor of five. It’s prompted hope that other
homegrown companies will follow suit. Pending regulatory approvals, the deal is
expected to close in the first quarter of 2020. While this deal marked
the first time that many in the U.S. had even heard of Careem, in
the Middle East, it’s a household name. So Careem started in a number
of countries ahead of Uber. So they had a head start. They understand the culture. Careem built a very strong brand and
I could tell you that’s something that was becoming more and more
difficult for Uber to compete with. So what exactly is Careem’s brand, and how
did it help them to become so valuable? Careem was founded in 2012 by Mudassir Sheikha, who grew up
in Pakistan, and Magnus Olsson from Sweden. Both are ex-consultants
at McKinsey and Co. And they’ve managed to get some
major backers on board, like Saudi Arabia’s richest man, Prince
Al-Waleed bin Talal. Overall, the company stands out
in a region where entrepreneurialism generally lags behind the
rest of the world. It operates in 87 cities in
14 countries, including some politically unstable areas like Iraq and Palestine,
where Uber previously had no presence at all. Typically, only a local
firm can do business in such environments because the team and the
stakeholders would be used to this. This is the environment in
which they grew up. Careem also had an advantage over Uber
when it came to customizing its offerings on the local level. The local teams that Careem had in
the various markets had a more entrepreneurial approach and they were able
to negotiate and talk with the regulators and work out deals on their
own, something that is, you know, fairly difficult to do in a company
like Uber, who’s trying to standardize everything that they do worldwide. Along with local knowledge, Careem brought
the tech know-how to build out much of the basic infrastructure that
ridesharing companies in the U.S. or Europe may take for granted. So if you go to many of the
cities and countries that we’ve gone to, and these include places like Pakistan, Iraq,
Palestine, Sudan, we’ve had to build our own locations database, our
own maps, our own payment systems, our own messaging systems,
our own call centers. In many of these places, businesses
and homes lack formal addresses, the economies are largely cash-based, internet
access can be slow and intermittent, and the older generation
isn’t as comfortable with smartphones. We realized that the maps
in the region were not accurate. So we decided that we have to
actually build maps of the region. Then we decided that even when we had
the maps, there were times when a lot of the captains, who come from
places like Pakistan and India, were not able to speak in the
same language as the customers. So communication was a
bit of a barrier. So we set up a call center
through which we could intermediate that communication and make
that more effective. But most importantly, in certain countries
such as Saudi Arabia, Careem understood, you know, the need
to have cash payments. They enabled that feature
before Uber did. Additional regional touches include allowing
users in low bandwidth countries like Iraq to order a
car via the international messaging service WhatsApp, and calling drivers “Captains”
to counter the regional stigma that driving is
a low-skilled profession. Careem has also made a point
of recruiting female “Captainahs” in places like Pakistan and even Saudi Arabia,
where women were banned from driving until mid-2018. They wanted to create
a platform that was Middle East-centric, not viewed as something that
was coming from, whether it’s Europe or the U.S., into the Middle East. As a part of the deal,
Careem will maintain its independent brand. The two companies will continue to
operate separately in the region, allowing Uber to leverage its name
recognition with expats and tourists and allowing Careem to build
on its local appeal. Basically, it’s a way of dominating
the market, but making consumers think that they have choice. The deal isn’t
the end of Careem, it’s just the start of chapter two. And I think that was a big part
of the negotiations, that they could carry on their journey and keep
the essence of Careem going. Careem has a user base of over 30
million in a region with lots of untapped potential for
digital services. The Middle East is probably one
of the fastest growing internet markets around the world. Approximately 400
million people with very high smartphone penetration that reaches 97, 98
