A Study on Indian Taxi (Cab) Market – OLA vs UBER

 

A Study on Indian Taxi (Cab) Market – OLA vs UBER

Subroto Kumar Ghosh, Research Scholar

University Department of Commerce & Business Management, Ranchi University, Ranchi.

Mobile: +91 97714 73885. Email: ghosh.com@gmail.com

Dr. Dilip Kumar Sahu, Assistant Professor,

Department of Commerce, J. N. College, Dhurwa, Ranchi.

Abstract

 In the past decade the transportation facilities in urban areas have undergone tremendous changes. Among various modes of transportation the cabs have become important mode of transportation in metropolitan and urban cities in India. The growth of organized car rental industry is continuously growing with support of technology. The customers in the present era are using mobile apps to book a cab at anytime and from any place in urban areas. The pricing strategy of cab operators had been positively influencing customers to book a cab instead of traditional mode of transportation like auto and local buses etc. Like most of the industries the car rental industry had undergone lot of transformation with internet technology. The consumers are able to access book cabs at competitive prices because of tough competition among the organized cab operators. This article seeks to understand the dynamics of India's taxi market by studying various factors like the pricing, market share, revenue models, etc. The paper is qualitative in nature and based on secondary data collected from different sources.

Keywords:   OLA, UBER, Cab Service, Internet Technology, India’s Taxi Market.

 

1.1 Taxi Market in India:

As per a report in the financial express, Uber and Ola taxi hailing services have not only disrupted the Indian market but have also brought about a social revolution in terms of making the cab drivers work hard and earn more. This socio-economic transformation has become possible because of technology even as it is fuelling an entrepreneurship wave. It also presents a grim side in terms of poor work-life balance for the drivers. Ola is valued at $ 2.5 billion and operates in several cities in India.

Uber’s value is above $ 50 billion and it started its Indian operations in August 2013 and is present in 11 cities. Uber has also adopted a polycentric approach in terms of accepting cash payments in India.

The taxi market in India is estimated to be around Rs 11,000 Cr, and growing in double digits. The business model has become so attractive that even educated people are opting to become drivers.

Ola cabs runs on a pay for performance model. Flexibility in payment options and wider choice of categories and booking modes is one of their advantages. They attempt to give a standardized experience which is very difficult in services. As part of perform or perish concept, Ola cancels the incentive to a driver if he refuses to ply a passenger and Ola cabs receives a complaint. If the driver is caught riding the vehicle without the Ola sticker, he doesn’t receive incentives for a week. There is freedom for the driver to login and logout at his own convenience. The phone given to the driver is such that driver cannot make personal calls from it.

Ola is keener on grabbing the market through predatory pricing. The benefits of E-commerce are many customer satisfaction, efficiency, cost effectiveness, flexibility to customers. Taxi aggregators like Ola have built their business model considering the gaps in the present taxi transportation services.

 

 

1.2 Introduction of Ola:

Ola is India’s first and largest aggregator of cabs with over 18,000 cabs across various cities of operations. Founded in January 2011 by two IIT Bombay alumni Bhavish Aggarwal and Ankit Bhati, Ola integrates car transportation within the city onto a technology platform, ensuring convenient, transparent and quick service fulfillment for the customers and driver partners. Customers can access Ola on the web, through the mobile app or through the customer service centre.

Ola does not own or operate its own fleet, but aggregates small operators and single vehicle owners. The inventory utilization among small cab operators (ownership of 1-3 cabs) in India is an abysmal 40-50%. Cab owners benefit from the Ola cabs network and technology platform and that in turn helps them procure customers and enhance their income through better inventory utilization.

Ola is also the first service to offer Android, iPhone and Windows app in India that not only books a cab, but also helps customers track their cab on their mobile phone until it reaches them. Ola’s GPS enabled mobile app for the driver helps receive booking requests from customers in the vicinity and navigate to the customer’s pickup point with utmost ease.

Such cutting-edge technology also enables us to crunch intense analytics including demand and traffic heat-maps, usage behavior, potholes and speed data for the entire city. Ola also works with leading car manufacturers and financial institutions to help drivers buy their own cars at huge discounts and access to affordable repayment schemes, thereby nurturing micro entrepreneurship.

 

1.3 Introduction of Uber:

Uber was founded in 2009 as Uber Cab by Garrett Camp, the co-founder of Stumble Upon, and Travis Kalanick, who had sold his Red Swoosh startup for $19 million in 2007.

