When Uber Leaves Nigeria! – By Lolu Akinwunmi

Since this was announced, there have been all manner of speculations: police harassment of drivers, risks to drivers especially at night. And so I tried to find out the real reason why the hugely successful hail a ride operator is vacating a land of 200m people. Below is part of what I found and I gave it this title:

UBER LEAVES NIGERIA: WHEN A BIG MARKET IS NOT NECESSARILY A PROFITABLE MARKET

After 12 years, Uber has ended its ride-hailing operations in Nigeria.

For a company that helped introduce and popularise app-based ride-hailing in the country, its departure deserves more than a passing headline.

Uber has been careful about its reasons. The company says the decision followed a review of its business priorities and investment focus, with resources being directed towards markets where it sees stronger opportunities for scale and value.

That sounds like standard corporate language and jargon and euphemism for their real reasons.

But underneath it lies an important business lesson.

A large market is not necessarily an attractive market.

Nigeria, with its huge population, youthful demographics and massive urban centres, looks irresistible on paper. For years, population size has been one of the first statistics presented when selling the Nigerian opportunity to investors.

But businesses do not ultimately survive on population. They survive on profitable demand.

And those are two very different things.

FOR UBER, THE ECONOMICS BECAME INCREASINGLY DIFFICULT

Consider the ride-hailing business.

• Fuel prices have risen significantly.
• ⁠Vehicles and spare parts have become more expensive.
• ⁠Maintenance costs have increased.
• ⁠The depreciation of the naira has compounded many of these pressures.

Drivers therefore needed higher fares to remain economically viable.

But Nigerian consumers, themselves struggling with inflation and declining purchasing power, want precisely the opposite: lower fares.

Meanwhile, the platform must earn enough commission from each transaction to justify continuing to invest in the market.

So you have three parties pulling in different directions:

1• The passenger wants to pay less.

2• The driver needs to earn more.

3• The platform needs sustainable margins.

Something eventually had to give.

MANAGING COMPETITION

Uber also discovered something every category pioneer eventually learns: creating a market does not guarantee that you will continue to own it.

Uber entered Lagos in 2014 and helped establish ride-hailing as a credible alternative to conventional taxis.

But competitors followed.

• Bolt expanded aggressively.
• inDrive introduced a different proposition, including negotiated fares.
• Drivers increasingly operated on several platforms simultaneously.
• ⁠Consumers learned to compare apps before choosing a ride.

And gradually, something important happened.

The category became increasingly commoditised.

The consumer’s question was no longer necessarily:

“Should I take an Uber?”

It became:

“Which app will take me there cheapest?”

That distinction matters enormously in branding.

When consumers become substantially indifferent between competing brands and purchase primarily on price, even a powerful pioneering brand can lose some of its economic advantage.

THERE IS A LESSON

Uber’s exit should therefore provoke a wider conversation about how we define an attractive market.

For decades, one of Nigeria’s greatest investment propositions has been our population.

“Over 200 million people.”

“One of Africa’s largest consumer markets.”

“A huge youthful population.”

All true.

But perhaps we need to add some other questions.

1• How many people have sufficient disposable income to buy what is being offered?

2• At what price?

3• What does it cost the company to serve them?

4• Can prices increase when operating costs increase?

5• Can suppliers, distributors, employees and other participants in the value chain earn enough to remain committed?

6• And, after everybody has been paid, is there still an adequate return for the investor?

That is the difference between market size and market attractiveness.

Nigeria unquestionably has scale. But the greater challenge is converting that scale into sustainable economic value.

ANY BRAND LESSON FOR US?

Uber’s Nigerian story offers another reminder to marketers.

Being first is powerful. But being first is not enough.

Category leadership must continually be converted into differentiation, preference, loyalty and ultimately commercial value.

A brand can be famous and still struggle economically.

It can have millions of users and still find the underlying economics unattractive.

It can even become the generic language of a category and still discover that consumers will switch when another provider offers a sufficiently attractive alternative.

Perhaps that is one of the most important lessons from Uber’s departure.

Nigeria did not suddenly become a small market. It remains one of Africa’s largest.

• But population is only potential.
• ⁠Market size creates opportunity.
• ⁠Purchasing power, operating costs, competitive structure and sustainable margins determine whether that opportunity can actually be monetised.

Uber’s exit should therefore concern us beyond ride-hailing. Because when a major international company looks at a country of more than 200 million people and concludes that its capital can generate better value elsewhere, the important question is not simply:

Why is Uber leaving?

The more important question may be:

What must Nigeria do to ensure that being a very big market also means being a very good market?