Today, Uber and Indian food delivery startup Zomato announced that they have come to a new agreement. After fierce competition between the two in India, Uber Eats will now be sold to Zomato in exchange for 9.99% of the booming startup. Starting from today, Uber Eats users in India will now be redirected to Zomato.
The deal valued Uber Eats’ India business between $160 million and $200 million, two people familiar with the matter told TechCrunch.
“Zomato is backed by Alibaba affiliate Ant Financial, which recently agreed to invest up to $150 million at a pre-money valuation of $3 billion, according to official filings from Zomato-shareholder Info Edge,” CNBC reported. “Based on that valuation, Uber’s stake in Zomato would be worth around $300 million. Uber declined to comment on the deal’s value.”
Uber continues to lose out to local businesses
This is not the first time Uber has thrown in the towl after facing crushing competition from the existing local businesses. Uber relinquished its ride-hailing business in China after fierce competition from ride-hailing rival DiDi Chixung in 2016, for a $7 billion trade. In the Middle East, it faced similarly tough competition from homegrown startup Careem, which Uber ended up buying out last year for $3.1 billion. Now, facing similar pressure in India by another local business that understands the immediate region better than it does, it has sold its food delivery brand in the Asian nation of 1.33 billion people. Uber’s latest move is seen as a means to further cut the company’s mounting losses.
“Bolt, an Estonia-based ride-sharing company, is quickly taking over Europe,” Stephen McBride writes for Forbes. “In a lot of European cities, it’s a #1 ride-hailing app already.”
“It has exited Russia after losing the battle with Yandex.Taxi… And it has exited Southeast Asia after losing the battle with Grab and Go-Jek.”
Consider, however, that Southeast Asia accounts for more than 70% of the global ride-sharing market, which Uber had to exit.
Asia is also the largest market for online food delivery globally, with $45 billion in revenue in 2018 and predicted earnings that will surpass $100 billion by 2025, according to an October report from Frost & Sullivan.
Now, Uber has neither, and it just lost the food delivery business in India. As for its ride hailing business there, it continues to compete with Softbank-backed Indian startup Ola. Softbank is also famously known for investing in Uber.
11 years and 1 overblown IPO later, Uber is still making losses
Uber, like many of the other new names in tech wonderland, continues to lose money.
“The tech giant is under pressure from investors to turn its business around. Last year, the company reported a $5.2 billion loss in its second-quarter earnings and laid off hundreds of employees in 2019,” CNBC noted.
Unlike other brands, say like McDonalds or Starbucks Coffee, Uber’s product is no longer special. Most ride-hailing companies offer the exact same service whose apps just offer a different coat of paint. What differs at the end of the day is the pricing.
When a customer can get the exact same service from multiple companies, they have no reason to devlop brand loyalty, especially since the brand is indistinguishable from its rivals. What matters then is price, yet this is not something that Uber can really push higher to cover costs. It had a strike on its hands last year when drivers in the US protested higher wages and better working conditions. Should it increase prices, customers will simply turn to its more ffordable rivals.
It’s really a situation of being stuck between a rock and a hard place, and Uber’s numbers prove that it has yet to figure out a way back into the black. The trade-off with Zomato in India is just the latest example of the clocking ticking for them, and the stakes will only continue to mount.