On New Year's Eve, Camp spent $800 hiring a private driver with friends and had been mulling over ways to decrease the cost of black car services ever since. He realized that sharing the cost with people could make it affordable, and his idea morphed into Uber. Kalanick joined Camp and gives him "full credit for the idea" of Uber. "Garrett is the guy who invented that shit," Kalanick said at an early Uber event in San Francisco. The first prototype was built by Camp and his friends, Oscar Salazar and Conrad Whelan, with Kalanick being brought on as a "mega advisor" to the company.

Following a beta launch in May 2010, Uber's services and mobile app officially launched in San Francisco in 2011. Originally, the application only allowed users to hail a black luxury car and the price was 1.5 times that of a taxi.

In February 2010, Ryan Graves became the first Uber employee, getting the job by responding to a tweet from Kalanick announcing the job opening, and receiving 5–10% of the company. Graves started out as general manager and shortly after the launch was named as CEO. After ten months Kalanick succeeded Graves as CEO in December 2010. Graves stepped down to become the company's COO.

In 2011, the company changed its name from Uber Cab to Uber after complaints from San Francisco taxi operators.

During the initial development of the Uber app, the company created a think tank consisting of a nuclear physicist, a computational neuroscientist, and a machinery expert who worked on predicting demand for private hire car drivers and where demand is highest.

On March 26, 2018 Uber declared to withdraw from Southeast Asia to end a war of attrition with a fierce local rival and has agreed to sell its Southeast Asian operations to Grab. Under the agreement, Grab will acquire all of Uber's operations in a region of 620 million people, including food delivery service Uber Eats.

 

2. SWOT Analysis

 

2.1 OLA

2.1.1 Strengths

v  Grabbed the First mover advantage as a taxi aggregator in India

v  Acquired Taxi For Sure which made it No. 1 in India

v  High awareness among public due to aggressive TV, online and print media marketing techniques.

v  Huge customer base & due to network effect it is increasing

v  Rapidly expanding and online application

v  Multiple rounds of venture capital investments have made the brand financially strong

 

2.1.2 Weaknesses

v  Drivers are the face of the company and hence their misbehavior directly affects its brand image

v  Monetization is very difficult as the demand is huge, amount of cash burning is huge

 

2.1.3 Opportunities

v  Potential is high as Unorganized market is huge (~90%)

v  Increasing internet penetration &Smartphone users

v  Rising disposable income of the people

v  Huge demands as the customers look for more and more convenience in terms of hassle free drive and no tension of finding parking.

v  Acquisition of smaller players in the market.

 

2.1.4 Threats

v  New competitors entering the market.

v  Uber has deep pocket and hence can burn cash heavily

v  Presence of many national players in the market

v  Future is unclear due to lack of government regulations in developing countries.

v  Customer loyalty is questionable in this industry.

 

2.2 Uber

2.2.1 Strengths

v  Well-recognized brand

v  Unlimited fleet of vehicles available. Regular Taxi service regulations are not applicable for Uber.

v  Operational cost is quite low. As it relies on customer-to-driver interaction, a dispatcher is not needed.

v  Very little competition.

v  Dual rating system boosts safety and trust.

v  Convenient system for the drivers. They can work for flexible hours and can even choose to be a part-time employee. Drivers can also reject unwanted clients.

v  Lower prices as compared to traditional taxi operators.

v  High valuation of Uber encourages many people to invest in it.

 

2.2.2 Weaknesses

v  Easily imitable ides. Nothing will prevent competition from presenting the same product/service.

v  Ethically questionable between Uber and the drivers. It is expected that loyalty between Uber and its drivers is quite low as it lacks real connection.

v  Uber and its customers have no bonding. Incentive remaining with Uber is low.

v  Cost of operating vehicles is very high. But, the drivers do not earn much.

v  There are privacy concerns. Uber records where customer gets the taxi from and where he goes with it.

 

2.2.3 Opportunities

v  Customers are often dissatisfied with traditional cab companies because of their high prices and long waiting time and hence can exploit new and big markets in countries like India.

v  Can tap growing markets in suburban areas where taxi services are not available.

v  Estimated Time of Arrival can be reduced with rise in the number of Uber drivers which in turn will make Uber more liked by the customers and hence, the startup will get more revenue and drivers will also be profited.

v  Cheaper electric cars can be used which will reduce the cost and increase the driver’s profit margin.

