The status of superapps in Egypt — Part 3: the investment case: We opened our exploration into superapps by looking at how Egypt and the MENA region are ideal locations for them, thanks to a high population and phone penetration. Last week we looked at the main challenges superapps face, including the ceiling they face when acquiring new customers and the subsequent customer acquisition costs. Today, we look at how they overcome these challenges and avoid unnecessary cash burn. We also speak to investors on why despite the challenges, super apps are still worth the investment.

It’s not about the size of the customer base, it’s about the loyalty, stupid: In a bid to acquire new customers, some businesses slide into the pitfall of offering promo codes and lower prices on services on the superapp. While the customer does have a clear incentive to use the application, the company needs to either lower its margin or come up with the difference in cost. These techniques have become so popular that users just jump from one app to the next, depending on where the markdown is, CEO and founder of delivery company Yalla Fel Sekka (YFS) Yasmine Abdelkarim tells us. So, the real victor here is the user, but it also decreases customer loyalty, or “stickiness.”

That’s why superapps focus on offering new services that increase customer loyalty, which could help lower customer acquisition costs. MNT-Halan introduces new features daily, such as bill payments, games, and peer-to-peer transfers to increase adoption, founder and CEO Mounir Nakhla tells us. So, it is not just about acquiring new customers, but making sure the ones you have also stick around. And new features allow superapps to increase convenience, which ultimately is what a customer is looking for, and thus, attract new ones while expanding the app’s revenue-pool.

It’s about finding the edge you have over your competitors. Outdoing the competition in terms of user experience and adding new features and value propositions is also what Yalla Super App is trying to do, according to PaySky founder Walid Sadek.

Wait, doesn’t that raise overhead and we’re back to square one? The key is to make sure your existing infrastructure and fleets are able to handle both legacy services and new ones. In order not to fall into an operations-induced cashburn, superapps add services that can be fulfilled via delivery channels they already have. It’s about leveraging operational processes that are already in place for all new and old services, managing partner at Algebra Ventures, and early investor in MNT-Halan, Karim Hussein tells us. The drivers of the fleet can fulfill the services of ride-hailing, POS-payments, and delivery at the same time, for instance, he adds. “If the unit economics of every additional service is positive, then the cash burn is reduced,” Nakhla says. “Cross-selling [as we noted last week] makes you divide the customer acquisition cost and operational expenses by more revenue streams,” he adds. Hence, the more services you have, the less the burn if each service has positive unit economics.

When all is said and done, why are investors still attracted to superapps? First of all, it’s a matter of scale: “Superapps happen to be a scaling opportunity, as an evolution of the investment that you make, because it helps you tap into bigger customer bases,” managing director at Openner Ahmed Elsherif tells us. Superapps usually do not start out as such. Most of them started out by offering a certain service: MNT-Halan for instance, started with tuktuk ridehailing, and Yalla Super App started as a fintech player. This is how they built depth, partner at Emirati VC firm Shorooq Partners Tamer Azer explains, adding that they then added more services in different verticals. What they need to do now is get really good at cross-selling so they can build breadth. The final step is to get customers to stick around and use more and more of these services, he says.

Superapps do not need to be a mass market play if they can serve certain segments: These apps can aggregate a variety of services that cater to a particular kind of user, like education or healthcare professionals. If you perfect capturing value for that certain segment, you can unlock and build a plethora of offerings and services, Elsherif says. This could result in a reduction of customer acquisition costs and healthier margins, he adds.

But to be able to do that, superapps need to start with a targeted robust core value proposition in their domains to be “investable”, Elsherif says. By value proposition we mean that core service or product that truly makes you useful to that user segment. Azer agrees, saying that in order to flourish, superapps need three things: Firstly, a clear hook that has a powerful value proposition to attract customers. Secondly, excelling at cross-selling, and thirdly, a tremendous amount of capital to make that happen.

Lastly, superapps need to religiously use their data to cater to their customers: “Being a superapp should not be the goal in itself, but companies should rather use data to see what additional services they can provide their customers and how to be more inclusive,” managing partner of Lotus Capital Amal Enan says. This requires investment in and utilization of data to understand your customers better to develop a more robust product. “You want to meet your customers where they are with what they need,” she tells us.

As to better leverage their position as fintech plays, investors feel the industry needs e-KYC. The real “market changer” would be digital KYCs, Sadek says. e-KYC — jargon for a fully digital know-your-customer process — allows platforms to verify a customer’s identity and address electronically, instead of having to appear physically at a bank branch and do loads of paperwork. There are already some steps into that direction, with the CBE allowing Egyptians to open bank accounts with just a national ID, while micro enterprises, freelancers, and craftsmen are now also able to open an account by declaring their occupation, instead of requiring proof of employment from a company or other requirements to document their income.

For now, superapps are quietly growing: In addition to the traction we noted last week being seen by major superapps here, new players seem to be quietly entering the scene. For instance, grocery delivery and bakery app Breadfast offers customers a chance to order groceries, freshly baked goods, and your daily cup of coffee. An update launched just a few weeks ago also allows Breadfast users to pay a number of bills, including water, electricity, and phone bills.

But how things unfold is still a bit uncertain. “On the capital front, we still don’t know if the Asian model is going to work in Egypt or not,” Azer explains. Superapps require a tremendous amount of capital to scale and the local startup landscape is still young, he says, adding that “we need to build those deep pockets that can finance the network effect”. But if we can bring international, more specifically Asian capital, into the equation we will start seeing some really interesting activity in the space, Azer concludes.

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Your top stories on future trends for the week:

• Stock trading app Thndr has closed a USD 20 mn series A round co-led by Tiger Global, BECO Capital and Prosus Ventures.
• Kashat, the region’s first nano-financial services provider, has signed a five-year partnership agreement with Mastercard to help issue prepaid cards that can be used to withdraw money and repay loans.
• Funeral services startup Sokna has closed a USD 1 mn seed round with participation from leading regional and international investors.
• Fintech firm OPay Egypt has launched its e-payments app.
• The Supply Ministry is looking to draft a regulatory framework for e-commerce activity in a bid to protect consumers’ rights.