Fare Game: Who’ll Grab the Bait?
Mobile app-driven service providers,
which aggregate taxis instead of owning them, are forcing radio taxis to tweak
their business model.These Aggregators dropping rates, triggering a low-fare revolution in the taxi market.
Taxi service marketplaces are giving auto rickshaw drivers a run for their money, offering almost matching fares in the rough and tumble of the country’s vast but unorganised urban commuting sector.
Companies including Uber, Olacabs and Taxiforsure — most of which are flush with venture
capital funds — are aggressively dropping rates, catalyzing a low-fare
revolution in the taxi market. This strategy had started with the entry
of San Francisco-based Uber into India in 2013. Uber, which had lowered
fares in Bangalore by a quarter in August, last week reduced it by
another 20% in the city. Close to Diwali, it had slashed fares in Delhi
by a fourth.
The company attributed the move to increased
efficiency in their marketplace, but clarified that the offer is only
for a limited period.“The more people ride with Uber, the longer
we will be able to sustain low prices,” said Bhavik Rathod, general
manager of Uber Bangalore. Uber is backed by Google Ventures and
Fidelity Investments, among others.
Hindustan Unilever couldn't kill
Nirma,“ says Kunal Lalani, with an impulsive grin and a customary twirl of his
moustache.
“Goliaths might have had it easy in
other countries but in India Davids like us won't let that happen,“ contends
the managing director of New Delhi-based Mega Cabs, taking a swipe at the
$18.2-billion Goliath Uber, a taxi booking app. The Davids, it seems, have drawn
first blood.
The Association of Radio Taxis, a
body of taxi providers headed by Lalani, rushed to the Reserve Bank of India
(RBI) in July alleg ing that the San Francisco-headquartered car-sharing
service provider Uber was not following the two-step verification process
required for credit card transactions and was flouting foreign exchange norms.The RBI issued an order in August,
stating that a local service payment must have a two-factor authentication and
be routed through domestic gateways.
As Uber stares at an imminent
shutdown if it doesn't tweak its payment model to meet the RBI deadline of
October 31, its rivals surprisingly are not gloating over their victory.
The self-realization of
urgently putting their house in order. “Thanks to Uber, it's a wake-up call for
us,“ confesses Lalani. “We need to be responsive and focus on consumer connect
or else we will perish.“
It's indeed a do-or-die situation
for traditional Indian cab operators that have had a bump-free ride so far.
Uber has not only shaken up the industry, it has also forced the companies to
tweak their business models and quickly slip into reboot mode.
Changing Gears
“We haven’t taken a price cut in
the past six months,” said Kunal Lalani, chairman, Mega Cabs. “Since we
are not private equity funded, we don’t have the luxury of subsidising
the ride, which most of the PE-funded car operators are doing.” Lalani, for sure, has stepped on the
gas. Mega Cabs, which has over 3,500 cars
across seven cities, has set an ambitious target of taking its fleet size to
25,000 by 2020.In six years, it plans to pump in `4,000 crore, expand to 40
cities, take its revenue to `6,000 crore and leverage more technology in its
operations. Mega Cabs follows an ownership model but of late has been
influenced by the asset light aggregation model that is the USP of apps such as
Uber, TaxiForSure and Olacabs. In addition to its owned fleet of 3,500, it also
relies on some 700 cabs that it does not own. But clearly it believes in a
strategy that is different from the aggregators: of expanding its `owned car'
fleet and working with a committed set of drivers.
The app-based model is prone to abuse, alleges Lalani. “Tomorrow some antisocial elements can use this aggregator platform to do a lot of things like gun running or drug trafficking. Then who would be held responsible -the driver or the one who is running the app?“ he asks.
It's turning out to be a battle
between owners and the app-based aggregators, quite similar to the online
versus offline retail war that India is witnessing now.
Olacabs, which last week
received a $210-million infusion from Japan’s Softbank, has cut the rate
for its lowcost segment to `10km.While Uber has lowered rates
in its affordable car segment by 25% in a few cities , Bangalore based TaxiForSure has run aggressive promotional offers, as
has radio-taxi operator Meru.
TaxiForSure co-founder Aprameya
Radhakrishna said demand has increased ever since the discounting
started. “For three years, we have not discounted at all. It’s only now
that we are giving out offers like `1 Re ride to our customers
, ” he added. He also believes aggregators take over mind share and
market share globally. “And that's surely not a great feeling for the
traditional cabbies, which is causing a lot of heartburn,“ he says. Their mindset
has to change from eliminating aggregators to competing with them. Radhakrishnan also contends that
aggressive pricing is sustainable in the long run. “The biggest plus for us is
that we don't own the cars.“ This, coupled with the fact that we just charge a 10.5%
commission, helps us in drastically cutting the price, he explains.Radhakrishnan is also quick to
dismiss any doubts about the safety of the cabs provided by aggregators. “Why
would one model be safer than the other,“ he asks.The company is backed by investors including Accel Partners, Bessemer Venture and Helion Venture. “The game at this point is customer acquisition, and if that means putting in more cash to back the company and win the market, so be it,” said an investor who did not wish to be identified.
Rajiv Vij is not bullied by Uber and
is ready for the fight. Says the managing director and CEO of Carzonrent, which
runs Easy Cabs.“Uber is a fantastic opportunity for us to emerge even stronger.
We implemented Oracle in 2004-05 when most car rental companies in India were
still taking down bookings in long registers,“ he says. Carzonrent has a
35-member technology team, boasts of a national command centre that tracks
every car across India and has an app for radio cabs, car rentals and
self-drive.“That's big for a car rental firm that is not a technology company,“
says Vij, taking a dig at Uber.
