Taxi Wars

Using their war chest to offer incentives to drivers and discounted fares to riders, both Ola Cabs and Uber are making other taxi companies irrelevant in India.
twitter-logo Goutam Das        Print Edition: August 30, 2015
How Ola, Uber are making other taxi companies irrelevant

Chander Singh apologises as he is a tad late when he comes to pick up this writer in his new Swift Dzire. Singh has been a driver for many years; most recently with The Imperial, a heritage hotel in Delhi. He earned a lot from tips foreign tourists doled out, but was getting tired of polishing his shoes every morning - a demand from his managers he found hassling. Instead, he wanted to work on his own terms. So a few months ago he, along with a friend, bought a car on loan and started working for San Francisco-based cab hailing company Uber. He hopes he will make Rs 25,000 a month on average. Uber, says Singh, also tops up with Rs 300 per trip during peak hours. At the end of the trip, from Noida to South Delhi, Singh quips: "I am trying out Uber. If this doesn't work, I will go to Ola. I am also getting calls from Meru every day."

All marketplaces have a choke point. In the case of e-tailers, it is the consumers whose appetite for discounts leads them to flame venture capital money. In the case of on-demand taxi aggregators such as Uber , Ola Cabs and Meru Cabs, it is the drivers. Taxi aggregators typically don't own any cabs or employ drivers; they connect customers with drivers through a tech platform, the front-end for the customer being an app. According to one estimate, 1.6 million vehicles in India are licensed to run as cabs but there are not as many quality drivers. It is quite a task for aggregators to convince drivers - used to a mom-and-pop model or radio taxis - to work with them. And those who are available, like Singh, may not remain loyal to one company.

Securing the supply side has become a slugfest among India's top three on-demand taxi companies - ANI Technologies, which runs Ola , Uber and Meru - as they pour money to capture the market. Ola and Uber, particularly, backed by global venture capitalists, are threatening to make every other taxi company in India irrelevant. Home-bred Ola has thus far raised more than $700 million. Uber has mopped up $6 billion and has committed $1 billion for India in the next nine months. Both are using their war chest to offer incentives to drivers and discounted fares to riders. Traditional radio cabs and small-time operators are struggling to match up. The existential threat has made them cry out "market monopolisation". Companies such as Meru, Carzonrent and Mega Cabs have thrown their collective might to regulate the "unregulated" on-demand companies. Legal tussles have greeted the aggregators. But more about that later.

Meanwhile, big money is making this battle worth fighting for. According to the Association of Radio Taxi India, the taxi business in the country is growing at 20 to 25 per cent a year. The organised taxi sector accounts for just four to five per cent of the industry and totals $800 million. It is expected to grow to $7 billion by 2020.

RIDE SHARE

Ola has emerged as the clear leader in terms of market share. According to a presentation by SoftBank Corp., an investor in Ola, the company had a 60 per cent share in November 2014, based on data of registered vehicles. TaxiForSure - a company Ola acquired in March this year - had 14 per cent share. Meru had the second-largest share at 16 per cent while Uber, which is now the world's most valued technology start-up at $50 billion, just had five per cent of the market. Ola appears to have expanded its share if we were to go by the disclosures SoftBank made during its earnings presentation for its fiscal year on May 11. The combined market share of Ola and TaxiForSure is 80 per cent. Meru's share has dropped to 12 per cent while Uber is at four per cent. All other taxi companies together have the rest.

Ola had a head start in the aggregation market, having started in December 2010. TaxiForSure was founded a few months later, in June 2011. Uber entered India only in October 2013. Meru, of course, started much before, in 2007, but it mostly had owned cars - it bought cars and employed drivers. It began a shift to the aggregation model in 2011. Ola managed to raise money faster; its Series A funding came from Tiger Global in 2012 and Series B from Matrix Partners and Tiger Global in November 2013. In contrast, TaxiForSure's Series A came only in June 2013. That allowed Ola to aggregate cabs faster than anybody else and innovate on the technology. Ola introduced the mobile app for cab booking in 2011 while TaxiForSure and Meru both managed that only in June 2013.

