No more burning cash: Ola, Uber raise fares, cut driver incentives

The consumer internet-based companies’ mantra of burning loads of investors’ cash to offer discounts to customers may be coming to an end, at least in the taxi aggregation segment. Even as India’s e-commerce companies such as Amazon, Flipkart, Snapdeal and others continue to offer hefty discounts through their sellers to gain market share, their counterparts in the country’s growing transportation segment seem to be slowly moving towards economies of scale.  Both, the home-grown taxi-hailing app company Ola and the US giant Uber are charting out strategy to boost their revenues and prune costs. The decision is more or less to move away from the earlier stance of offering cheap fares to customers, who usually prefer state-owned buses, local taxis and three-wheelers for transportation purpose. In a series of steps focussed on improving the revenue metrics, Ola and Uber have started raising fares in several cities, says a  report in The Economic Times. Besides this, the companies are also slashing the incentives paid to drivers and stepping up vigilance to curb fraud by drivers, the ET report said. A day before, an Ola executive admitted that predatory pricing is detrimental to the industry, and would react to competition in a way to ensure there is no monopoly in the Indian market. “In its totality, predatory pricing is detrimental to the industry. In the long run, this will not benefit anyone and it never has in the past. Being an aggregator, we have to react to competition. We live in a competitive market,” Ola Chief Operating Officer Pranay Jivrajka has been quoted as saying in the report. Among the steps taken, Ola has cut drivers’ incentives in Delhi by as much as 20-40 percent over a year ago period. Citing an example, the company says it now pays Rs 2,400 as incentive to a driver in Delhi as against Rs 3,000 a year ago, the ET report added. Ola’s arch rival Uber last week raised fares in the Delhi-NCR region for distances over 20 km. This is in addition to the prices being increased in Bengaluru and Hyderabad a year back, mainly to incentivise drivers. Ola’s Jivrajka on Monday also said that the company has been working on adding auto-rickshaws and black-yellow taxis on its platform as part of its “inclusive approach” towards sustainable growth. “This is in the interest of the ecosystem and we are receptive to any ideas that protect drivers and customers interest. Predatory pricing is detrimental to the industry and we all have to figure out how to prevent that. Once we come up with a solution and that will be true for everyone,” he added. Both the companies through their ride hailing app business spent around $30-40 million per month each to prop up their market share and attract customers. “The focus is on building a real business now. The supply game on quantity in Ola’s view beyond a point does not build anything of value,” the ET reported quoting an investor in Ola. The move to cut back costs and improve profitability also comes at a time when Ola is looking to raise fresh capital in order to stave off competition from the cash-rish Uber. Last week, the Bengaluru-headquartered Ola said it may soon start a fresh round of fund-raising exercise, and could raise around $500 million from its existing investor SoftBank, a Times of India report said. Compared to a $69 billion valuation commanded by Uber, Ola’s valuation currently stands at just $5 billion. The decision to raise funds by Ola comes at a time when the US rival is flush with capital following its exit from China where it sold its business to its competitor Didi Chuxing. Backed by venture capitalist, Ola has a war-chest of $1.2 billion, while Uber will divert a big portion of $10 billion it raised from Didi into the Indian market. Although the decision to drive into profitability offers long-term sustainability for these taxi hailing firms, it would be interesting to see whether the move could pose a challenge for them going ahead. With PTI inputs