percent in countries like Saudi Arabia and the UAE. And hence, you know, the growth rate
and need for services like Careem and Uber is high indeed. This could explain why Uber paid $3.1 billion for Careem, even though the
company’s most recent valuation came in at only $2 billion. Yeah, I
think they needed to pay a significant premium to get them, because Careem
could have just stayed doing what they’re doing. You know, or potentially
gone down an IPO path. Acquiring a local competitor is a change
of pace for Uber, which has backed out of a number of
markets over the last few years. Uber had to show investors that it
wasn’t just retreating, but it was also making big bets to be dominant
in certain markets around the world. They chose the Middle
East to do that. Like Uber, Careem is
also expanding beyond ridesharing. Now that it’s built out the
necessary digital infrastructure, the company aims to become the region’s “super app”,
a one-stop shop for a variety of online services. If you really look at what has happened
in the region the last 50 to 100 years, we missed out on a lot of
development that happened in the rest of the world due to political
strife, due to conflict. The internet, and all the power that
it brings, gives us an opportunity to leapfrog our people into
the digital future. And we believe that we’re
uniquely positioned, as leading internet platform of the region, to
go after that opportunity. Careem already offers delivery for small
packages and food items, as well as digital payment
services and bike-sharing. In the future, analysts say we can
expect Careem to expand its delivery business to more cities and build
out its payment platform, potentially one day allowing unbanked users to send
and store money on their phones and digitally purchase a
wide variety of goods. So we want to become the app for
people in the region to run their daily lives in a simpler
and productive way. So as much as Uber acquired Careem
to be the dominant ridesharing player, it may also have acquired some
lessons, some talents, some knowledge about how to become a super app. Many also
hope the deal will spur more regional entrepreneurship and inspire investors to
take a chance on domestic startups. So I think what it means for
the region now is that there’s a template. And so investors can see that
they can invest in a local startup and that startup can not only survive,
but compete with the best in the world. Aside from Careem, the region’s other
major tech deal came in 2017, when Amazon acquired local
e-commerce company Souq.com for $580 million. It also, you know, shows people that
strategic sectors in the Middle East that are drivers for growth have
already been, quote unquote, taken by internationals and urges, you know, investors
in the Middle East to move much faster. We’re seeing some of that
money that was going to the international unicorns now being invested
locally for the homegrown ones. I believe that in the next maybe two
to three years, you’re going to see many Careems. Now that it has a
strong foothold in the Middle East and North Africa, analysts say Uber would
do well to follow Careem’s example as it expands further, leveraging local
expertise in every new market it enters. And I think you realize with
the model in the United States, or even parts of Europe, might not
be successful in other regions. And I think when you look at the way
Careem did it, I think that could be the blueprint they use to expand
into Latin America, South America, parts of Europe, potentially Africa
and other areas. In the meantime though,
Uber’s been hemorrhaging cash. It reported over $1 billion in net
losses in the third quarter of 2019. In spite of this, CEO Dara Khosrowshahi
projects the company will turn a profit starting in 2021, adjusted
for interest, taxes, depreciation and amortization. So we know that there’s
an expectation of profitability and we expect to deliver for 2021. Whether or not that timeline is
realistic remains to be seen. But if Uber is ever going to
reach profitability, Careem and the Middle East at large could be an
important arrow in the company’s quiver. If Uber plays it right, the Middle
East could be one of the most profitable regions for them
on the longer term. Uber has to find new streams of revenue
and it has to justify itself as a global platform for not just
transportation, but as Dara Khosrowshahi says, the operating system
for our everyday lives.