Ola today claims 250,000 vehicles on its platform, including autos, and a presence in more than 100 cities. It says it is adding 1,500 vehicles every day. Meru, however, says the market share mathematics should not be based on the number of cars; it has to be on consumer revenue. If that is factored in, Meru claims its share would be 23 per cent. Uber, which operates in 18 cities, disputes the market share numbers. An Uber spokesperson contends that the company is much closer to Ola in terms of overall market size. "It's not as one-sided as that report or subsequent media reports have made it out to be," he says. "We are the same size or larger in many big metro cities in India."

Whatever the size, Ola does get the bragging rights for now. It publicly prides itself for beating Uber in being more India-centric. On July 4, Ola teased Uber on Twitter. From its official handle, it posted: "@Uber_India Couldn't agree more! uberGO, Auto, Wallet, Cash - that's a lot of flattery! #WelcomeToIndia". Uber laughed it off: "@Olacabs Haha so contemptuous. Have a good weekend, guys!"

What was Ola pointing out? "These are things they learnt from us," a social media handler from Ola says, laughing. "Competition is good."

GIG BATTLES

While Ola, Uber and Meru are all aggregators, their approaches are nuanced. They differ in some cases and converge in many. Uber is a pure play app-based service and has a westernised template. One can book a cab only through the app. No cash payments are accepted globally though the company recently made a significant exception in India. Customers can pay through the Paytm wallet, credit cards, debit cards, as also cash in a few cities. In India, the company offers uberGO (hatchback vehicles or small cars that are the cheapest), uberX (mid-sized sedans that are costlier) and uberBLACK (larger vehicles at premium pricing).

Almost all countries have the uberX service but only India has a cheaper version in uberGO. And there is a subtle difference in the operational model between India and the US. While in India only a driver with a commercial driver's licence and commercial insurance can enlist, in the US, anybody with a personal vehicle can become an Uber driver provided he has a driver's licence and insurance.

That, in fact, is Uber's global model and has heralded the rise of the on-demand economy or the 'gig economy' - flexible employment where the worker is more a contractor than an employee. It has sparked debates on changing labour market dynamics and spurred a new wave of micro entrepreneurship not seen before. Freelancers, like Chander Singh, can potentially make more money than his peers employed by a company to drive cars. Using technology, Uber has succeeded in matching sparse capacity with demand. In its marketplace, riders can get picked up in as little as five minutes while drivers now spend less time sitting idle. The success reflects in numbers: Uber operates in 329 cities across more than 59 countries.

The gig economy model is highly scalable because it is cost efficient. The burden of owning, licensing, insuring and maintaining a car rests with the driver, not Uber. The model, loved by investors, has led to a boom of on-demand start-ups across the world. And in India, too. Deep-pocketed venture firms have allowed on-demand companies to chase market share and gain scale even as they bleed heavily. Ola's losses, for instance, are growing every year. It had a net loss of Rs 34.22 crore in 2013/14, according to disclosures made with the Registrar of Companies. In 2012/13, it lost Rs 22.80 crore. Recently, Bloomberg News reported that Uber's global operating losses total $470 million but it did not mention the time period. That number may be outdated by now.

Uber-like services include Lyft in the US that has made an imprint in the car pooling market. Sidecar will help you reach a destination, and deliver a package along the same route, too. GrabTaxi matches taxis with passengers in Southeast Asia. In China, there is Didi Kuaidi, and it aggregates shuttle busses too. Need a quick ride in Mumbai? No problem. HeyTaxi will connect you with a two wheeler.

Ola was founded in Mumbai by IIT Bombay graduates Bhavish Aggarwal and Ankit Bhati. They shifted headquarters to Bangalore in 2012. Aggarwal says Ola's approach works better in India. "We have built a very Indian service with an Indian business model. For instance, we accept cash (in all cities), unlike Uber," he says. Customers have the option to pay by wallet as well. However, today, half of Ola's payments are made through cash.

