“Uber moment” has entered the vocabulary of business, and is seen in opinion pieces by fashionable pundits, but Uber Technologies, Inc. itself is facing stiff competition by strong local competitors in two of its most promising markets outside the U.S. — Didi Kuaidi in China and Ola in India.
Ridesharing is seen as a winner-takes-all business, and the make-or-break markets for Uber seem to be India and China, which could one day see many more rides on its network — or on its local rivals’ networks — than in the U.S.
China — a market bigger than India by at least an order of magnitude — already sees millions of rides, and Didi Kuaidi is considered to be the market leader. Uber’s founder and CEO Travis Kalanic has, however, claimed a growing share of that market.
In India, Bangalore startup ANI Technologies has built a very strong brand with Ola, the cab-hailing network it operates, but it could be “pretty neck and neck, especially in the big metros,” Jaspal Singh, co-founder of transportation sector consultancy Valoriser Consultants in New Delhi told Forbes India in a phone interview.
“This is why, Uber is not doing it anywhere else in the world, but they’re doing it in India, taking out newspaper ads, spending on outdoor advertisements in metro stations and all that,” another industry executive pointed out, declining to be named. It is also why Ola has closed down services like food delivery and refocused all its efforts into consolidating its lead — opening services such as “Ola Micro” that offers rides at Rs 6 per kilometre plus other charges.
The rivalry has turned ugly in recent months, with accusations of attempts to sabotage business — Uber has gone to court in Delhi alleging Ola orchestrated mass cancellations — and a newspaper report claiming all investors of Ola, save SoftBank Group Corp., were in talks to sell out to Uber. The report relied on one anonymous source, and Ola and a prominent early investor Matrix Partners have denied that any such plans exist.
SoftBank is Ola’s biggest investor and others include Tiger Global Management LLC, an investor in Uber, but which has also backed Uber’s rivals outside America. That includes local market leaders Ola in India and Didi Kuaidi in China.
An important difference in the way the rivalry is playing out in India is that “unlike in the developed markets, supply creation has become much more important than supply aggregation,” Avnish Bajaj, a managing director in India at venture capital company Matrix Partners, told Forbes India in a phone interview. That means, both Ola and Uber find themselves in a position where they are actually creating and growing this new model of convenient transportation, much as other Indian startups have built smartphone-based business models that didn’t exist at all, in India — Lybrate and Practo helping people search for doctors and book appointments using smartphone apps is an example.
While conventional wisdom is that this is winner-takes-all business, “in markets where two players are developing in parallel, you can probably have a situation where … when steady state happens, it wouldn’t surprise me if there is a duopoly and not a monopoly,” Bajaj said.
“Even if the discounts were absent, both Ola and Uber would still see demand because of the sheer convenience,” he said. For now, it’s a scenario where each competitor is scrambling to ensure that its network has the largest number of cabs and drivers.
India is a market far less mature than China on many fronts, including Internet penetration, proliferation of 4G networks, or number of smartphones in use — factors that play a vital role in the operations of businesses such as those that offer app-based cab-hailing.
“See, once someone downloads one app and gets used to it, it’s very difficult to get them to change that habit,” Singh at Valoriser said.
The flip side is, more than 100 million smartphones were sold in India in 2015 and most industry estimates project an even greater number this year. Wireless providers are building out 4G networks faster, and Chinese smartphone vendors including Lenovo Group and Xiaomi Corp continue to drive down the cost of smartphones in India, helping to accelerate the switch to smartphones from feature phones in a market of a billion mobile phone subscribers.
In December, Ola had said it sees more than a million booking requests a day on its network of 350,000 cabs. The company is present in more than a 100 cities and towns and has plans to double that number. In October, Uber had more than 180,000 “driver-partners” as it calls them in 22 cities in India, the company said in a press release, when it announced a partnership with Automotive Skill Development Council to train a 100,000 drivers to obtain commercial driving licences, over a period of three years.
Uber now lists 27 Indian cities on its website, where its services are available, and recent media reports have put the number of cabs on its network at 250,000.
