It is already more than a year when Uber entered the Russian market. We recall the start of discussions these days, if Uber will also enter Ukrainian market or not.
A recent discussion on a possible business case reminded us about an article we have came across with these days which listed a couple of reasons why it was then a bad idea for Uber to enter into Ukraine. We found the from the archives and saw that these reasons still stand valid. Let’s have a quick overview.
- Uber targets a wealthier, hip market segment:
In Ukraine this segment is extremely small because the hip people have not yet become wealthy. The wealthy class in this country is still almost completely comprised of people that created old-school, offline businesses.
True the wealthy people sometimes like to do some hip things but in Ukraine these people still like having their own car and driver. Having a driver is more convenient as there is almost no wait at all and no surprise latenesses, etc. Plus most drivers also run errands for their employer in addition to taxiing them around.
Uber would be unlikely to invest in new cars (due to the capital inefficiency of this) and therefore they would likely target upscale taxi companies in Ukraine that have nice cars: There are extremely few nice taxis in Ukraine that match the Uber standard, so they would have a supply issue that they would need to address. And this would be a difficult one to solve.
- For wealthy people, having a driver is likely cheaper than using Uber:
The average driver in Kiev earns about $800 – $1000 per month and probably drives 3-4x per day. This works out to about $30/day or $10 per ride in driver costs. Throw in gasoline and amortization on a $40k car and that is probably another $20/day (or $5/ride). Thus the total is $15/ride. To be profitable for all parties involved Uber would likely need to charge $20 – 25 for the same ride. Thus a losing proposition against the own car + driver option.
- Existing taxi companies in Ukraine work on extremely thin margins making Uber quite a bit more expensive than a standard car:
Let’s take the average inner Kiev taxi ride which will probably run about 40uah ($5). Uber would likely want to charge me about $20 for this same ride. I would probably be considered to be among the upper middle class in Kiev, but I would still not be willing to pay an additional $15 just to have a nicer car. So for me it would be relegated to special occasions (ie. once a month or less).
- Smart phone penetration in Ukraine is still quite low:
Being at the top of the App Store in most categories is still 50 downloads or less per day, many times less than a country like Poland or Germany, which have a similar population.
- Last but perhaps the most important one:
In Ukraine, people do not have the habit of paying on their mobile phone at all.