When Business Today spoke to Aggarwal a few months ago, he boasted of running a call centre as a differentiator. "You can also book an Ola through a call centre. A lot of Indians are not comfortable booking through an app," he had said. But from August 1, Ola discontinued the call centre for bookings - the centres are only for support. That makes its model more Uber-like.

Meru is the only player amongst the three to have a hybrid model. According to CEO Siddhartha Pahwa, 70 per cent of its cars are today aggregated. The rest are owned by Meru and are given under a subscription model to drivers. "It creates a sense of ownership. The driver becomes owner of the car after four years," he explains.

The gap with Ola notwithstanding, both Uber and Meru say they have long-term plans for India. They are picking their battles, trying to outdo each other in innovation and promotions.

Ola introduced autos on its platform in October 2014; Uber announced it in April this year. In March, Ola introduced Ola Cafe, a food delivery service - customers can order through the app and Ola cabs will deliver the order in quick time. Uber doesn't have a similar product in India but Ola Cafe is similar to Uber's uberFRESH service in the US and uberEATS in Spain. Uber has run promotions around food delivery in India with uberGOURMET, a gourmet meal service curated by celebrity chefs. In April, restaurant discovery company Zomato said it has integrated an Uber button on its app that will help users book cabs to the restaurant they wish to visit. And after a rape incident in an Uber car in Delhi in December last year, both Uber and Ola introduced an in-app 'SOS' button.

Now for the other significant rivalry. Cab aggregators have heralded an era of ridiculously low prices - a cab ride in some cities can be as low as Rs 5 a kilometre. To be in business, all aggregators must discount the consumer on one hand but also compensate the driver on the other. Because securing supply is pertinent, that often means pampering drivers with all sorts of incentives. That is a game traditional radio taxi operators, focused on profitability, cannot play. "Because they (aggregators) have raised money, they are selling (fares) at half the price. Drivers are being lured by incentives and benefits which have no relation to the cost of transaction," says Rajiv Vij, CEO of Carzonrent, which runs radio taxi EasyCabs in four cities. He has 2,500 owned cabs and makes profits.

NOW THE WAR

During a 10-km journey from Kalkaji to Sunder Nagar in New Delhi one Thursday morning, Meru driver Nadeem couldn't stop talking about what a good time it is to be a driver. He didn't own the car he was driving and pays a daily rent of Rs 1,200 to Meru. At times, he chooses to work throughout the day, catching up on sleep between 11 p.m. and 4 a.m. when demand for rides is low. He can make up to Rs 2,000 a day, after paying Meru its daily share, fuel and maintenance expenses. But he has plans. "I will go to Uber once I buy my car," he says. Why not any other aggregator? "I have heard Uber pays an additional Rs 250 as incentive for every completed trip. That is higher than everybody else."

The ability to discount rides for customers and incentivise drivers is directly proportional to the war chest each company has. Today, Uber has the largest globally - its commitment of $1 billion for nine months in India translates into a monthly spend of around $111 million. That is nearly the combined monthly cash burn rate of India's three largest e-tailers - Flipkart, Amazon and Snapdeal.

"We can expand and improve our operations, expand into newer cities, develop new products as well as payment solutions, and establish a great support network," says Amit Jain, the lanky President of Uber India. The company, which primarily operates through regional general managers and city general managers, made a significant departure from its global policy by appointing a country head for the first time, in May. The former Rent.com executive has now relocated to Gurgaon in India from the US. "With this investment and the strong rate of growth we are seeing, we expect to hit over one million trips per day in the next six to nine months," Jain adds. Uber currently completes 200,000 trips a day, say sources. Ola claims 750,000 plus rides a day, though its competitors dispute the number.

Uber launched in Bangalore, its first city in India. It is now in 18 cities, which makes India its largest geographic market outside the US. "We are continuing to see robust 40 per cent growth month-on-month and with more investment in product, hiring, and payment solutions, we expect to grow at an even faster rate," Jain says.

