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Fri 27 Jan 2017 01:23 AM

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The race is on for Careem in the Middle East

Careem had a head start in the Middle East’s ride-hailing app competition but global rival Uber is picking up the pace. Careem’s founders Magnus Olsson and Mudassir Sheikha tell Arabian Business they are barely scratching the surface of pent-up travel demand

The race is on for Careem in the Middle East
Sheikha (right) says Careem has in-depth knowledge of the region thanks to its local roots.

The landscape of public transport is changing across the world. Not long ago, the only option for people who did not have their own car was to queue for a paper ticket and squeeze into a sardine-can bus or train.

Today, the new normal is to download a ‘smart’ app and book a point-to-point ride for an ever-diminishing cost.

Ride-hailing apps such as Uber and Careem are increasingly forming partnerships with state taxi companies to expand their market share and provide more options for customers.

They claim their biggest source of competition lies not in public transport networks — such infrastructure is sparse anyway in Middle Eastern countries, the UAE is an anomaly — but in private car ownership and, of course, each other.

As technology advances, the race is on to see who can grow the fastest to attract the most passengers and the most investment to its platform. One of the frontrunners is Careem.

“There is a bit of a race because, in this type of industry, the scale you have in a particular city makes a difference,” admits co-founder Magnus Olsson in an exclusive interview with Arabian Business.

“Say I had 10,000 cars in Riyadh and someone else had 5,000, I would be able to provide a better ETA [estimated time of arrival] for the customer so they may prefer me.

“Because of the faster timing, the driver will be used more effectively, he’ll spend more of his time making money, and because of that I can reduce prices because the driver’s still making good money because he’s engaged on more trips. So yes, scale matters and we’re running fast.”

Careem says its mission is to make people’s lives simpler by providing convenient transport solutions.

The last statement is certainly true. Careem, which launched in Dubai in 2012 as a corporate chauffeur booking service without an app, claims to have grown its users by 1,000 times over the past three years, and says it is seeing monthly revenue growth of 25-30 percent.

Olsson claims the average cost per trip has reduced since Careem launched,  as its fleet of drivers — or ‘captains’ — grows. Detailed financials are not publicly available as the company is private.

At present it claims to have 6 million users, 150,000 captains, and services in 52 cities across 11 countries in the Middle East, North Africa, Pakistan and Turkey. It is targeting a presence in between 70 and 80 cities in total by the end of 2017, and in December closed the first tranche of a $500m fundraising round to enable it to do so, with backing from Japanese e-commerce giant Rakuten and state-owned Saudi Telecom Co (STC). The latter bought a 10 percent stake for $100m, pushing Careem’s estimated valuation to $1bn at the end of 2016, and prompting speculation that Careem would head towards an initial public offering (IPO) in the short-to-medium term. This objective is confirmed by Olsson and co-founder, Mudassir Sheikha.

“We have a lot of investors that have joined us along the way and at some point they need to be able to get some returns from their investment. So the natural end game is to go public,” says Olsson.

For now, though, the company is in the “building” phase. “We ended last year having achieved the big milestone of becoming a ‘uni-camel’ [Olsson’s tongue-in-cheek phrase to describe a Gulf-based start-up unicorn] and we are basically saying now, where do we go from here and how can this funding help us grow?

“We have three main priorities. First, to expand into more countries and cities than we already are. Second, to create a truly awesome organisation that inspires people, and, in doing so, create 1 million jobs in the region by 2018.

“The third goal is to innovate more in our products and technology. We have committed $100m to research and development (R&D), operations particularly in Dubai, Pakistan and our technology centre in Berlin.”

Careem's recent funding round will be used to help it expand its operations.

The ultimate aim is to become the region’s “biggest mover of people and things”, Olsson says, but there are no plans to expand into Europe, the US or elsewhere beyond the company’s defined boundaries of Morocco in the west, Pakistan in the east and Turkey in the north (Careem launched in Istanbul in December). “We feel our home is in the broader Middle East and we believe there’s still a lot of potential there,” he states.

“We are still in the building phase, working towards profitability by 2018, and there’s a lot of growth to be had,” adds Sheikha in a separate interview.

The founders — both ex-McKinsey and Co executives — have had a busy six months, not just with funding announcements but also the launch of Careem’s female-only service Ameera, plans to double Careem Kids, and a new deal with Dubai’s Roads and Transport Authority (RTA) under which passengers can book Dubai Taxi Corporation services via the Careem app. The company already has a similar agreement with Saudi Arabia’s transport regulator and claims that 60 percent of all of its captains are Saudi.

“The very cool thing that happened in Saudi is that alongside our partnership with the government, they implemented these new rules that allow any citizen with a spotless driving licence and their own car to work with Careem, even if it’s a second job,” says Olsson.

“This is super-fascinating because a year ago, we had almost no Saudi captains and today 60 percent of them are Saudi. Many are students or work in low-paid jobs and want to make more money, particularly in the current economic climate. Careem is actually enabling a whole new industry and creating jobs for local populations.”

The company says its sensitivity towards the nuances of Middle Eastern markets is a major factor in its growth and popularity. Says Olsson: “You don’t always have street names or proper addresses here; captains often don’t speak the passenger’s language; and credit card penetration is low compared to other regions, meaning we have to be able to process cash payments, which is harder than it sounds.”

Careem has sought to address such issues by setting up call centres to aid communication between drivers and passengers, a ‘bridge’ call system to ensure privacy for customers who do not wish to share their phone numbers, and a special location database to help drivers find their way. The company has also formed tie-ups with major regional businesses such as Emirates, Etisalat, Vodafone and STC, which enable customers to redeem surplus air miles and phone credit for travel with Careem.

