Cab aggregation business model still attractive

Between driver disenchantment and proposed government regulations, will cab aggregators find a way to a sustainable business?

Over the last six months, cab drivers from New Delhi, Mumbai, Chennai and Bengaluru have held protests against the policies of cab aggregators Uber and Ola.

Uber’s India President Amit Jain had denounced the cab drivers protest.“It is the work of a small number of individuals who do not represent the majority of driver community,” he had said according to a news report. “There is this mix between organic and incentives. Incentives might have come down, but what a driver partner takes home is organic money plus incentives.”

In his blog post, Amit Jain explained, “individual driver earnings vary widely and individual driver behaviour – where, when and how much or little drivers choose to drive – also vary widely, which makes averages difficult. Currently, 80 per cent of drivers across India who are online for more than six hours a day make between Rs 1,500 and Rs 2,500 net, after Uber’s service fee.”

Jain pointed out the future of their business depends on making driving with them the most attractive choice. He said they see sustained interest in driving with Uber, with a 60 percent year-on-year increase in driver sign ups in January 2017. He listed down the reasons for drivers earning less — they drive for shorter periods of time, drive outside peak hours, drive in specific areas in their city or reject rides more often.

Vishy Kuruganti, co-founder of mGaadi, a start-up which was an aggregator of autos, which later got acquired by Yatra.com observes that Ola and Uber business is slowly settling into a steady state.

Kuruganti analyses the changing business strategies of cab aggregators across Indian cities and says it is eminently sustainable. He explains, “you charge $20 on a ride and take a cut of 15-20 per cent which has now gone up to 25-30 pc. But because of high competition and aggressiveness of the aggregators, they poured subsidies to build customer base and to expand the business in Indian cities. In the process, they began losing money.”

Vishy Kuruganti

Kuruganti notes the change in strategy three months ago, and says the companies have realised if they do not scrap subsidies, the model by itself is not sustainable. “In the process of withdrawing subsidies, the drivers were impacted and that led to protests. While building the customer base, the companies made explicit strategy specially in Delhi, Mumbai and Bengaluru to increase the supply which in turn led to less trips per driver and reduction in pick up time for customers.”

Kuruganti does not see the driver’s departure from the aggregators as alarming, for he says it has been the part of aggregators’ business strategy and there has been enough influx in the last few years. “On their enrolment side, they continue to have all kinds of referral programmes. They even provide EMIs to purchase vehicles. And from commuters perspective, the platform is not going to suffer unless commuters need to wait beyond five, six or 10 minutes,” he feels.

He feels the model is sustainable, and says, “these companies (especially Uber and Ola) have lost a lot of money in the last few years; since fundraising is no longer a bottomless pit even for market leaders, they are vulnerable. In the West (where self driving vehicles are a near-term reality) Google and Tesla are existential threats for Uber. Closer home, there are rumours of Reliance entering this space. They certainly have the financial muscle.”

For now Ola and Uber are the only two main players in the field of app-based cab service providers in India. In March 2015, Ola acquired another major Bengaluru based taxi aggregator – TaxiForSure (TFS). Within 18 months of acquiring, Ola shut down TFS.

How are the aggregators dealing with government policy?

Karnataka and Maharashtra are the first governments to propose regulations for cab aggregators business. Both the states have set up committees to look into fixing minimum fares for ride-hailing business. This, if implemented would disrupt the current business model of the cab aggregators that survive on offering rides for cheapest fares to their customers.

Ola COO Pranay Jivrajka. Pic: Linkedin

Welcoming the draft regulations proposed by Maharashtra government, Ola’s Chief Operating Officer (COO) Pranay Jivrajika had said in a press release: “Our recommendations to the Government are three-fold. We have requested a review of the permit cost for vehicles of 1400 cc and above at Rs. 2.61 lakhs which is bound to fall heavy on drivers as they have never factored in this while taking their loan adding over 30 per cent capital burden for them. This would be deterrent to these entrepreneurs and eventually would make services costlier for customers.”

The other suggestion was to leave the mandated fleet composition of 50 per cent vehicles to the choice of driver partners as to the type of cars they want to buy and the demand from consumers. “We have also placed on our record the need for adequate regulation to curb predatory pricing and capital dumping in the ecosystem in the interest of co-existence of all players in the ecosystem,” the COO said.

An Uber spokesperson says the government regulations should focus on consumer protection, including safety, as well as competition. It should not contain protectionist supply caps that close the market to new entrants or new drivers. And it must allow for the independent work models that are essential for many people who need to be able to work flexibly. “We are continuously engaged with various governments across states and the centre to ensure we can bring the benefit of ridesharing to even more drivers, riders and cities.”

When Karnataka became the first state in the country to introduce rules for cab aggregators, it was met with resistance. The rules prohibited surge pricing, fixed maximum fare per kilometre, made installation of GPS and panic buttons in all cabs mandatory. Uber and a set of drivers approached the Karnataka High Court questioning the rules and succeeded to bring in a stay.

Meanwhile, upset over Uber’s business model, Ola had taken a dig at its market rival two months ago. Ola’s COO had commented on Uber: “they have a very cookie-cutter approach in terms of what the model is. And how (to) forced it into any geography. Uber should ditch its one-size fits all approach and instead try to understand the local nuances.”

Amidst all this, it looks like more entrants will get into the cab aggregation field. In Karnataka former chief minister H D Kumaraswamy has recently announced the launch of a new app similar to Ola and Uber to help the drivers in distress. The drivers who were earlier attached with Ola and Uber are pinning their hopes on this new app as they believe it will help them generate a decent income.

With issues raised by the drivers remaining unsolved, drivers detaching from cab aggregators, and the cab aggregators trying new formulas to sustain every passing day, how this business model evolves in India is something to wait and watch out for.


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