Uber is running taxis at fares almost comparable to auto rickshaws. TaxiForSure is offering cabs for Rs.49. And Meru just introduced 30 per cent cash back on each ride. These enticements are becoming too much to resist. But, why is every other taxi service on a mad spree to offer free or subsidised rides?
The lure of deep discounts on e-commerce portals already has the country in its grip. The likes of Flipkart, Snapdeal and Amazon are spoiling consumers in India by offering free shipments, easy return, cash on delivery and crazy discounts on products. They are hoping that offering these freebies will get consumers on board initially. These consumers will later turn into regulars “out of habit” or having realised the “convenience” of online shopping.
Does the same logic apply to taxi service providers as well, which are currently the darlings of private equity funds?
Google backed Uber recently raised a giant round of $1.2 billion in funding from a group of mutual fund managers and venture investors. In the latest round of investment, Ola received $210 million funding from Japan's SoftBank. And TaxiForSure is said to be in talks with private equity majors to raise $180-200 million.
Most people are currently hailing taxis from Uber or Meru or TaxiforSure out of curiousity or because they are hugely subsidised. But, will people continue to take their services after the discounts are over? Will the country’s urban be “habituated” to call a cab over using public transport or their own cars? Will “convenience” rule over “cheaper” options?
A brief conversation with a driver of TaxiForSure revealed that the taxis enrolled with the company charge a minimum of around Rs 240 for the first four kilometers while the company charges its customers Rs 50. That is a subsidy of almost Rs 200 on each ride. Why?
Uber last week ran a promotion where it offered five free rides in a week to users just to graduate them onto their new payment model – a digital wallet.
Private equity majors are pumping billions of dollars in e-commerce, perhaps because there is a strong business case for online retail. Internet kills the traditional supply chain of offline retail. Minus the real-estate and the manpower, there are huge savings from running a brick and mortar store. It is argued that when people at a huge scale start buying online these very savings will pay for the deep discounts on products, as well as free shipping, the cost of cash on delivery etc. Private equity and venture capitalists won’t need to pump more funds in these companies then.
But, does the same hold true in the case of the taxi industry? It is true that the current disruption in the taxi industry is making entrepreneurs out of struggling and unemployed youth. They are able to earn a decent living while the taxi companies are not only subsidising the rides for them but also financing their vehicles apart from other freebies.
One can also argue that the technology being brought by these firms is bringing economies of scale where the fleets with the traditional taxi owners are not lying idle for long durations and proving to be more productive for all stakeholders. The economies of scale will definitely lower the cost of running a taxi.
But, no matter how many people start hailing taxis, the bare minimum cost of running a car (that is fuel and the driver’s salary) will never go down beyond a certain point. And the rates at which these firms are currently offering the taxis are clearly untenable.
In this scenario, the only situation in which the model looks sustainable is when people find it so convenient to hail a taxi that they give up their own vehicle. In such a case they would not mind paying slightly higher than the public transport for their daily commute, which comes minus the hassle of maintaining an own vehicle and a driver etc. In case people do not want to give up on their own vehicles completely, they can enrol with the taxi hailing services which can call upon the vehicle when not in use by the owner. When this happens at a mass level (if it does), it will solve many issues at one go -- the biggest one being that of urban planning by de-congesting the roads and the parking spots.
Now, that will be doing some real good.