 

2.2.4 Threats

v  Low-profit margins causes dissatisfaction among the drivers. This might lead to bad publicity, which can in turn discourage the new drivers from joining Uber.

v  Increasing competition will ultimately decrease prices. This will discourage drivers from joining the startup in new markets, resulting in loss of customers. Ultimately, Uber’s revenues will decline.

v  As new markets and drivers are joining, fraud and scandals are also increasing. It’s damaging for the brand.

v  Self-driving cars, e.g. Google Cars, can probably eliminate the need for Uber.

 

3. Special Programs by Ola and Uber:

Ola Pragati is an initiative lead on by Ola to get drivers on board. The initiative helps drivers to avail a car loan from SBI and drive for Ola. Drivers that perform the best are called as OlaStars and are further awarded with additional benefits such as fuel subsidy, cash back and scholarships for their kids. Whereas Uber also followed a similar initiative called Uber Dost and also runs loan melas (fairs) to attract in new drivers. Their rewards include free insurance, benefits on health, education subsidy for kids, etc.

Coming to the service offerings by both the companies - different sizes of cars that offer different slabs of fares. For instance, the cheapest rides offered by both, namely, OlaMini & UberGo (hatchbacks) cost Rs. 5 to Rs. 8 per km. Except for the 20% that goes out for commission to the company, the rest of the income ends up with the drivers. On April 4, 2016, Ola launched bus shuttles and further offered e-rickshaw services as well. The fares for these taxis vary from Rs. 23 per km for a sedan to Rs. 16 per km for a hatchback, but increase when ride demands are high. During the time of odd-even car plan in January launched by the Delhi government, Uber fares rose up to three times. Both the companies catch up on each other's updates really quickly. On March 3, 2016 a new category was introduced by Uber under bike taxi services and Ola launched the same within 24 hours. Other examples may include introducing auto rickshaws and cab pooling. Uber offers a lot more options in terms of mode of payment to the customers as compared to Ola. Uber gives the option to pay via Paytm wallet, Airtel wallet, cash, debit & credit cards. While Ola introduced its own wallet Ola Money and also gives the option of paying via cards and cash. According to some reports by industry watchers, in India, Ola remains as the undefeated champion in most rides per day.Being launched in 2011, two years before Uber entered India, Ola has had a head start over its rival. Having known the domestic environment and market earlier than its rival, Ola ramped up fast. Today, Uber serves in 26 cities in India, employing 250,000 drivers. Whereas, Ola is present in 102 cities with 450,000 drivers using the platform. Even though both companies have similar products/services and fares, they have individually adopted different strategies for long-term growth. On one side, Ola wishes to expand to more than its current 102 city radius, on the other hand Uber wants to go deeper in its current radius. India is a big name in terms of potential growth. Till now, 85% of the business of both the companies comprises from top ten cities of the country. Even though Indian market is much unorganized, 10% of the share of $15 billion is in the hands of players like EasyCabs, Meru, Uber, Ola and more. In India, the battle in the taxi business will ultimately be between Ola and Uber. All the other competitors are bleeding as a result of their no-holds-barred battle. Siddhartha Pawha, CEO, Meru Cabs, says the objective of deep discounts (offered by Uber and Ola) is to kill competition. "Their fight is sign of desperation as billions of dollars are at stake."

4. Price wars:

Recently, both the companies have unfolded concrete price war which caused a windfall for consumers and upped the stakes for investors. In November 2015, Ola raised $500 million more in response to Uber's high-handed presence and hence launched a new category called Micro in March 2016 which was even cheaper than UberGO; priced at Rs6 per km. Soon, Ola claimed micro as a category to be bigger than Uber's entire Indian business as a response to Alexander's boast. According to multiple industry executives, Ola's claims on Micro are unsubstantiated but the category has transformed the company's fortunes, at least for now. As reported in Mint on 15 June, 2016 Though Ola has reversed much of its last year's market share loss to Uber, but this reversal of fortune for Ola has come at a cost. While Ola opened up a big gap against its rival and has jumped since the launch of Micro, the company has also faced cash burns. In an attempt to match Uber's spending power, Ola has already raised about $1.2 billion from investors so far, but needs to gear up to give actual competition to Uber's spending power. Uber has already raised $3.5 billion from Saudi Arabia’s Public Investment Fund and is likely to raise another $2 billion in leveraged loan, as reported by The Wall Street Journal in June.

