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This will be the last story of 2022. See you on January 5th, 2023 for a deep dive into Lebanon’s startup ecosystem. Happy new year!

Origin story

The term “super app” has been tossed around the tech world for quite some time now, with Blackberry founder Mike Lazaridis being one of the first to define the term at the 2010 Mobile World Congress. Lazaridis referred to super apps as “a closed ecosystem of many apps that people would use every day because they offer such a seamless, integrated, contextualized and efficient experience.”

While Blackberry never achieved such a vision, it can be argued that Apple fulfilled an even more potent version of it, by making the so-called “ecosystem of apps” captive of Apple’s proprietary hardware, the iPhone, and software, the App Store.

The first real-world debut of a super app per se was WeChat, the Tencent-backed Chinese giant that started off as a messaging app, before becoming a suite of services offering everything from ride-hailing to movie tickets. WeChat has imposed itself as one of the most impressive tech successes in history, now serving over 1.3 billion users.

While bolstered by unfair advantages such as the infamous Great Firewall and lax user privacy laws, WeChat proved the relevance of a mobile-first super app model in countries with similar demographic and socio-economic patterns as China.

More than just proving the viability of the model, WeChat’s growth path laid out the blueprint for building a successful super app. While their initial plan was surely not as formulaic as the steps described below, this is what their development ended up looking like:

• Build an initially sticky service that will make users interact with the app every day, such as messaging or ride-hailing

• After gaining user trust, develop a proprietary payment system

• Start diversifying the services you offer on your app, by developing some yourself and letting third parties plug in, while making sure every transaction goes through your proprietary payment system developed in step 2

WeChat has followed this recipe religiously:

“WeChat, for example, has more than a million mini-programs available on its platform but doesn’t charge its partners for hosting. How is this profitable? WeChat requires all its mini-programs to transact using its payment platform, WeChat Pay, which has up to a 3% fee depending on the mini-program’s transaction volume. Most super-apps have an underlying payment system to drive revenue or charge a commission for third-party transactions like marketplace sales. While per-transaction revenue is small, the scaled earnings aren’t” - Deloitte

Founders in other emerging markets took good note of the WeChat model. Some of those founders have found incredible success replicating the three cardinal steps described above, and applying them to their local market.

The super app appeal in emerging markets

Super apps in emerging markets have not only proven to be extremely attractive to users, but have also become stalwarts in the development of nascent startup ecosystems. Successes such as Careem, Gojek, or Grab have contributed to kickstarting local startup scenes, creating talent “mafias” and boosting the credibility of the local VC asset class. To understand the triumph of such super apps, we have to understand the reasons why the local population is so receptive to them.

Mobile-first

The first is the mobile-first nature of many emerging markets. While users in the West generally started using the internet on a computer, the purchase of a smartphone often constitutes the first internet interaction for large proportions of users in emerging markets.

The super app model is not only convenient and easy to use for the digitally uninitiated, but it also makes sense in the context of lower-end smartphone prevalence, which can’t handle the weight of 30 separate apps.

“Packing a single app with multiple light-weight functionalities is a much more efficient and elegant problem to operate within internet and hardware constraints in emerging markets.” - NextBillion

Gaining user trust

The second is the success these super apps have had in developing solutions in line with local needs while running a narrative edging on patriotism. Careem has been extremely successful in building features adapted to the local context, such as enabling cash payment for its ride-hailing service. On the other hand, Indonesian super app Gojek has continuously pushed the “Indonesian pride” card by including the Indonesian flag on some of its drivers’ uniforms.

This mix of building locally, with pride, has contributed to ramping up the user trust needed to grow and offer more “personal” services such as digital wallets.

“Maintaining this trust is integral to the super-app business model. Trust ensures continued access to data on the preferences and behaviors of their consumers, which can be used to enhance service delivery across verticals.” - Economist Impact

All apps need to build a semblance of user trust in order to thrive. What’s different in the case of super apps, especially in emerging markets, is that by being the first to build for the local context, users have an easier time relating and thus trusting them.

If the app is in your local language, caters to local cultural specificities, and has been the first one to successfully introduce you to previously unattainable digital services such as online shopping, you are more likely to trust them than Facebook with opening your first digital bank account.

Venturing into fintech

The third reason super apps have been successful in emerging markets is their venture into fintech. Indeed, the low, often negative margins rendered by the first sticky service imply the need to diversify into more profitable income streams. As seen in the WeChat example, super apps often go the way of developing a proprietary payment system, which can then be used by their users through a digital wallet.

