The definitive analysis of the motorcycle ride-hailing industry in Africa to date comes from The Subtext’s Osarumen Osamuyi, in a must-read piece entitled Marchetti’s Motorcycles. The piece’s exploration ultimately centers on one core question - 

...the question that matters more than anything else is liquidity: how quickly will the marginal rider find a driver ready to take them? (You will agree with me that it makes little sense to wait 7 minutes for a 3-minute trip.) However, just like getting to scale depends on liquidity, liquidity also depends on scale. In other words, these apps must generate enough demand to consume supply as they grow it.

Whereas Uber started in San Francisco - in an environment where curbside taxi-hailing was not a thing - much like in New York City, for example, the liquidity and immediacy of the offline service in Nigeria render many of the value proposition of ride-hailing obsolete. 

Meanwhile, Osarumen introduces two models employed by motorcycle ride-hailing companies for achieving scale - 

1. The demand-centric model says the locus of power is the commuter — just like it is with services like Uber. In other words, the company that aggregates the most users  will incentivize drivers to ride for it and thus, create liquidity for itself through abundance. Here, the business model is obvious: take a cut of the rider fares in exchange for access to the platform. The most obvious risk they contend with is promiscuity: I frequently hail UberBodas in Nairobi, and get picked up by drivers wearing SafeBoda helmets, Taxify reflector vests, and so on. On the other hand…‍

2. The supply-centric model says the driver is the locus of power. Here, companies create their own liquidity through scarcity — recruiting drivers as quickly as they can, locking them into asset financing contracts, and precluding competitors from accessing them. This means that for the duration of the agreements (and likely long afterwards), the drivers wear their branded gear, paint their motorcycles in their colors, use their apps, etc. The most obvious risk is reputational - the platform pays handsomely in brand equity for their drivers' bad behavior, but it's also more difficult to scale: imagine Uber had to help each driver buy a car.

Whereas East African ride-hailing companies (i.e., SafeBoda, from Uganda) employ the demand-centric model, the latter strategy has been more readily adopted by companies in West Africa (i.e, MAX and Gokada, from Nigeria). 

Meanwhile, Marchetti’s Motorcycles was published in May 2019, just as SafeBoda announced its launch in Nigeria, which presented Osarumen with an opportunity to ask his readers which approach they thought may find greater success. And though it is presumably still too soon to determine which model is winning, we can now, a year and a half later, further explore how SafeBoda’s demand-centric model has played out in Nigeria.

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I find SafeBoda to be one of the most interesting and perhaps underrated startups on the continent. Beyond their remarkable origin story - Ricky Rapa Thomson, a co-founder and incidentally The Flip’s first podcast interviewee, was himself a former boda driver - SafeBoda is one of the biggest successes from Uganda, and one of the few startups, to date, to successfully make the leap from East Africa to West Africa. 

The strategy behind SafeBoda’s entry into the Nigerian market has been unique in its own right. Notwithstanding their consumer education challenge - a boda, or motorcycle taxi, is called an okada in Nigeria - the company has eschewed the main economic hub of Lagos due to regulatory uncertainty. Instead, they have launched in second-tier cities, starting with Ibadan, a city of 4.5 million in Nigeria’s Oyo State. 

So when Babajide Duroshola, SafeBoda’s country manager in Nigeria, tweeted about their experience building and shipping in a price-sensitive market, I jumped on the opportunity to collaborate with him for an essay on this topic. 

“Your competition is the offline guy”

SafeBoda’s plans to expand to Nigeria commenced in early 2019. The company, like so many others, is attracted to the country's large and young population, as well as a GDP per capita that, in Babajide’s words, is “not that bad”. 

At that time, the relationship between the Lagos State government and ride-hailing companies was souring. SafeBoda opted to launch in Ibadan in November, and soon thereafter the government announced their okada ban in Lagos.

While SafeBoda’s competitors were also operational in Ibadan at that time,  when I brought up competitors to Babajide he responded firmly - SafeBoda’s competition is the offline okada industry. 

Conservatively, Ibadan currently has over 40,000 okadas and roughly 3,000 of them are active on a ride-hailing platform. And while the offline pricing has high variance, there is some average or standardization around pricing based on distance and time of day.

Prior to launching in Ibadan, Babajide and his team took hundreds, if not thousands, of offline rides around the city, recording the time, the distance, and the price to design their price calculator. Despite huge irregularities, they found that the average cost for 1km was ₦35 (around $0.10). And so SafeBoda knew that their pricing needed to be below ₦35/km to build a viable business in Nigeria. 

Lesson #1 - in price-sensitive markets, you have to win on price. 

