Uber Eats Careem: Apprehensions trump hopes as ride hailing services announce merger

Updated April 13, 2019


Millions of local customers of both Careem and Uber are curious to know about the impact of the deal.— Photo Courtesy: Careem
Millions of local customers of both Careem and Uber are curious to know about the impact of the deal.— Photo Courtesy: Careem

Uber — the biggest brand in ride-hailing services across the world — recently announced the acquisition of another big name in the sector, Careem.

With ride-hailing services already having devoured market share away from conventional taxis in all major cities, millions of subscribers of both Careem and Uber in Pakistan are curious (and concerned) about the impact of the deal, which could result in a ride hailing monopoly dominating the sector.

The yet-to-be-materialised deal, which is pending the approval of regulators in many countries, will see Uber acquire Careem operations in 90 cities, primarily in the Middle East, with 1m drivers and around 30m users.

What we know so far about the deal

  • Uber has announced the acquisition of Careem for $3.1bn.

  • Under the deal, Uber will pay $1.4bn in cash and the rest in notes convertible to Uber shares.

  • Uber CEO Dara Khosrowshahi says the company "intends to operate Careem independently".

  • Careem's co-founder and current CEO Mudassir Sheikha will continue to lead the company under the umbrella of Uber.

  • The acquisition is subject to regulatory approval in various countries.

  • The deal is expected to be finalised by 2020.

  • Uber CEO expects that "very little will change in either teams’ day-to-day operations post-close".

'Not a big deal'

Although most captains and even vendors associated with the two companies are either in the dark or could not be bothered about the details of the acquisition, some have shown serious apprehensions.

Maaz, who is associated with Uber, said he believes that the deal will benefit drivers but will not be to the customer's advantage. "They will lose the option of choosing between two services and there are chances that they will be charged exorbitant rates [thanks to the monopoly established as a result of the deal]," he added.

A Careem captain, Haseeb, said the deal does not post an immediate threat to drivers as Uber has announced it is purchasing Careem but will not be merging the two companies. He said he believes that the policies and fares of the two companies will have no bearing on one another.

Haseeb said that there is an impression among Careem captains that some vehicles currently registered with Uber would be switched to Careem to meet demand. He said that Careem drivers are optimistic that Uber will capitalise on Careem's expertise and will bring much-needed improvements to its services. It is also being said that Careem will write off those drivers who demonstrate unprofessional behaviour, he revealed.

Abdul Mughni, a vendor associated with Careem, said that the takeover itself was not a big deal for vendors and captains as they believe that Careem will continue with the same modus operandi.

Consumers' apprehension

Zain, who uses ride-hailing services at least twice a day, said that he did not mind using Careem, but Uber is a big 'no' for him. "I can't tolerate Uber" was his first response when asked about the deal.

"There is a significant difference between the quality of services provided by the two companies. Careem responds in a timely manner and gives its customers peace of mind. You cannot reach out to a person at Uber when you're faced with trouble, and an impersonal email exchange is usually the only option you have. Careem also offers very attractive prepaid 'packages' to subsidise loyal customers. I do not want Careem to withdraw these packages, and I fear they will be done away with after the acquisition," he said.

He added that the deal is not a good omen for him. "The real issue is the resultant monopoly. I fear that Uber will dominate when it comes to policy making and Careem will get worse."

Hurmat, another frequent user of ride-hailing services, reflected the thought. "After hearing about the merger between Careem and Uber, my first thought was that the service is only going to get worse."

She believes that Careem, already following in Uber's footprints, "is on a downward spiral" and she finds it hard to expect something better emerging from the deal.

"Careem was one of the best things that happened to Karachi in a long time. Then they [the service] steadily got worse with time to the point where an average user like me — who has no option but to use it — just hopes that their day does not get messed up further by [Careem] captains' shenanigans and/or their app bugging out."

When asked how exactly she perceived the service to have degenerated, she said: "Captains have gotten steadily worse, cars have deteriorated, customer service is basically just an auto-generated reply now. When I heard that the two companies will be partnering, I got even more worried — because no matter how bad Careem has gotten in the city, Uber has been worse from the get-go."

What analysts say

We asked several senior journalists, bloggers, and analysts who keep a close eye on developments in the tech sector to share their input on the issue.

'The deal opens the doors for a monopoly' — Raja Kamran, a senior journalist, analyst and blogger

The deal will kill the competition between the two companies, which is not a good sign for their customers. As a result of the acquisition, Uber will turn into a giant — much like K-Electric — and people will have to accept whatever they are offered by the only company in the sector.

It seems that like mammoth entities such as Facebook and Google, Uber also has low tolerance for competition. With the elimination of Careem as a separate entity out of the equation, the deal is going to paint a very bleak picture for any future entrants to the industry.

Tech-based services are heavily reliant upon data. The massive amount of soft data available with Uber and Careem about travel history, patterns and behaviours of customers will provide them such a significant edge that it will become near impossible for newcomers in the market to survive.

In short, the deal is a serious blow to consumers' choice in services.