5. Heavy Investments

According to Mint’s report on 15thJune, 2016, Ola has initiated talks with investors, both new and existing, to raise another $300-400 million. In order to be sure, investors are becoming cautious about their bets, even with online retailers such as Flipkart and Snapdeal etc, struggling to raise funds at their current valuations. Both Ola and Uber need more cash as they invest heavily in client acquisition and retention, driver incentives and a gradual supply of (new) cabs. Analysts say because Ola is the sole Indian cab company of any scale, it has better chances of raising money than leaders in other businesses.

Besides, one of its strategic investors, Didi, is flush with funds, having raised $7 billion in June from a clutch of investors, including Apple Inc. and China Life Insurance Co. According to Mint’s report as on 15 June,2016. Ola has started a new leasing subsidiary, Ola Fleet Technologies Pvt. Ltd, and committed an initial investment of Rs.500 crore to this arm, while about $7 million has been invested by Uber in its leasing partner, Xchange Leasing India Pvt. Ltd, between January and March, 2016. “We have close to 80% market share and we will continue to build on our competencies. We are an Indian company with a much deeper understanding of the needs of Indian consumers, and our focus is to offer seamless experience to them. It is always good to have competition. It keeps us agile,” the Ola spokesperson said. Ola claims to have more than 450,000 vehicles providing services under it, including cabs, auto-rickshaws and regular black-and-yellow cabs. Uber claims to have more than 350,000 drivers on its platform, but does not disclose the corresponding number. “The kind of customers you want to approach with your offering matters. For example, the upper middle class or premium customers are a thin segment. You need to get into the middle class. They are going to be hard-nosed about how much they spend on transportation every month. That means price points need to be lower to attract a larger audience, Over a period of time, the volume will ensure the business starts making sense even at a lower price point” said Vinod Murali, managing director, InnoVen Capital India. Neither Ola nor Uber seems keen to take its foot off the pedal.

6. DISCUSSION

 

The consumers who are price conscious are likely to redeem coupons while booking cabs. The innovative consumers are interested to adopt for new technology like use apps for booking cabs and other services. The redemption of coupons is motivating factor for consumption of cab services. The consumers have got habituated for mobile apps to book cabs and they are also feeling safe with regard to organized cab services. It is also observed from the study that middle aged adults are consuming cab services compared to other age groups.

7. CONCLUSION

 

There is stringent competition in the organized cab services industry therefore organization need to motivate consumers through coupons. The innovative behavior of consumers helps to download mobile apps and further motivates them to redeem coupons while booking cabs. The results of this study are consistent with earlier research studies because it is found that price conscious consumers are likely to redeem coupons. The modern consumers are innovative and at the same time they are price sensitive therefore coupon redemption helps for customer retention. The brand image also plays a vital role in customer retention apart from offering coupons.

Cab services has a tremendous potential for growth in India as the transport needs of the corporate world and even of middle-class and affluent class is growing day by day. Indian city facing enormous parking problems, many residents would prefer to call up a taxi service for the purpose of visiting a shopping mall, going on special occasion, or even to attend a late-night party. This services scores higher points over wasting time in search of parking space for own vehicle, or negotiating angrily on a leisurely weekend. The study shows that its customer satisfaction level is very high, which is a positive point for its growth and expansion.

India’s major attractiveness lies in its market size and increased purchasing power resulting in uplifting lifestyles. On the other hand Indian consumers are smart, very demanding and highly price-sensitive with no brand loyalty; managing such market is not an easy task. Companies need to constantly be on their toes and keep designing new packages and offers to allure the customers for long which at times result in a lot of cash burn. Therefore, it would not be that easy for both the companies Ola and Uber to operate in such an environment. They have to optimize their costs at all levels; need to be more customer-centric & target-oriented; highly innovative; resistant to pressure from the regulatory authorities and above all keep delighting their customers as “Customer is the King”.

7. Reference:

 

[1]. https://en.wikipedia.org/wiki/Ola_Cabs

[2]. http://economictimes.indiatimes.com/small-biz/startups/uber-vs-ola-who-will-end-up-dominating-the-streets/articleshow/51720396.cms

[3]. https://en.wikipedia.org/wiki/Uber_(comphttps://en.wikipedia.org/wiki/Ola_Cabsany)

[4]. http://www.ciim.in/ola-cabs-business-strategy-case-study