World PoliticsSocial IssuesMilitaryEconomyUS PoliticsGovernmentActivism

How Uber and OLA Transformed the Indian Taxi Industry

Updated on September 1, 2017
Source

Why online cab aggregators are in demand in India?

We all know about Uber and OLA and their deep discounts for market penetration. What is the aim behind giving discounts? It's acquiring customers. Let's have a look at why they have had a customer acquiring spree in India in the last few years:


Low car ownership: As of 2015 India sits in 144th position in the number of cars owned per 1000 people in the country. The figure being a measly 32 per 1000 citizens. India's rank in the car ownership index slipped from 128th in 2011 to 144th in 2013. Most of them don't even own a two-wheeler, this has created a demand for cabs for their travel requirements. Online cab service providers are providing better and prompt services to meet this demand.

Non availability of good cab service: Before the OLAs and Ubers took over Indian market there was a dearth of good cab service. There was a time in cities like Mumbai and Delhi when one had to wait for 40 minutes to get a taxi. Owing to high demand and betterment in the quality of cabs, the organized taxi market is growing at a rate of 25 to 30% on a yearly basis. Online cab players are benefiting from this goldmine of an opportunity.

Inadequate Public Transport System: There are only 7 cities in India having metro rail connectivity. They are Kolkata, Chennai, Delhi, Bangalore, Gurgaon, Mumbai and Jaipur. Cities where metro rails are under construction are Hyderabad, Kochi, Navi Mumbai, Lucknow, Noida, Ahmadabad & Gandhinagar. The problem with the metro lines and bus services in a city is they do not provide point-to-point connectivity. Another instance where online cab hailing services can cater to the demand of point-to-point connectivity.

No complaint by local taxi operators: Drivers shifted from radio cabs and conventional taxis to online cab service providers. This happened because of better opportunities to earn with them. The online players were responsible for changing the customer perception towards taxi services in India.They now preferred a luxurious ride with an OLA or a Uber rather than a normal taxi. Even the radio cab player MERU working purely on an asset ownership model shifted to an aggregation model. This allowed the drivers to own the vehicles and the company charged a percentage from the drivers for using their platform.

Ambiguous Law in India: In India any vehicle used for business purpose has to be registered as a commercial vehicle. And being a commercial vehicle one has to apply for various permits. Some of these are national tourist permit, local tourist permit, taxi permit, black and yellow taxi permits, radio taxi permits. There are certain guidelines given to the tourist and local taxi operators but no clear action is suggested in case of any violation. Thus ambiguous laws are favorable for online players.

Source

Are the yellow/kaali-peeli taxis being driven to extinction by online players?

"Ideas change lives". Some disruptive changes introduced by online players to establish their stronghold in India:


Strengthening of Supply Ecosystem: Entrepreneurship is the name of the game with the online cab platforms. Both OLA and Uber are helping drivers become entrepreneurs and creating a socio-economic empowerment for them. Taking the example of OLA, they spent an amount of 16 million$ in 2015 to nurture this environment. No wonder Mahindra & Mahindra entered into a strategic alliance with OLA. The deal was to supply 40000 cars in two years starting from 2016. Other companies Maruti, Tata Motors, Ford have also tied up with them to bring down the cost of car ownership in India. Thus the online cab service providers are enabling their driver-partners with an entrepreneurial mindset.
As of September 2016, OLA added almost half a million cars under its umbrella. Uber added more than 1.5 lakh car units, most of them are newly acquired cars.

Better facilities to Drivers: "Customer is god", we all know that but these online players also strive to keep their driver-partners happy. They do so by providing free training and health check-ups. Bonuses and incentives are also provided with the monthly salary of some driver-partners reaching Rs 85000 at peaks. The companies know that if they kept their drivers happy then in turn the riding experience will be better and that will translate into higher brand value.
As of July 2017, Uber had 4.5 lakh driver-partners registered with them, whereas OLA had 8 lakh driver-partners.

Increase in Fleet Utilization: In the taxi business, it is necessary to reduce the non-paid distance when the taxi is running empty without a customer. Normally for a traditional taxi/radio taxi the non-paid distance is 40 to 60 % of the total distance traveled in a day.
The online cab hailing services are using new technologies, real-time algorithm and superior data analytics to optimize fleet utilization. Thus they are reducing the non-paid distances of a cab. That's why you can often hear a driver-partner telling the customer he can't come to the customer's location if the distance between his present location and the location of the customer is too large. On an average a driver-partner clocks 8 to 10 rides a day with an average fare of Rs 200 with both the players.

Offering Service for All Segments: Both of these companies have a lot of options in their cab facilities. Each segment facilitating to a different strata of the customers. Like you can get a gang of 6 people and book a Uber SUV or a OLA prime SUV and cruise away. This is simply not possible when you have an ambassador army representing the traditional taxi players. Thus the online players are adding new dimensions to their service. OLA even has auto-rickshaws for those short trips tailor made for the Indian customer's requirements.