Neeraj Singhal, Head of Expansion for India at Uber, says the company offers various incentives to drivers from time to time but didn't disclose any details. The incentives differ in each city. In Delhi, for instance, Uber did not charge commissions from drivers between January and July. It has restarted taking commissions. Globally, it takes a 20 per cent cut from every completed trip.

The company's appetite to drop prices and incentivise drivers can only head north. A Financial Times report in June said the company was close to securing another $4 billion in equity and credit financing - that would bring its overall funding to $10 billion, which "far exceeds the sums raised by Facebook or Google before their initial public offerings".

On February 27 this year, Uber announced it has dropped fares up to 40 per cent across 11 Indian cities including the metros. "Lower prices increase demand for rides, meaning drivers do more trips at every hour of the day; maximising their income any time they choose to go online," the company wrote in a blog. In July, the company added Coimbatore, Bhubaneshwar, Mysore, Indore, Nagpur, Visakhapatnam and Surat to its portfolio of cities in uberGO, costing between Rs 5 and Rs 7 a kilometre.

CAN BHAVISH AGGARWAL STOP AMIT JAIN?

Uber's runaway success globally is playing out a tad differently in the emerging markets of China and India where local players are more dominant. Like Ola, the dominant player in China is Didi Kuaidi - according to a Chinese media report, it has 80 per cent of the car hire service market as of June while Uber holds 11.5 per cent. Didi Kuaidi recently raised $2 billion to fight Uber.

Aggarwal needs more cash to continue playing the game he has thus far succeeded in. Ola has raised a disclosed amount of $652 million; overall, more than $700 million. A few media reports have indicated that the company is in the process of securing another $500 million. That would be good ammunition to retain its lead. Thus far, Ola has been using its cash shield effectively to undercut competition. It killed most of its domestic competition, including TaxiForSure.

Ola launched a new service, Ola Mini (small cars), "at auto fares" in February 2014 in some cities. In August 2014, Ola dropped its Mini rates from Rs 13 to Rs 10 a km and Sedan rates from Rs 16 to Rs 13 a km. That started a price war with TaxiForSure, which in November 2014 was forced to drop prices to Rs 49 for four-kilometre in all cities it operates in, down from Rs 200 for 10 km. TaxiForSure couldn't sustain these prices. "Nobody was using taxis for short distances. They used autos. We wanted to make it cheaper for the customer," says Raghunandan G., co-founder of TaxiForSure. Cab drivers, however, didn't agree to such low prices. "So we said whatever is the deficit we will pay. We started paying them Rs 150 to begin with. Now it has dropped to Rs 75 to Rs 80 as the number of trips they do has increased and they earn more," he adds.

Raghunandan G, co-founder, TaxiForSure says: 'Nobody was using taxis for short distances. They used autos. We wanted to make it cheaper for the customer.'
Raghunandan recently exited the company after it was acquired by Ola in March this year for $200 million. TaxiForSure couldn't raise the funding it would have required to discount customers and compensate drivers after the Uber rape incident resulted in regulatory uncertainty and spooked investors.

Ola continues to play the same game today. Between May 27 and June 29, the company revised its fares twice. First, it dropped its Mini prices to Rs 8 a kilometre in Delhi NCR from Rs 10. Then Sedan prices were slashed from Rs 16 a kilometre to Rs 11. In July, rates for TaxiForSure hatchbacks halved, from Rs 14 a km to Rs 7. That matches uberGO's fare. At current rates, Ola is undercutting Uber in sedans in Delhi. Radio taxis are far more expensive; their sedans don't cost below Rs 20 a kilometre.

Radio taxi companies have christened Ola's pricing "predatory", a strategy wherein a player offers a service at extremely low rates to create a monopoly to drive out the competitors and create entry barriers. "Of late, we have observed that a few app-based cab aggregators are indulging in predatory pricing," says Kunal Lalani, Chairman of the Association of Radio Taxi India and owner of Mega Cabs that runs 2,300 owned vehicles and 250 aggregated ones. "The Competition Commission of India has initiated an investigation into this matter," he adds.

