Uber Knocking out of Vietnam

 
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As a consultant of PwC Vietnam, I had a great deal of travelling and the cost of taxi became a remarkable amount every month, and I was not the only one having frequent travel in the firm. At that time (2017), Uber was the most popular car-sharing application in Vietnam and the fee was way much cheaper than traditional taxi. PwC Vietnam had arranged some meetings with Uber BOD to sign a frame contract for providing transportation service, but the negotiation was frozen by late 2017 and never came true with the official closure of Uber operation in Vietnam by April 2018. This shutting was a shock to most users and partners of Uber in Vietnam. And everyone was wondering about what the reason behind might be.

But before that, we need to know how does the firm make money? Knowing this also helps us to understand about its Strength.

Founded in San Francisco, USA in 2009, Uber was a company providing platform for users to hailing a car ride through their smartphones. Surfing with the huge wave of sharing-economy, Uber has spread like a wildfire and was operating in 83 countries and over 760 cities worldwide with 6.5 billion USD net revenue (2016). Given in USA alone, the share market in car hailing service of this company is 77% and although intensely controversy, it’s still very popular in EU market.

Uber was the very first of the kind and quickly get acceptance from the market thanks to the booming of internet-based application usage. This first mover advantage helps to lengthen the gap between Uber and other competitors. The figure below shows how far it is between Uber’s revenue and its major competitors in US market

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Source: research-methodology.net

In parallel with spreading its operation horizon, Uber also does not limit itself in provide ride-sharing service but also adding up variety of other services such as UberEat, UberDelivery, Uberbkike, etc.

Uber applies sharing profit model with the drivers (who they call partners). As publicly announced, for each ride, drivers will take 75% of the revenue and the rest 25% is sent back to Uber. By doing such, Uber can earn a stable capital flow-in while don’t have to maintain their own fleet. Their operation cost mainly focusses on the application maintenances and driver network management. It’s believed that operation cost only occupies for 40% of their revenue.

Uber arrived at Vietnam by July 2014 later than Grab, and it took a different strategy. When Grab chose to merge in the market by cooperating with taxi drivers, Uber utilized the available idling ordinary cars. Cars still being considered a luxury in this country because of high tariffs and taxes applied, not to mention other daily fees relating to running a car is quite expensive in comparison with average income. Thus, many city dwellers buy them just to show off their wealth but use very occasionally. Uber brought about a chance for these peoples to make the most use of their cars and gain money from it. Within nearly 2 years, the number of cars joining Uber in Hanoi and Hochiminh city (the two biggest cities in Vietnam) has reached around 6600, a development rate that even the most well-known traditional taxi can hardly achieve.

Besides making money for its own, Uber also create value for its customers. This can be taken as great Opportunity for the company.

After receiving $1.25 billion investment from Softbanks, Uber is worth around $72 billion, ample higher than Lyft, the direct competitor of Uber in homeland USA and Grab, the direct competitor in South East Asia (including Vietnam) which is worth $15.1 billion and $6 billion respectively. This makes Uber has become the most valuable tech unicorn (a term refers to startup worth $1 billion or more). One of the main reasons for this success is its well-recognized brand and very high customer satisfaction. Uber provides all the things customers need which traditional taxi fails to do. Firstly, it allows customers to call for a ride anytime and anywhere they want with price and route be shown upfront. Secondly, the car will come to customer’s door step and help to stop the endless waiting in open rainy or cold air. Last but not least, the price is so much cheaper than even the most cost-effective traditional taxi.

This cannot be truer in Vietnam. Taxi in this country is notorious for ripping-off customers by going around in a longer route to get higher fare. The drivers often refuse short ride. Taxi price is also not affordable to many normal working people. Uber came in with lower door-opening price and a series of promotion programs. It offered discount code to customer almost every week. The more you go, the less you pay. Sometimes, the fare for a short ride even dropped to nearly 0. This graph below shows the price comparison between Uber, Grab and traditional taxi in SEA market

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Source: iprice

Despite of all these advantages and favorable, Uber had to face up with both internal and external difficulties (its Weakness and Threat) when trying to conquer Vietnam market.

The first internal difficulty Uber got in is the poor understanding and adoption to local market characteristics. Vietnam is a developing country with majority having medium, low-medium to low income, travelling by cars at relative high fare is not their first choice. Furthermore, streets are narrows with many small lanes intersect each other making a complicated road net. People living in houses which are far deep inside the small lanes and can be 1-2km away from the road that fit the car. Vietnamese people also have the habit of stopping here and there randomly in the street for eating or buying things. All these factors make motorbikes become the most abundant means of transportation. Grab recognized this and shortly after came to Vietnam, it launched Grabbike. It took Uber nearly two years to launch the first Uberbike when the green helmet (symbol of Grab) had already been overwhelmed in every street corner.

Furthermore, Uber only allowed payment via credit card, a means of transaction not so popular in a cash-based economy like Vietnam. Very later on when cash payment is available in its payment method, people had already been loyal to Grab who allowed cash from the very beginning. Uber may win in small market segment of medium income urban citizens, but it failed to reach to a larger pool of low income, old generation and rural area.

The second internal challenge came from the inconsistent in splitting revenue between Uber and drivers. Although widely advertised that Uber only took back 25% revenue of each ride, in fact Uber earned more than that through a fixed amount so-called “booking fees” thus make the Uber portion could raise up to more than 40%. The graphic below illustrates the fare share between Uber and drivers in USA, but the rule was applied the same to Vietnam

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