In June this year, Ola and Uber’s drivers went on strike again. Most cars were parked. The drivers wanted their incentives back. But neither cab-hailing company was willing to budge. The honeymoon was over. Despite the strike, within Ola, senior executives were sanguine.
Customers Inclined Towards Ola
“Ola knew the drivers would blink first,” says a senior Ola staffer who asked not be quoted. And the drivers did. They came back to work the next day. “There was a trend Ola noticed in Bengaluru during that strike, customers started using Ola to hail autos,” says the executive. What was curious that Ola expected Uber to get into autos as well. But nothing.
“It was a market, which Uber was not interested in and so Bhavish Aggarwal (CEO of Ola) decided to get aggressive about it,” says one of the Ola staffers quoted above. It would give Ola the impetus it needed to increase ride numbers.
What does Ola get from the auto adventure?
- New users who feel they can’t afford cabs. And upgrade them in time.
- Convince existing users to try this option for short rides, leaving the taxis for longer rides during peak hours, which will make Ola more money.
- Get volume and push the 1.5 million rides a day to 2 million by the end of FY18 and open up a gap with Uber once again.
- Add supply without a lot of investment.
Currently, the average auto ride distance is 4km. Almost 10-15% of Ola’s 1.5 million daily rides are from autos. The average revenue earned from an auto ride is Rs 50. Ola takes 10% of that and pays the drivers no incentive. Ola wants to play the low-margin, high volume game. But it gets a little murky. Ola discounts the ride for the first 4km to encourage customers to use the option more often. But these discounts are illegal.
The Indian Motor Vehicles Act says that autos can’t overcharge or undercharge the fares set by the state government.
“The fare that Ola has subsidized is not only in violation of the Motor Vehicles Act but is also against the Antitrust and Competition guidelines,” says Karan Joseph, a Bengaluru-based advocate. He explains that in this case, Ola can’t get away by paying a fine. The penalty here is that the auto driver will lose his permit. At the same time, Ola is also creating an economic atmosphere where it undercuts the other auto drivers who are not on the app.
Joseph, however, explains that state governments of Karnataka, Maharashtra, and Delhi are all trying to come up with a peak pricing fare. “They are not talking about minimum pricing either. Maybe they will. But this is all to do with cabs not autos. These commissions may now have to consider autos within that as well,” he adds. This might end up sabotaging Ola’s plans to increase volume.
Where Is The Solution?
But such concerns might be a temporary headache for Aggarwal. Especially, as SoftBank looks likely to become one of Uber’s largest shareholders. All the Ola CEO has to do is hold his nerve and wait for consolidation to arrive.
“Both these countries have a local first approach. They will not let Ola break into their countries very easily,” says one of the former Ola employees quoted above. “There are taxi unions that have set rates and Ola won’t be able to reduce it,” he continues. Ola, however, is looking at Nepal and Bhutan as extensions of India. And it doesn’t plan to burn too much cash.
“I find this move strange. Will they spend money just for Indian tourists? How many tourists will you get? 10,000 a season? Too much effort for nothing,” he adds. The move, he and other Ola employees say, borders on tokenism and will add very little value or volume.
This international expansion will add, at best, two medium-sized markets. But won’t bring in the huge numbers that will increase its lead when it comes to Uber. Enter autos.