July 19, 2015

The Indian Taxi Industry - The competition intensifies

Hi Guys,

It has been nearly 8 months since I wrote a post on the increasing competition in Indian Cab Industry and how players are pumping in lot of money to attract customers. While the discounts and free rides have come down, the competition is yet to settle and the major players are trying hard to attract customers and most importantly retain them. While attracting has been easy, retaining has been difficult. Let me provide you two scenarios that I faced along with my friend.

  1. We go for a team dinner. Come out at night 10 pm. Check out Ola. The app says you will be charged 1.4X as it is peak time. Check Uber. No additional fare. Uber wins
  2. We are working on a Saturday and want to leave around 5 pm. Ola has a discount of Rs. 50 on that particular day. We check Ola. Again the app says that it is peak time and you will be charged 1.4X times, meaning the discount is virtually useless. Again we check Uber. No additional fare. Uber 2 –  Ola 0

The point to be noted is that we checked Ola first before going to Uber. Ola had created that First Mindshare, but sadly they weren’t able to convert prospects to customers.

Regional players like Fastrack and NTL are also hitting back strongly at the new entrants targeting the Peak Time gimmick and over reliability of technology. When people thought that the regional players are out of Business, I think they have their own set of customers – Old timers without a smart phone, pre booked rides (Ride Later is very poor in Ola and Uber doesn’t have one), etc. Now, these players are also getting smarter and are rising their service levels.

The cost side of the Business is reducing as the driver acquisition is no more a high priority. When I went to Bangalore a few months back, had a friendly chat with one of the drivers who has tagged himself with one of these services. He said the company has stopped giving additional incentives for staying with them. For every km, a customer is charged Rs. 10. The service provider gives him extra Rs. 3. The commission is 10% which is Rs. 1.3. So in effect the service provider is making a loss of Rs. 1.70 for every km a customer rides. This is to keep both the customer and driver happy. He said before tagging himself with the service provider, he was riding for a travels which paid him Rs. 8 per km. So, he is getting at least 30-40% more and he is also getting more rides per day.

With introduction of peak time charges and increasing number of rides, I guess these players would no longer be pumping in money. Recently Ola has reduced their charges in Chennai by about 20%. The reason given is that there has been optimal usage of fleets leading to ‘economies of scale’. A quick search reveals that Ola has around 13000 Cabs in Chennai against Fastrack’s 4000. Uber’s figures remain unknown.

The other issue faced by Ola and Uber is the reliability of the drivers. A viral news spreading in the Social networking sites questions the authenticity of the fares as the drivers might start a trip well before they arrive at your place. This might be happening at a few places, but it raises a big question about the credibility of the Cab services.

A few months back, Ola and Uber looked very cheap and affordable. The customer acquisition phase is nearly over as the customers are used to the new age players by now. The key now is to retain the customers without affecting the trust. It is the trust factor that the new age players seems to be losing.

Competition is also good for the end customer as they get the best out of it. While the dust might have settled, the road ahead doesn’t look smooth. Lets see if someone can become a market leader, or if the industry would remain fragmented.

Happy Reading!