A few weeks ago, Uber, the Silicon Valley-headquartered global giant among taxi aggregators, said it would test a ride-share service in Bengaluru wherein users can take passengers on their routes for a fee. Homegrown Ola, which claims it has an 80 per cent share among Indian cab aggregators, announced the same night that it already runs a similar service in multiple cities, including Bengaluru.
The city, India's technology hub, has the highest density of vehicles (two-wheelers and cars) in the country (one vehicle for every 1.8 persons). This has made it a battleground for app-based transport aggregators like Ola and Uber.
Ola, modelled on Uber, has expanded its footprint to auto-rickshaws, black and yellow cabs in Mumbai and Kolkata's doughty yellow Ambassador cabs. It offers food pickup from restaurants and delivers groceries from the Ola store. "We want to redefine how people travel in India. We will be in everything (in transport)," said Bhavish Aggarwal, the 28-year-old co-founder of Ola, in an interview in August. "Our focus is on how to get more and more people to join us as partners. Right now, we have 250,000 partners; we are aiming at a million".
It is also looking to start shuttle services: mini buses on select routes in Bengaluru. This will bring Ola into competition with local start-up Zipgo which has ferried thousands of users in less than two months since its launch. "There is opportunity for many players to bring in disruption and ease the traffic mess," says Zipgo co-founder Jitender Kumar who hopes to expand to other cities.
Ola is not the only one that is thinking out of the box. Uber, which has faced flak for insufficient passenger security, has tweaked its model for India. This includes an SOS on the app and in each car. Drivers are allowed to accept cash from customers, moving away from the digital payment model practised globally. All this, Uber hopes, will help it offer a million rides by next July, up five times from now.
Like much of e-commerce, the cab aggregator business is in investment mode. Incentives need to be thrown at consumers - discounts, free rides - in order to get them to sample the service. This requires deep pockets.
With a valuation of $55 billion, Uber plans to invest $1 billion in India over the next few months to expand into newer towns. Ola, valued at a tenth of Uber, has so far raised $900 million from investors such as Softbank. On Monday, Didi Kuaidi, China's largest taxi-hailing service, which nurtures hopes to take on Uber, announced an undisclosed investment in Ola.
But the business has to transit to financial stability - soon. App-based aggregators earn a commission of 20 per cent on every ride. Ola, on top of that, has started to charge Rs 750 per week from drivers to use its platform. "In a few cities we are profitable," said Aggarwal in the August interview, without disclosing their names. "We are still investing aggressively for growth. We are investing in large cities and also smaller Tier 2 and 3 cities".
Ola tracks Uber closely. In July, Uber launched a pilot project in the US, offering cars to drivers through its leasing subsidiary. They could also rent a car and drive passengers for a fee on the Uber network. The India plans for Uber's leasing subsidiary are not known yet. But Ola, within two months of Uber's announcement, launched a leasing subsidiary to offer drivers cars on lease with daily installments, instead of the traditional monthly or weekly repayment models. "Call it backward integration. The leasing arm would help expand its ecosystem, bring in predictability of drivers (owning cars in its network) and grow fast," says Harish H V, partner at Grant Thornton, a business consultancy.
Ola wants to lease cars to over 100,000 drivers by 2016 who could repay the loan over three years. But as they move to an asset-heavy model, associated risks could emerge, say experts. "The aggregator model had caught the attention of investors because of its asset light and tech heavy nature. What I do see is a big shift in their business model which moves away from a pure play aggregation to taking the underlying asset risk as well," says Sandeep Gambhir, managing director and CEO of Orix Auto Infrastructure Services, the India unit of Japanese automobile leasing firm Orix.
But that has a brighter side too. Ola, with over 250,000 vehicles already in its ecosystem and with its plan to lease out another 100,000 vehicles, will get bargaining power that others can only dream of. Ola's head of leasing business, Rahul Maroli, says Ola could bring down the cost of ownership to the driver by as much as 20 per cent.
Aggarwal was emphatic that Ola could be the big customer for car manufacturers, though these would be owned by drivers, as it expands its network to over 200 cities by 2016. "We will buy the cars (from manufacturers) in very large volumes. Our drivers will own the cars," said Aggarwal.
The disruption that Ola and Uber are bringing in is already being felt by automobile makers. Mahindra & Mahindra Chairman Anand Mahindra recently said: "The access being offered by taxi-hailing apps like Uber and Ola is the biggest potential threat to the automobile industry. Since these app operators have made transportation a commodity, sales could be hit and volumes could get impacted."