The strike by drivers of Ola and Uber in Bengaluru that began yesterday and the five-day strike that happened during the New Year in Hyderabad against the companies are a sign of things to come. Some Ola and Uber taxi drivers struck work because they want legally approved fares as fixed by Road Transport Operators, the incentives paid to them by the aggregators were lower and also because the incentives that could be earned with a few hours of driving had stretched to longer hours.
Commuters were hassled by the disruption in services. However, both Ola and Uber were not worried about a few drivers who decided to strike work. “Only a small percentage of drivers struck work but there has been an impact on business. However, there were many drivers who chose to come online,” said a spokesperson with Uber. Ola, however, declined to comment.
The key reasons for dissatisfaction among drivers of the taxi aggregators is that the supply of taxis has increased phenomenally in the last 2-3 years. In Bangalore, there were 53,000 registered taxis in 2013-14 which has increased to 113,000 registered taxis as on October 2016, according to a study by Valorise Consultants, market research services for transportation companies. Similarly, the numbers of taxis in Delhi has doubled in the last two years to 80,000.
The number of trips, however, has not increased to the same ratio. “Owing to excess supply of drivers and slow growth in trips, the drivers need to put more time and effort to achieve this incentive,” said Jaspal Singh, Partner and co-founder, Valorise Consultants. Drivers have to work on an average 14-16 hours per day to complete required numbers of trips or minimum revenue collection. The incentive slab of each driver changes on a daily basis based on their past performance.
Uber is rationalising the incentive structure of the drivers (see graph below). In October 2016, Uber shifted from per-trip model to earning model. However, in January 2017, they have completely changed their incentive model. The new structure is based on surge pricing and the company will use it to compensate drivers during different times of the day.
As per an earlier report, Uber fare recovery ratio was just 41 percent and the company may incur a loss of $3 billion in 2016.
Owing to reduction in incentives, the drivers’ income is falling sharply. The company will also deduct their commission and service tax and the effective incentive will be just 25 percent-45 percent.
The taxi aggregators will in the future shift to a profit model by eliminating the incentives completely, said Singh.
The country's public transport is unable to cater to the growing number of people and at the best of times hasn’t been able to ferry the population across the country. The lacuna gave rise to taxi aggregators.
A charge levelled against Uber and Ola by its drivers is that it preferred to give rides to those who had purchased cars through their leasing programmes. Sources at Uber denied that charge and said the company had no such preferences.
Both Ola and Uber said that their drivers were not their employees. “They choose to come to us through our app and our algorithm matches the driver and the user. There is no human intervention,” said a source at Uber.
The drivers can choose to work for their desired number of hours and rides and are not answerable to anyone in the firm. However, they get paid commissions accordingly.
Asking for a government-fixed tariff for a taxi aggregator is an anamoly on the part of Ola and Uber drivers. “The app-based aggregator has come about because of a market demand that has arisen out of the government’s poor transport system,” said V G Ramakrishnan, managing partner, Avanteum Advisors LLP – a Chennai-based advisory and strategy consultancy in automotive, transportation and logistics, and industrial products.
He says that the drivers who decided to strike work in Bengaluru made a choice when they decided to register on the aggregator's app. There are many who use both Ola and Uber apps. “So they are pandering to their need and greed and playing it safe," said Ramakrishnan.
The business model has undergone changes at both Uber and Ola. From taxis to share cabs to auto, they are catering to an increasing need among the public. What an app-based aggregator pays its driver and charges the customer varies. Since Ola and Uber are no longer startups, they cannot afford to bleed on a business model which was initiated to lure in drivers and the customers with incentives and low tariffs respectively. But now with profitability as a motive, both the incentives and tariffs will see a drastic change in the coming days.
Published Date: Jan 24, 2017 16:52 PM | Updated Date: Jan 24, 2017 20:37 PM