100 Replies to “Why Did Uber Spend $3.1 Billion On A Middle Eastern Rival?

  1. You know I have to say it but Pakistan is not in the middle East. We are part of subcontinent , thus making us south Asians .

    Just gotta put it out there, because turns out many people failed world Geography in school.

  2. Grab acquired Uber here in the Philippines because they cannot dominate the SEA market, then Uber acquired Careem so they could enter the Middle East market…

  3. Correction they meant Saudi Arabia for banning females from driving not Pakistan. It's wasn't explained well. Just listen twice you will get it.

  4. Basically Spend all of your money to buy competition so
    At the end even if you are nearly bankrupt
    There is no competition

  5. hopefully Careem will not accept it.if they accept it then costumer and driver will suffer for no competition like what Grab did when they buy Uber share in south east asia.

  6. Ok, cool, so Careem and Uber will go down together. Btw, this whole payment thing is just copying what Grab has been doing for years in SE Asia. It's used quite a lot there.

  7. They bought stocks to avoid taxes and solidifying they standing as a world wide market this is a smart move.

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  9. There was never a banned in Pakistan for women drivers .. stupid
    still, its really nice to see a Pakistani guy created this big, we have very few examples to show the world but progressing

  10. How can a company that loses money spend 3.1 billion? They wonder why financial markets collapse. It's like they do this to make sure recessions occur on a regular basis so the banks can make a fortune.

  11. Foreign companies always have problems in these countries so mostly they do is to buy the competition…i say it's a good move for them but not for us consumers…now they can decide what fair they are going to charge but don't worry we still have choices of taking a bus or a rickshaw which aren't affiliated with these apps

  12. I can tell you guys going to pakistan from time to time before this acquisition EVERYONE hated uber. Everyone used careem, they were cheaper and drivers were MUCH better. There are careem offices everywhere in Karachi. This was shocking news to me!

  13. The west will tell you that the women are happy now because they get to drive the car but in reality women now have to work which actually degraded them and their dignity.

    By following the western lifestyle women have humiliated themselves Smh

  14. Rubbish app. Fact of the matter is that, it just worked out out because it takes a different cultural approach to deal with these diaper heads!!

  15. Uber's percentage of the fees/profits should be regulated to not be abusively high, leaving the drivers with only the scraps.

  16. Uber is only benefitting from high cost transport country, thats make it less innovation . .
    While in SEA where people cant afford high cost transportatuon, the ride sharing company making a lot innovations . .

  17. Kareem is not really Middle Eastern it was founded by the son of immigrants whose from Silicon Valley . He made his big bucks in Silicon Valley then saw an opportunity in the Middle East and founded Kareem so both companies were literally born in the same place and now they're the same instead of competitors

  18. Palestine? Wheres that? Inside israel? Theres no palestine anymore. Just the city Gaza. Just google it in google map and tell me if you see the word "Palestine"

  19. Careem should have collaborated with South East Asian or Chinese company… North American companies already have monoply on much of the internet.

  20. I live in the UAE and Careem is a poor service.
    It’s about 3-4 times more expensive than normal taxis, and you wait longer.

  21. Uber was great here in the middle east until their prices became sky-high and they stopped issuing promo codes.?
    It’s not as popular anymore and neither is Careem.

  22. Really like how intuitive the careem app is, it's like iOS of ride hailing services. Plus careem has recently been the game changer in Pakistan by creating so much employment. It's service compared to uber is very well placed and shows careem extensive research and understanding of local market and needs. Scams in careem are just not a thing. It also checked all boxes related to local customs e.g woman captains etc It also lets you top up your mobile credit right from the app and so much more. It seems true that careem will become the one stop shop of Pakistan and it already is. Uber on the other hand is lacking behind due to issues such has lack of good service overall which i believe is because of lack of understanding of local needs and how people here go about things. Peace

  23. Uber had 3.1 billion dollars to pay for this but they can't pay their drivers a living wage. All eCommerce drivers are contract drivers. No benefits no safety net no nothing.

  24. More Careems ?
    Not without the necessary educational infrastructure you won't, the guy who built this thing was educated and trained in the US. Not in Pakistan, Not in Saudi, Nowhere in West Asia.Period.

  25. The heck, pakistan never banned women from driving, kindly get your facts right, i wonder what else is wrong in this video.

  26. does ISIS also take careem in Iraq when they decide attack a city ? or did turk army take Careem while attacking Kurd fighters ?

  27. While I like the idea that these companies are providing new jobs opportunities, I also hope they decide to go green because there's a pollution problem in the Middle East that won't be resolved by more gas guzzling vehicles on the road. Also, ride sharing is great, but really high speed rail system would probably also help alleviate the traffic woes many of the people in this region endure. The US will end up having this same problem as people flock from the North East to the south and west looking for new job opportunities. Urban sprawl will precipitate traffic crawl!
    We need a combination of both publicly funded light rail and better traffic patters, lastly "car free" city centers where more walking, and biking is the primary mode of transportation. This will both reduce the carbon foot print while promoting health.

  28. The founders for careem are:
    Mudassir Sheikha
    Magnus Olsson
    Abdulla Elyas

    I don't know why you bluntly skip the third founder who was setting in that photo next to the two other ones.

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