'Customers, captains, and small investors will be at disadvantage' — Mohammad Yasir, former business editor at Daily times and tech analyst

Though Careem will continue to work as a separate entity or subsidiary, its acquisition by Uber may ease off competition in the local market and consolidate the operations of app-based carpooling services at the same time.

Customers, captains, and small investors will be at a disadvantage mainly because of the imminent monopolistic approach and its strict policies in the future.

For instance, it is feared that promotional and discount offers of these two services will decrease in frequency or will not be available for customers at the same time on the two apps.

Usually, a significant number of customers avail 'promos' — as they are dubbed by the services — for booking a ride at significantly lower costs instead of paying normal fares particularly on occasions such as Eid, Independence Day, Women's Day, etc when special discounts are offered.

Also, it is safe to say that in the post-deal scenario, if the rates of one service see an increase, the other will also hike costs as customers will no longer be able to benefit from competition-based pricing.

Moreover, captains may also face stringent policies from these two services in the future with regard to targets required to be met and the working hours needed to be put in, not to mention conceding higher operating fees to the company.

A large number of captains have signed up with both services to pick up rides on the network of their own choice depending on demand. Captains choose rides depending upon the potential fare and the area they will have to operate in, and further on safety and traffic conditions.

On the flip side, an improvement in the business can very well be expected as a result of consolidation as more cars, rickshaw and bikes could be available in a particular area in accordance with demand. The incidence of peak factor may also reduce due to the collaboration between these two services in the future.

It could be expected that customers may get a ride at normal rates across various destinations whereas captains will also get regular rides in their allotted operating areas. This will help the company bridge the demand and supply gaps of the service in different operating areas regardless of the quality.

Uber being the parent company of Careem, will also gain a much stronger voice in the industry when it comes to dealing with the regulators and the government.

'We are expecting a positive outcome' — Ahsan Mehanti, senior business analyst

We are expecting a positive outcome of the deal. I think services will improve significantly. As far as the financial impact of the deal is concerned, there will be no impact on the local front. The deal is expected to prove significantly beneficial for stakeholders, however.

As far as a monopoly is concerned, the [Competition Commission of Pakistan] has the power to influence the operations of the two companies within the country, but I do not think the commission will take any step in this regard.

Still, the ride-hailing service sector is not a developed one in the country, so the impact of any monopoly would be minimal.

'SECP may play its role against the negative impacts of the deal' — Amir Atta, founder of a tech-based news website, analyst on tech issues

Given that both companies are not of Pakistani origin and are based abroad, there will be no commercial impact on the country. However, some impact might be seen in the Middle East.

On a short-term basis, the deal has brought the competition between the two companies to an end. On a long-term basis, the enhanced size of the company after the acquisition will discourage others from tapping into the sector.

The Securities and Exchange Commission of Pakistan (SECP) might be able to play its role against the negative impacts of the deal. Unlike the communication sector and others, foreign ride-hailing companies may not be required to seek permission from the SECP for the deal but even if an individual moves the SECP against the deal on the basis of monopoly, the commission may take action and restrict Uber's movements towards gaining a monopoly position.

Currently, with almost a 99.9 per cent monopoly, Uber has become the largest ride-hailing service in Pakistan. Uber needs to issue some solid commitments to assure the customers they will not be exploited on the basis of the market share of the company.

The only issue consumers may face is higher tariff — Bilal, a journalist, and blogger who closely monitors the tech sector.

Further details and conditions of the acquisition, which will provide the bases to calculate the impact of the deal, have yet to come. The only issue consumers may face is the tariff.

Looking into the operations of the two companies, I find that Careem was basically a clone of Uber. It keeps its base rate, travel charges, and cancellation etc almost on a par with Uber. Uber has announced that they are going to maintain the status-quo. We hope to that end that the situation will remain the same and hat there will be no major setback for consumers.

The difference between the two companies is that Careem localised itself more than Uber. It has proved itself more reliable and has already been charging a bit more than Uber thanks to the level of confidence people put in Careem. It will be great if Uber does not change the management.

Careem is more popular among the masses for its quick response time in resolving issues. In fact, it would be in Uber's favour if it adopts Careem's operational setup.

What Careem says

A representative of Careem, while requesting anonymity, ruled out the impression that drivers of the two companies will be pooled together. The official said that the company conducts strong background checks before hiring drivers and will continue to do so.

The representative categorically denied any possibility of a change in policy. The person added that the two companies will continue working separately, meaning the two will operate separate applications and will have separate sets of drivers.

"No one should expect that an Uber driver will come to pick them up when the person is using a Careem app."

What Uber says

An Uber representative, in an exchange of emails, made it clear that "Careem and Uber will operate their respective current regional services and independent brands."

According to Uber, under the deal, the two companies can compliment each other’s strengths to better serve the region and maintain the local experience.

Uber while responding to a question about any change in fare, policies, and technology, said: "Prices in this industry are always changing, both in real time and over longer time periods, and will continue to do so. We believe this transaction will benefit both riders and drivers."

"Ultimately we believe riders will benefit from a higher density of vehicles, lower wait times and other improved rider experiences. For example, sharing mapping technology will provide more accurate and efficient pick-up and drop-off locations."