By becoming one of the first digital banking, and sometimes first banking, experience for many of their users, these super apps then have the opportunity to build out the entire digital economy of the market they operate in.

“They are also able to fill gaps in the physical infrastructure, such as lack of physical bank branches or comprehensive logistics networks. In that sense, they are well adapted to local conditions and, since they address a market gap, they drive high levels of usage and engagement” - CPP Investments

Where is the Western super app?

There are a number of reasons why super apps in the West have not developed at the same pace as in emerging markets.

Established digital services

In emerging markets, super apps are often the first ones to offer a breadth of digital services to large swaths of the population, through a digital-first experience.

Consumers in Western markets have been able to access their bank accounts, take out loans, and order a package from their computers before the advent of the smartphone. Apart from Gen-Z, a large proportion of internet users in the West carry out their “heaviest” digital tasks through a computer. This makes the rise of a mobile super app harder, as it implies changing the internet-usage behavior of large swaths of the population.

Business best practice in the West has been for companies to specialize and become extremely performant in their particular niche. This is different from emerging markets, where super apps are often the first to digitize a wide range of previously non-existent services.

“Consumers in Europe and North America are adept at toggling among different apps and seem to prefer an unbundled marketplace that allows them to choose best-in-breed apps by function, rather than moving all their activities to a single platform.” - CPP Investments

Anti-trust laws

In emerging markets, successful super apps are often the first real, commercial success of a local digital product, and end up facing immature legislation in that aspect.

The antitrust laws historically pursued and applied by Western regulators will likely bar the emergence of a Careem/Gojek-style super app in the West. Compared to emerging markets where regulators see these super apps as a fantastic way to build the digital economy from scratch, regulators in the West might be suspicious of any company pushing a monopolistic narrative.

“Western economies have a long record of breaking up, or limiting the growth of, companies that become powerful. On the basis that it promotes consumer rights and encourages innovation, this approach can be said to have broadly worked,” says Nick Cooper, global executive director at brand consultancy Landor & Fitch. “If a super app were to appear here and do incredibly well, in all likelihood it would be challenged and broken up.” - Raconteur

Increasing user privacy scrutiny

Similar to point two, super apps in emerging markets benefit from laxer user privacy laws, as legislation hasn’t caught up to large-scale, local digital successes yet.

Tech giants in Western markets have recently been faced with unprecedented scrutiny regarding user data privacy, leading to historic legislation such as the European GDPR. The fact that the biggest player in the app market is Apple, a company so attached to its users’ privacy it fought the FBI over it, is making it harder and harder to draw on the user data that makes super apps so powerful.

“Apple’s rollout of its App Tracking Transparency (ATT) program in iOS 14.5 has caused a rift in the way consumer data from 3rd party apps is shared with other companies. Users now have to opt-in and consent to be tracked across apps and websites owned by other companies. So, if your core business model is based off of selling targeted advertising, you’re SOL. That, coupled with the fact that iOS has ~70% market share in the developed countries, is a big deal.” - UX Design CC

Despite these evident roadblocks, Western tech companies are still strongly eyeing super app ambitions, but are finding ways to go around the limitations described above.

The alternative: vertical super apps

While some in the West have called for the creation of an all-encompassing super app, most prominently Elon Musk and his “X” ambitions, the most probable outcome of the Western super app story will be its verticalization. Several companies have already started positioning themselves in that aspect.

Revolut

Revolut, a UK-based startup, is one of the closest things Europe has to a super app, with more than 54 services offered. Starting out as a relatively “basic” fintech, Revolut has gradually built up a breadth of services, which now encompass a dizzying array of functions as shown in the infographic above.

The idea of a financial super app is extremely potent, as it could enable users to access a wide variety of financial services without needing to go through the KYC process multiple times. Additionally, the data pulled from a user’s use of a particular service could personalize their use of another.

“By sharing data across services—and often with third-party developers—super-apps can deliver a more seamless customer experience. For example, a banking service within the app may approve a loan based on purchasing data from the app’s digital marketplace. Similarly, a hotel booking service might offer a promotion in response to a flight booked elsewhere within the super app. This integration drives additional third parties to the platform, which in turn can improve the quality and quantity of data available.” - Deloitte

Bolt

The Estonian startup formerly known as Taxify is a contender for the “mobility/transportation” super app. While little known in the US, Bolt has a significant footprint in both Europe and emerging markets such as Africa. Offering five services (ride-hailing, electric scooters, car sharing, restaurant delivery, and grocery delivery), the startup has the added advantage of operating in both the West and emerging markets. This adaptability and implementation around the world could give it a significant advantage.