Meru CEO Pawha says he has observed that the app-based aggregators are incentivising their drivers at around Rs 150 per trip to retain them in their network and compensate for their loss. He says Ola has a burn rate of $15 million to $20 million a month, Uber around $8 million to $10 million while Meru is at $1.5 million to $2 million per month. Uber's $1 billion commitment for nine months will make a mockery of this math. Ola didn't comment on its cash burn rate and an Uber spokesperson dismissed Pawha's estimate. "Our business and Meru's is very different. I would take those comments with a grain of salt," he said.

Ola's Aggarwal acknowledges that there are tactical incentive structures in some cities. Ola's gap funding - the money paid to the driver to compensate low trip fares - can be performance driven. "The incentive structure is based on customer feedback. So for X number of trips completed, you can qualify for Y amount. There could be more incentives on special days such as Dussehra," a spokesperson says.

Meru, which has a funding of $125 million from India Value Fund, says it doesn't have to offer incentives to drivers in the way Ola and Uber do. "A Meru driver earns about Rs 2,500 of consumer revenue everyday, which is significantly higher than the revenue given by our competitors," says Pahwa, who was in a combative mood. "Meru charges Rs 20 a kilometre. Our trip size is roughly 14 to 15 km. The competition is able to charge about Rs 12 to Rs 14 a kilometre from the consumer and has a trip size of seven to 10 kilometre," he says.

The race, though, has just begun. Since August last year, Meru has run a happy-hour scheme, 30 per cent cash back offers from time to time, and a 25 per cent discount booking offer. A radio promotion in Delhi is currently urging people to download its app. The company may be burning far less cash right now but will have to do more if it were to remain relevant.

REGULATORY SKIRMISHES

The rapid rise of Uber globally, and other app-based cab aggregators, has come with its own set of headwinds - none more threatening than a tsunami of regulatory battles the companies have to ward off. Protests and lawsuits against Uber have surfaced from Paris to San Francisco. The fate of Uber and Ola has a common thread here. Scales may tilt in favour of whoever handles the regulators better.

City governments are worried about the safety of commuters. In Delhi, after the rape incident in December 2014, sporadic complaints of indecent behaviour have been made. In July, a lady complained of a TaxiForSure driver masturbating while driving her. "He had little control over the wheel as well as his perverseness. He had a smile on his face that will haunt me for nights to come. A #PSYCHOTIC man with a severe chemical imbalance for a driver is nothing but serious," she later wrote in a Facebook post that went viral. A similar complaint surfaced from an Uber-user in Kolkata.

Governments are also concerned about a host of other issues, from whether the app-based service providers are meeting local transport regulations to if they should classify drivers working on their platforms as employees. The 'contractors' versus 'employees' debate is particularly hot in the US in the run up to the presidential elections. And that is something that questions the very basis of the gig economy model. In July, Democratic presidential candidate Hillary Clinton commented: "This on-demand or so-called 'gig' economy is creating exciting opportunities and unleashing innovation, but it's also raising hard questions about workplace protections and what a good job will look like in the future."

If you are not an employee, there are no benefits - no company insurance and holidays, for instance. At the heart of this debate is the control on-demand companies exert on the contractor. A Uber driver might be independent, but his routes are monitored and the fare he charges are regulated by the company. That makes him less of a freelancer.

In June, the California Labor Commissioner's Office said Uber drivers are employees and asked Uber to pay Barbara Ann Berwick, who worked as a driver for a few weeks, $4,152.20 in expenses. The commission's ruling, however, is non-binding and applies to a single driver. Uber is facing a similar legal action in the UK, brought about by the union for professional drivers, GMB. Uber is appealing the California order.

Can this spill over to India? Manish Sabharwal, owner of staffing company Teamlease, says chances are low unless Uber and Ola goof up. "If they don't make payments on time, there might be an issue. Otherwise, I am not sure. Self-employed drivers in Uber and Ola have much higher productivity than kaali-peeli taxis (black-and-yellow coloured local taxis) because of capacity utilisation," he says. "If you make them (drivers) employees, the on-demand model doesn't work. Uber is a labour market app that allows higher capacity utilisation of self employed people. Self-employment is a different contract and a different decision."

