Prior to his resignation, Travis Kalanick, Uber CEO at that time, negotiated a deal with Yandex, a Russian multinational technology company. Many experts have described this deal as Uber’s defeat, but in fact, less aggressive business conduct will facilitate the company’s success in some foreign markets. This deal with Russian Yandex is even more advantageous for the ride hailing company than the deal with Chinese Didi Chuxing. Uber will now own 36.6% and 20% economic stake in both companies respectively.
In most foreign markets, the San Francisco-based company has a number of advantages over local rivals. However, in Russia, most local drivers never use Google maps for navigation, which Uber utilizes in its network, and that was a difficult issue to solve. Local competitors also may take the upper hand over Uber because they know their market better and have stronger government ties. Nevertheless, unlike Uber, they do not have worldwide coverage and the same application to access the services in many countries. Uber’s global brand name is among major assets for marketing as well.
Entering the Russian market, Uber’s purpose was domination of course. This, naturally, led to price wars and money-burning. Prior to paying $225 million for Yandex shares, Uber invested $170 million in Russia. Though Yandex.Taxi was already a steady business in Russia at that time, it received a good blow from Uber when the latter introduced fixed fares. So Yandex had nothing to do but to meet a challenge and do the same.
Russian consumers were happy as the market grew and fares became lower (average $10 were reduced to $8), and Yandex gradually was sliding into the red and started to look for a financial support.
However, the employed drivers started protests because their incomes were also reduced and they had to work longer hours to make both ends meet, paying for vehicles which they rent from fleet owners. Uber’s deal with Yandex will surely end the price war, resulting in market consolidation, Yandex capitalization, and a bit higher prices to drivers’ satisfaction this time. Actually, the deal boosted the Russian company’s share price by 16% since the cooperation was announced.
Taking experience of this situation, Uber could offer similar deals to companies in local markets with strong competition, buying small stakes from the biggest local players. Most local competitors will eagerly join the course if control of the company remains in their hands. They, of course, will be eager to gain profits from Uber’s brand name, receiving immediate money. In its turn, Uber could be a global investor being the minority partner to local ride-hailing operators and earning its stable profits.
Thus, Kalanick could have started a new strategic action plan which deserves good consideration from Uber’s board to bring the company to a whole new level.