“When we first launched we didn’t have an app, we were just an on-demand car service and we found the main thing people cared about was having a car show up, even if it’s at 4am, even it it’s in Dubai’s Jumeirah Village Circle — otherwise known as the ‘Bermuda Triangle’ [as it is notoriously difficult to navigate]; we know that if we could solve that problem we’d have a great product. So we keep focussing on those things.”

Careem has services in 29 cities in Saudi Arabia, its biggest market.

However, Careem faces competition from the world’s first ride-hailing app, Uber. While the US-based technology company has not been operating in the Middle East for as long as Careem, it has been quick to catch up when it comes to tapping into cultural differences and other local nuances. It has already launched a female-only service, cashless payment system and obtained operating licences from the RTA and other transport regulators in the Gulf.

Yet both Olsson and Sheikha insist rivalry with Uber or any other emerging player is a necessity for creating a stronger business. Says Sheikha: “Competition is a great thing. Careem would not be here if competition had not arrived in the Middle East when it did. Competition forces everyone to step up their game and be stronger.

“We believe our advantage is in being super-local in each of the markets in which we operate. We are more integrated into the ecosystem and overall believe Careem is a lot closer to the people of the region and the lives they live — look at the partners we have, and we are also working with the Saudi ministries of labour and health to create jobs and provide vaccination services to citizens.

“The challenge for us is to continue keeping up that lead because players like Uber are also becoming familiar with the market. But our understanding is much deeper and we are able to prioritise things faster than larger companies.”

Sheikha concedes there are niches Careem is not addressing that could provide a new player with a “decent sized business”, such as, school transport and inter-city transport — servicing commuters from Sharjah to Dubai, for example. “There are specific requirements for that use case, vis-à-vis price points and affordability, for which we are not providing a compelling proposition. Is it a huge opportunity, compared to what we are doing? Probably not.”

However, he reveals Careem plans to launch customised private hire services to “lock in regular customers and build loyalty”, and start to experiment with moving “goods and things” later this year. This service has yet to be defined, says Sheikha, who admits transporting food is a crowded space at present with UberEats and other initiatives, but that delivering parcels, keys and groceries are options the company will trial.

“Anything that moves, we could put it on the platform,” Olsson says, although he adds Careem has no plans to launch specialised services like Uber’s helicopter booking service, UberChopper. “There are no choppers on the horizon for us,” Olsson jokes.

Both founders agree the region is vastly “under-mobilised” and there is pent-up demand among people to move. This is evident in the collaborative approach being taken by the region’s public transport authorities. State-owned taxi companies are seeing the value in working with, not against, technology-based transport providers.

Dubai’s Roads and Traffic Authority (RTA) is said to be imposing a tax on ride-hailing apps. Careem said last week that it was adding a AED3 ($0.80) surcharge on each journey, with the tax to be passed onto the RTA. But the regulator moved to distance itself from the news.

The RTA said it was working with Uber on an exclusive, three-month study to devise a more economic pricing model, Uber told Arabian Business last week.

Careem says it conducts about 100 million trips everyday.

Meanwhile, in Qatar, the state-owned taxi company Mowasalat has boldly launched its own ride-hailing app, Karwa, despite both Uber and Careem already operating in the country. Chairman and CEO Jassim Saif Ahmed Al Sulaiti tells Arabian Business the app is growing on a monthly basis and plans to double the number of cars it puts on the roads by 2018. He says he sees no problematic rivalry with other apps, noting that public taxis are still cheaper in most instances than Uber or Careem. Meanwhile, Mowasalat is in discussions with advisors about a public listing on the Qatar Stock Exchange, Al Sulaiti adds, declining to provide further information.

Careem’s Olsson claims there is plenty of room for growth with or without competition from taxi firms or other rivals. “We estimate that all the apps together are serving less than 1 percent of trips happening in the region in some sort of motorised vehicle. We are barely scratching the surface.”

Careem’s main competitors are car owners, it argues. In Saudi Arabia, claims Olsson, more than 80 percent of customers did not use a taxi before Careem; they drove their own cars. “When you think about it, it’s completely insane. Why would you want to? The car is parked 95 percent of the time; you end up paying for maintenance, insurance, services, parking. It’s not as if we have multiple highways for every person — it’s a sharing infrastructure.

That is why, if you asked me two years ago what Careem is, I would have said a ride-hailing company. If you ask me today, I’d say we’re crowdsourcing public transport infrastructure.”

This facilitator model is a growing trend as companies seek to meet the needs of ownership-sceptical millennials. US-based private jet firm JetSmarter owns no planes and uses an app to sell its services, and Airbnb has given the hospitality industry a run for its money by enabling homeowners to rent out properties to holidaymakers. However, start-ups like Careem do not always have to ‘disrupt’ an established sector to succeed, says Olsson.

“Here in the Middle East, there is so much white space that it is about enabling something that wasn’t there before, not disrupting an existing service.”

With $250m of financing in the bank and “multiple” prospective investors expected to commit the second tranche before July, it seems the road is clear ahead for Careem.

Sheikha will not be drawn on who the likely investors are. What about Mohammed Alabbar — the Emaar chief leading the creation of what would be the region’s biggest e-commerce venture, Noon? Do the founders see any future for Careem within the stables of that sort of enterprise? Sheikha says: “We consider ourselves part of the e-commerce ecosystem in the region and we have a lot of respect for Alabbar and what he’s building. It’s a great addition, and we are open to collaborating [with him] in whatever shape or form it makes sense.”

So have specific talks with Alabbar been held? “I can’t really comment, but everyone is always talking to everyone. It’s a small ecosystem,” he says.

There are sure to be other companies circling Careem in due course. But it is early in its journey and must ensure continued growth and impeccable customer service to stay in the fast lane.

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