 
OLA
Uber
Launch
2010
2009 (2013 in India)
Valuation
3 billion $
62.5 billion $
Fundraising
1.75 billion $
11.56 billion $
Key investors
Softbank, Tiger global, DST
Benchmark, Baidu, Saudi Arabia's public investment fund
Tech platform
Application
Application
Presence in number of cities in India
110
29
Number of vehicles on platform in India
550,000
350,000
Market share in India
Around 65%
Around 35%
Number of employees in India
8000+
200+

A survey showing highlights of the preferences between OLA and Uber

I being a commuter will always look for better service quality of a brand. Same goes for the mentioned online players. No matter how much capital infusion, investor backing, valuations these two aggregators have, if they cannot provide a good service on any given day to any customer, then that customer might switch instantly to the competing online cab service as switching cost is virtually nil in this case. Convenience and safety is the name of the game in the online cab service business.
A survey was conducted in 28 cities by a reputed website, where both OLA and Uber plies. The survey was done in both Tier 1 and Tier 2 cities. 84% of the respondents used both the services and results are:
Quality of service: Uber won by a huge margin, 65% voted in favor that its quality is better, 12% voted for OLA. On an average in India, Uber's rides are 15% cheaper than their competitor's.

Source

Influencing factors for determining quality: A large number of people voting in favor of Uber's service cited pricing (44%) as one of the most important factor to decide the service. This was followed by safety (29%) and punctuality (19%). So the quality of the vehicle was not that an important factor to determine the service of the brand. Rather the most important factors come under convenience.
When it comes to convenience, customers prefer that the cab should be present at the given location. This should happen without placing a call to the driver or maximum one call should suffice the purpose.
OLA scores lower in that front, why? Let's hear it from the drivers themselves, "Becoming a driver on Uber is more difficult because they have some stringent quality checks. But anybody can be a driver on Ola,” says a driver who is registered on both platforms. Thus the basic differences are there for all customers to see.

Choice of service provider: Nearly 60% of the respondents voted that they will go for a Uber when in a rush. OLA coming in at a distance with 22%. Preference also shifted from the auto rickshaws and kaali-peelis towards a more luxurious ride at almost the same cost.

Cashless transactions: OLA having their own wallet "OLA money" couldn't get an upper hand over Uber who tied up with Paytm for its cashless payment. 82% of the respondents said they did not have any problem in paying and the drivers accepting cashless payments.
11% of the total voting population said they had problems of cashless transactions with Uber. Wheras only 4% complaining about problems of cashless transactions with the later.

Conclusion of the survey: OLA is having more vehicles on the road and is spread across a much larger pool of cities than Uber. They have a market share of 65% in India. But it is Uber who came out to be the undisputed king when it comes to service and convenience. This survey could have had many more metrics but the customer sentiments are quite visible from the above four.

Cutting the long story short: Price wars, Investments & Innovations

When Uber was launched in India, it came in the market with high end vehicles. Soon they understood India was not the market for the same. To compete with OLA they needed to have affordable cab fares to capture the Indian market.
Giving deep discounts to the customers and huge incentives to the drivers, both of them were jabbing at each other to on board more customers onto their platforms. Now where did this discounts, incentives and low fares coming from from? Its the investors behind those companies.
Brief timeline: In July 2015, Uber promised to invest 1 billion $ into the Indian market. By that time OLA had already raised 675 million $ forecasting a stiff competition from the competitor.
The result was Uber slashing the cost of UberGo at Rs7 per kilometer, lower than OLA's mini at Rs 10 per kilometer. Then in November 2015, raising another round of investments pegged at 500 million $ OLA introduced the micro segment. They later claimed that the micro segment alone surpassed the entire operations of Uber in India in value and market share.
After merging its China operations with Didi Chuxing in August, 2016, Uber picked up 20% stakes in the combined entity in China. This merger allowed them to have more cash to compete in the global market. Thus they became an indirect stakeholder through Didi in competitor OLA. This enabled them to have a stronghold which will stop Didi Chuxing from investing further into its competitors around the world including OLA.
Innovations being the name of the game: From the survey above, it is obvious that pricing is one of the most important factors in determining the preference of customers towards an online cab service provider. They were also looking to better their services for a more immersive customer experience.
Innovations by OLA: OLA play was launched in Bangalore, Mumbai and Delhi in November, 2016. It puts the customer in the control of the in-car entertainment experience.
The company said that it’ll be making use of proprietary in-car and cloud technology to provide in-car entertainment to users. This service will also give premium customers with the highest-rated drivers. Additionally the riders could view content of their choice while they take the ride.
Ola Play is also the first of its kind for a cab-aggregator. Ola and Qualcomm have partnered to provide customizable experience to passengers while they take their ride. Customers can use apps like Apple Music, Sony LIV, Audio Compass and Fynd to listen and watch music and videos.
Now where did this money for innovation and value addition come from? Its from Mahindra & Mahindra and Qualcomm, which invested and partnered with them for this venture.
Innovations by Uber: They also had their own plans to compete with OLA. UberChopper gave customers helicopter rides on some specific days of the year. This was done by teaming up with aviation partners to bring the service to some Tier 1 cities in India. Though this service is there across many cities in the world where they operate, only in Dubai the feature is available throughout the year.
Uber has also started using self driving cars in San Fransisco in December, 2016. This concept may see an Indian entry when the environmental and political norms suffices.

Given a choice which cab service provider will you choose to ride with?

See results

Comments

    0 of 8192 characters used
    Post Comment

    • Ankush Mukherjee profile image
      Author

      Ankush Mukherjee 3 weeks ago from Kolkata

      Thank you

    • pen promulgates profile image

      Imran Khan 3 weeks ago from Mumbai, India

      Extensively researched. Well done :)