“Bolt’s top-line numbers are impressive: since October 2020 the company has grown from having a presence in 200 cities to over 400 across Europe and Africa; from 2,000 employees to over 3,000; from 50m passengers to 100m globally; and from a valuation of around €2bn to €7.6bn today.” - Sifted

Spotify

The Swedish music behemoth is reportedly eyeing a super app play in the audio / video content vertical. It has been hard at work trying to secure dominance over the podcast market, most notably by acquiring exclusive rights to the Joe Rogan show. It has recently ventured into the audiobook world, a clear challenge to Amazon’s Audible service.

Uber

Headed by former Expedia CEO Dara Khosrowshahi, Uber has reportedly set its sights on becoming the “Amazon of transportation”, attempting to become a super app in the travel vertical. The recent launch of “Uber Explore”, which enables users to book “dinner reservations, live events, and other fun activities.” is a step in that direction.

Essentially, a large majority of tech companies that have achieved significant scale in their niche have set their eyes on becoming the “super app” for that particular industry. This play, especially for large unprofitable tech companies such as Uber, can give investors the confidence that there is a path to profitability after all.

An Orwellian future?

While one could observe the rise of super apps as the triumphant arrival of digital services in all parts of the world, the model poses important questions. Is it a good idea for one company to have access to a person’s consumer preferences, bank details, outstanding bill payments, and chat history? In countries with repressive governments, do the rise of super apps cement the dominance of the regime in power?

While I pompously lauded the commercial success of WeChat, taking a step back on how it functions shows a different story. WeChat’s complete chokehold over Chinese society makes it a premonitory warning of the Orwellian potential these super apps have. By centralizing all parts of a user’s existence, the Chinese government has complete oversight over what its population eats, likes, and most importantly, says.

“The closed and comprehensive nature of the WeChat system is part of its secret sauce for commercial success. By keeping users trapped in a single app, WeChat makes it harder for challengers to threaten its own dominance. But this has also transformed WeChat into a dangerous tool to be wielded by those in power. The bans of users who talked about the protest in Beijing are a great example. By driving alternative communication platforms out of existence, WeChat made it easier for the government to police people’s speech through one central hub.” - MIT Technology Review

While super apps often caramelize their branding with cute mascots, subtle patriotism, and a demonstrated care for local needs, it is important to keep a cool head and remember that these apps are companies, optimizing for profit and dominance in sometimes unregulated markets.

Predictions and conclusion

In emerging markets, existing super apps have been diversifying into fields they have no previous experience in, replicating what many conglomerates in those regions have been doing for decades. In many cases, these super apps build up that particular region’s digital economy, laying the groundwork for essential infrastructure such as Careem did with online payments in MENA.

By building in concert with local cultural specifies and consumption patterns, these “legacy” super apps in emerging markets will be hard to displace. Uber has found a solution to that conundrum, acquiring Careem in 2019 after failing to compete with it. Others have found ways to cement their dominance, such as Indonesia’s Gojek merging with another local giant, Tokopedia, to form the GoTo Group (now listed on the Indonesia stock exchange).

In the West, the verticalization of super apps will lead to ruthless battles opposing a particular industry’s biggest players. It will be interesting to see some tech giants challenging others in their own backyard, such as what Spotify is doing to Amazon with its audiobook play. Pay close attention to where regulators draw the line for what is considered a “monopolistic” position.

I don’t think an app can become the “world’s super app” given the complexities of each market and the subsequent importance of building locally-adapted products to retain user trust and loyalty. What I think we will see however is a slew of acquisitions worldwide, as the biggest players try to kickstart their presence in new geographies. Moves such as Revolut buying a Nigerian fintech (as Stripe did with Paystack) or Bolt acquiring a Colombian food-delivery startup wouldn’t be surprising.

This trend, of big tech players acquiring super app contenders in emerging markets, is what I consider to be the biggest booster for nascent startup ecosystems. While it can be seen by some as local startups bowing to Western competition, these acquisitions create powerful flywheel effects necessary to funding and growing startup ecosystems in the long run.

The Realistic Optimist provides weekly, in-depth analyses of some of the hottest stories in our now-globalized startup world. Subscribe below to receive it directly to your inbox and don’t hesitate to share it with your colleagues :)