While SafeBoda charges less than ₦35 for a 1km ride, in the minds of the price-sensitive customer, the true cost to them is actually higher than that. It’s not just the cost of the ride itself but also the cost of the smartphone needed to use the SafeBoda app, the cost of data, and the time spent waiting for a ride when there are often quicker and readily available alternatives just outside your doorstep. Despite SafeBoda’s convenience, price transparency, trained drivers, and commitment to safety, price is still paramount. 

These considerations are especially acute when we look at the opportunity costs. On average, Nigerians spend upwards of 50 percent of their income on food, which is the highest percentage in the world. SafeBoda uses the Indomie Noodles test - how many meals would a consumer otherwise be able to buy for the price of one ride?

Then, the cost of an internet-enabled phone, as well as the cost of 1 GB of data are higher in Sub-Saharan Africa, as a percentage of monthly GDP per capita, than any other region in the world. An entry-level phone is 30.2% and 1 GB of data is 4.2% of monthly GDP per capita in SSA, according to the GSMA.

After rent, clothing, and other expenses and there is little left for transportation.

“This is where economies of scale comes into play”

^On the supply side of SafeBoda’s double-sided marketplace, not only is SafeBoda regulating the price - and such that it is the same or lower than the average price of an offline okada - but for drivers, utilization of the app comes with added costs too. Drivers need a smartphone and data, as well as airtime for calls, and on top of that, SafeBoda takes a commission on each ride.

So why would any okada drivers consider using a ride-hailing platform? This is where economies of scale comes into play. 

SafeBoda’s advantage is in aggregating demand, leveraging the tools of technology to increase utilization of riders while, at the same time, incentivizing drivers to complete more trips. The goal, ultimately, is to boost drivers’ net income, despite their reduced per trip revenue. 

Lesson #2 - when you win on price in a double-sided marketplace, you also have to win on volume to keep your supply-side happy. 

If an offline okada driver typically does ten trips and takes home ₦2500-2800 per day, SafeBoda’s goal is to increase utilization to, say, fifteen trips, for the driver to net ₦3500 per day. The work becomes shifting driver calculus from a per trip to per day mindset. 

SafeBoda employs explicit interventions to drive up utilization on the supply side, such as cash or airtime bonuses for drivers when they reach certain ride targets. Not only does this increase take-home rate and/or reduce the operational costs for the drivers, but it also acts as a deterrent against disintermediation and drivers’ attempts to go off-platform to avoid paying commissions. 

SafeBoda also offers device and vehicle financing as both a driver recruitment and retention incentive. However, the best retention for drivers is earnings. 

“Customers who came organically have a stronger lifetime value than the customers we’ve incentivized”

Much like drivers, the best retention lever for SafeBoda’s consumers is cheaper prices. And SafeBoda’s retention rate remained above 70 percent since launching in Nigeria. 

Meanwhile, SafeBoda’s acquisition strategy also drives up retention and the lifetime value of their users. 

It has been said that the “growth at all costs” model doesn’t work in African markets, in particular, because of questions about the depth of a given addressable market. They found that an acquisition strategy that employs heavy incentives and high discounts for new users leads to both fraud and high churn. The same lessons hold true in other sectors, like fintech, where free offers have not worked. 

So SafeBoda is focused on quality not quantity, in an effort to acquire premium customers whose utilization of the platform will be high. 

Lesson #3 - in a price-sensitive market, a low CAC will net you the largest LTV. 

While SafeBoda has some power users taking upwards of 120 rides per month, their target for most active users is eight to nine rides per week. And if they can scale to 200 to 300 thousand active users, at those volumes, they believe their ride-hailing business will become platform positive. 

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In introducing Marchetti’s Motorcycles earlier in this piece, I omitted a key ingredient that informed much of Osarumen’s analysis of this space: skepticism. 

Yes, there are use cases for them today (they have users!) but they seem niche, and it's not clear how much larger those user cohorts will grow over time.

In a society like Nigeria's, for example, a bet on massive motorcycle hailing adoption feels like swimming against the currents of current cultural tropes; cars are social markers, beyond being means of transportation. For those who seek the lowest prices, online hailing might cost too much, and for those willing to pay for the best experience, motorcycles may not be able to deliver it. 

So beyond the competition between digital ride-hailing and offline options, there's also the competition between the unstoppable force of culture and the immovable object that is traffic. And as a result, SafeBoda have priced accordingly.

Now, can they achieve requisite scale? Babajide certainly thinks so. 

While that is very much still an open question, and in spite of the company’s desire to build a profitable ride-hailing business, the super app playbook includes much more than just rides - financial services, agency services, logistics services, and more.

And as the digital infrastructure gets built on the continent, unlocking opportunities for new and ancillary services, for ride-hailing companies active drivers and riders is not only the business itself, but acts as the infrastructure to build on top of. And in Nigeria, that infrastructure only gets built by low prices and high volumes.

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