In India, Delhi has been the hotbed of legal tussles ever since the Uber rape incident of December 2014. After the incident, the Delhi government banned the services of app-based aggregators who were non-compliant with the Modified Radio Taxi Scheme of Delhi's Transport Department. Ola says it does not require such a licence since its cabs have All-India Tourist Permits (AITPs). However, the AITP cabs run on diesel and that violates a Supreme Court order mandating commercial vehicles in the city to run only on the less polluting compressed natural gas (CNG). Both Ola and Uber have continued to operate in Delhi without a Radio Taxi licence since the state government found it difficult to implement the ban. The Delhi government, in the meantime, refused these companies' applications for radio taxi licences.

Ola had approached the Delhi High Court seeking quashing of the ban but the court on July 29 refused to provide interim relief, saying the company failed to comply with the ban since January as also the use of CNG vehicles instead of diesel ones. The High Court observed that the Supreme Court's orders with regard to ban on diesel taxis has been "violated with impunity" and that the "petitioner believes that it is not bound by the law". The court also sought an affidavit from Ola stating it would abide by the court judgments.

"The main problem is not rape. It is the switch from diesel to CNG. It will cost drivers Rs 50,000," says Vijay Panjwani, a Supreme Court lawyer who appears for the Central Pollution Control Board. "Every kaali-peeli taxi has made the switch in Delhi; so have all autos. It will apply to everybody in the National Capital Region," he adds.

Cab aggregators, off the record, say it will cost drivers more - in the range of Rs 60,000 to Rs 90,000. They would be unwilling to make that investment and may well ask the app companies to fund part of it. That would imply significant expense.

It remains to be seen how app-based aggregators would respond and handle the court's observation. In the US, where Uber is facing resistance from some cities, it has adopted an aggressive approach. Take the case of New York City. The city council planned to limit Uber's addition of drivers since it was studying the impact of for-hire vehicle services on congestion. Uber launched a high-decibel campaign - ads targeting Mayor Bill de Blasio said many potential jobs are at stake. The company added a "de Blasio" feature in its app - a click of the button showed "No Cars"! The city, in July, ate humble pie, abandoning its plans.

Can a similar feature work in Delhi? As of now Uber appears happy with low-decibel marketing. On July 28, a day before the Delhi High Court refused to provide Ola interim relief, Uber came out with a press statement, a "response" to the diesel ban. "We urge the government to explore solutions that balance the right to livelihood of tens of thousands of drivers while creating a favourable environment that supports a transition to cleaner fuel alternatives and more efficient transportation models," it said.

Meanwhile, in the middle of regulatory exchanges, three stakeholders appear to be delighted. Investors, who continue to flock in; drivers, who can now earn much more; and, of course, riders can reach home from their offices in a sedan at the price of an auto rickshaw.

SAY HELLO TO AUTOS

Much like ants, yellow icons move around in Uber's map - they are the autos. Indians do not just take cab rides; much of India, in fact, moves in three wheelers. And auto aggregation is picking up pace. Uber announced autos in April 2015 and says the service has picked up "fantastically well".

"It's been a game changer for many auto drivers who are now not restricted to business based on line of sight. For many, becoming a partner driver with Uber was transformational and a fi rst introduction to smart technologies, GPS navigation and electronic banking," says an Uber spokesperson.

Ola introduced autos before Uber did - in October 2014. The company claims more than 50,000 autos registered on its platform, the maximum being in Bangalore and Chennai. Taking autos in both these cities was a headache for commuters: autos rampantly overcharged or refused rides. Also, these cities are more reliant on three wheelers. Mumbai has a taxi culture whereas Delhi has a metro.

"The auto app for the driver is different from what a cab guy gets. It has seven regional languages," says an Ola spokesperson. Requests for autos are broadcast within a 1 km distance and the fi rst auto to accept gets the business. In the case of cabs, Ola directs the request to the nearest cab.

The three wheeler market is getting disrupted, too.

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