The million requests is an indication of demand, whereas actual rides that the cab-hailing networks are able to fulfil will probably be around one-fifth of that, the industry executive in the sector, who wished to remain unnamed, said. Historically, the service in India started by partnering with large numbers of small owners typically owning 3-5 cabs with more than one driver operating on the same cab.
Further, on a given day, the number of cabs active on a ride-sharing service provider’s network is about 35 percent of all the cabs registered on the network. “I have private customers too, who call me specifically,” one driver, who had purchased a new sedan with Uber’s help told Forbes India. “Especially if they need me for the full day or for a longer trip out of town.”
Finally, anywhere between 50 percent and 70 percent of drivers have both Ola and Uber on their phones and it is fairly common for them to operate with both, depending on time of day, incentives, and what they estimate they’ll make on a ride.
This is why both Uber and Ola have stepped up efforts to get drivers to work exclusively with them — by getting into car leasing programmes, for instance, or by linking incentives to rides during peak time.
A set of rules proposed by India’s Union Transport Ministry last year, which was largely welcomed by Ola and Uber as a big step in the right direction — as it recognised cab-hailing using an app as a new sector that needed its own specific treatment — bars the service providers from compelling cab drivers to provide exclusive service on their networks.
The proposed framework is meant to provide a good benchmark based on which India’s individual states could formulate their own rules. Each state, for now, is taking its own view — some, like Telangana are more welcoming, while others are in favour of implementing more stringent rules, including banning “surge pricing.”
All of this points to a market that is very nascent — in comparison to the million booking requests, some 8 million commuters use the local trains in Mumbai alone, around 2.7 million use the Delhi Metro and about 5 million people use the buses run by the Bangalore Metropolitan Transport Corporation. Millions more use two wheelers. That is why Ola, and Uber, have a long way to go before cab-hailing caters to a larger share of daily commuters — having introduced options like car pooling, and social pooling — and can be seen as something people habitually opt for.
This also makes India a market where Uber probably has a better chance at gaining significant market share than in China. However, this is also a market where the emphasis is on adding more drivers and cabs every day. Ola and Uber take between 20 percent and 25 percent of what a customer pays a driver, including 5 percent service tax. In order to keep the drivers on their networks, they pay back incentives to the drivers that far exceed what they make from their cut. With each ride, therefore, the ride sharing providers are losing money.
Matrix Partners’ Bajaj said, however, that “in specific categories and in specific cities,” Ola is profitable.
In December, Ola and Didi Kuaidi teamed up with Lyft, Uber’s smaller competitor in the U.S. and Malaysia’s GrabTaxi to form a cross-platform alliance, making it possible for their users to book cabs on any of their networks, when they travel, using the same app they may be using while at home. So an Ola user in India could use the same app to book a Lyft cab in the U.S. or vice versa.
For its Chinese operations, Uber’s most recently known fund raising is the $1.2 billion investment announced in January, reportedly valuing the Chinese unit at $8 billion in a funding round that may be ongoing. Uber is seeking $2.1 billion at a staggering $62.5 billion valuation, Bloomberg reported in December.
In India too, Uber founder and CEO Travis Kalanic said in July 2015 the California startup will be investing $1 billion and sees the market as one of Uber’s fastest growing. In November, ANI Technologies raised $500 million, in its sixth round of funding, taking its total to about $1.3 billion.
Today the user experience, meaning ease of use and how intuitive it is, on Ola’s app is seen to be just as good as Uber’s, and Ola has an in-house “innovation lab” led by a chief products officer. As time goes, India’s new-age startups will take less and less time to match their global competitors, supported by experienced talent returning home from Silicon Valley.
In some cases, their local knowledge might even give them an edge, which is why Uber now has an engineering centre in Bangalore that the company’s chief technology officer himself is taking personal interest in.
Gaining market share, then, could become a case of who can outspend the other. It is also of course a case of who can get more out of each rupee spent. Take your pick.