Carzonrent started its aggregation
model in 2004. Of the 3,500 cars under the car rental business, only 500 are
owned by the company. The rest are owned by the drivers who work for the
company. “But the aggregation model doesn't mean that you won't pay service
tax,“ he says, taking another jibe at Uber, adding that there are limitations
with a foreign brand operating in India.Vij, who was the master franchisee
of Hertz in India in 2008, has assigned his daughter, Sakshi, the task of
streamlining the technology part of the business. “We are working on a system
to bring down the waiting time for consumers to just 5-10 minutes,“ says
Sakshi, executive director of Carzonrent.
Such is the demand that, according
to industry executives, taxi companies are unable to accommodate about
almost a fifth of potential passengers. But since the long-term strategy
for most aggregators is to attract first-time riders and lure more
drivers into the system, profitability temporarily takes a backseat in
the backdrop of support of investors.
Industry sources estimate that all
aggregators are making a loss of between 20-40% on every ride, but with the support of investors, margin pressures are eased.“Companies
are spending lots of money on marketing and discounts, since there is
no pressure on any of these aggregators to make immediate profits,” said
Jaspal Singh, co-founder of Valoriser Consultants, which provides
market research services for transportation companies. “They are all
backed by large patient investors.” The strategy is paying off. “We have
seen demand go up five times since we cut our prices, with most
traction coming from our app,” said Siddhartha Pahwa, CEO, Meru Cabs,
which cut rates by a fourth in its lower-end Genie segment. Executives
at Ola, Uber and TaxiForSure concur.
“A rapid scale-up in demand
and supply is resulting in fewer dry runs for drivers, lower wait time
for customers, more rides per hour and, hence, higher driver earnings,”
said Tarun Davda, vice-president at Matrix Partners and a board observer
at OlaCabs, which has over 33,000 cabs in its fleet.Anand Subramanian, director of
marketing communications at Olacabs, too feels that pricing by aggregators has
not been predatory.With
aggressive discounting, it’s not just consumer demand but also driver
income that rises. Since Ola cut rates to Rs10km for its mini segment,
it claims that average driver revenue has risen by 30%-40%. “Ultimately,
we want our driver partners to see the value of staying on the Ola
platform for longer hours. In turn, customer stickiness to book a cab fro m us goes up, ” said Anand Subramanian, director,
marketing communications, Olacabs.
On a Fast Track
Uber, on its part, is unruffled at the belligerent attitude of the cabbies. “Change often brings resistance,“ says Allen Penn, head of Uber's Asia operations. Uber is bringing something fresh to a sector that is characterised by stagnation, he adds.For decades, it was commonplace to wait for an hour to get a ride in most Indian cities while drivers' time and gas were used inefficiently, he says.Penn brushes off security concerns raised against aggregators. When you use Uber's technology, he says, not only are you always connected with a fully licensed driver, you know exactly how far your car is, who is coming to pick you up and the aggregated rating of the drivers based on the number of trips they've completed. “We also have a safety feature in the app called Share my ETA, where a rider can share driver and car details with a friend or family member.
Uber, on its part, is unruffled at the belligerent attitude of the cabbies. “Change often brings resistance,“ says Allen Penn, head of Uber's Asia operations. Uber is bringing something fresh to a sector that is characterised by stagnation, he adds.For decades, it was commonplace to wait for an hour to get a ride in most Indian cities while drivers' time and gas were used inefficiently, he says.Penn brushes off security concerns raised against aggregators. When you use Uber's technology, he says, not only are you always connected with a fully licensed driver, you know exactly how far your car is, who is coming to pick you up and the aggregated rating of the drivers based on the number of trips they've completed. “We also have a safety feature in the app called Share my ETA, where a rider can share driver and car details with a friend or family member.
“Can traditional players take on the
likes of Uber? Yes, says Aditya Rath, associate director and lead (customer
impact) at PricewaterhouseCoopers India. Disruptions are only going to take the
industry to the next level of maturity, he reckons.Indian cities have very low
penetration in last-mile connectivity. “Hence, there is an opportunity for taxi
players to continue to play a significant role,“ says Rath.The traditional customer engagement
models will also evolve for taxi players. The heavy dependence on call centres,
customer wait times and quality of cabs will have to be reviewed, adds Rath.
The fight is not based on the medium but on the customer experience being
delivered, he adds.
Nobody knows that better than
Siddhartha Pahwa, who argues that the biggest differentiator now will be
quality. “If you have to take a 5 am flight, would you wake up and order a cab
from an app and risk a service that you're not sure will turn up?“ asks the CEO
of Meru, one of the largest radio taxi operators with a fleet of over 10,000
cars.Pahwa is incensed at the predatory
pricing adopted by most app-based aggregators.“They are offering services at a
price which is not rational. If a product costs you `10, for how long you can
sell it at `1?“ he wonders.
While owners and aggregators are
embroiled in a high-pitched battle, experts believe that India offers room for
all to grow and co-exist. “While the new model is giving a competition to
traditional taxi operators, both have opportunity to sustain themselves,“ says
Ashita Aggarwal Sharma, professor of marketing at SP Jain Institute of
Management & Research.
A consumer may wish to book an Uber
experience for official or business travel but may prefer the traditional cab
when travelling for leisure, or reaching an airport early in the morning, she
adds.
The fight, she believes, is good for
industry as well as consumers. The traditional taxi experience will become more
pleasing and professional to cater to competition. “Whoever loses, it's a
win-win situation for consumers who are having a great time.“
Although customers are
cheering the low fares, brand loyalty may be elusive. “I have four
mobile apps and depending on the cheapest and fastest cab available, I
book,” said 25-year-old Sakshi Sharma from Delhi.However, not
all operators may be in a position to sustain the discounts for long,
which may lead to consolidation and raise a barrier for newer non-funded
players wanting to enter the field.
Ref: An ET Article
