Will technology be the Achilles heel of app-only cab search aggregator Uber?

After a ‘secret testing phase’ of four months in Bengaluru and Delhi, San Francisco-basedluxury cab aggregator Uber formally launched in India in December 2013. It was not an expected move but the Google-backed, four-year-old startup, which has already disrupted the US market, plans to make it big in India.

What works for Uber is that there has never been a serious and dedicated player in the luxury cab market in India. The startup, which is known for its prompt and relatively cost-efficient service to customers all over the world, is primarily a technology company - right from booking a cab to payment, everything is done on its app on mobile handsets.

And the company prides itself on the technological edge it enjoys over other players. “Finding a nice and reliable cab that reaches you in time is not easy. We are solving this problem with technology. For us, it [the use of technology] makes the process of booking and payment smooth,” says Neeraj Singhal, International Launcher for Uber.

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Without revealing any actual numbers, Singhal says that the feedback and response by people in Bengaluru during the pilot phase was overwhelming. For Delhi, he says, “The number of people registering for our service is going up every day and we are adding customers in a way that it is strong enough to build a long-term business.”

Started in 2009 by Garrett Camp and Travis Kalanick, Uber is currently present in 50 different cities spanning across 21 countries. It is backed by TPG Growth, Amazon and Google Ventures, which recently invested $258 million.

In his blog, post-investment in August last year (2013), Kalanick said, “This round of $258 million with proceeds will be used to expand into new markets, begin marketing efforts, and fight off protectionist, anti-competitive efforts.”

Though Singhal doesn’t say anything about the investments made in the India business, a few Indian online taxi aggregators have seen recent rounds of funding, pepping up the online cab booking market. Savaari, a Mumbai based taxishare service provider raised $65 million from Intel Capital. Ola Cabs, which is a Bangalore-based taxi aggregator, also raised its Series B funding from Tiger Global Management and Matrix Partners in 2013.

Going local
Skeptics would say that while Uber has managed to crack western markets, a country like India, with its unplanned roads, major traffic problems and low internet penetration will throw itssignificant roadblocks in Uber’s way in India. “We feel that in such a market, one cannot replicate a western model without finding solutions for basic problems like unplanned roads, traffic snarls and the unavailability of precise address information,” says Bhavish Aggarwal,Co-Founder and CEO at Ola Cabs. Uber claims to deliver a vehicle in less than 14 minutes but Aggarwal says that every new market has its own challenges and solutions should be customized for each market. “It takes localized solutions at a city level to address issues that are unique
and contextual to a country like India,” Aggarwal adds.

Ola Cabs is present in six cities and also has a small luxury cab business, where it works with 50 luxury cab operators in Bangalore. Shailesh Vickram Singh, partner at Seedfund, an early stage investor, says, “Uber is a smart company and even if they have to change a little bit here and there, they will make it big in India as they have done in several other markets.”

Uber’s India expansion head, Jambu Palaniappan says that Uber’s product varies from market to market depending upon the local economy and its needs. “For us, the goal is to be locally relative. We hire a local team wherever we go. Safety is the biggest concern in India. Sofor the Indian market, we have launched a ‘Share My ETA’ feature, which allows an Uber passenger to share their cab details and ETA with any person they wish,” says Palaniappan, Head, EMEA and India operations, Uber.

Card-less
One of the other challenges for Uber in India is that they accept payment only through credit cards, which have a lower penetration in India when compared to debit cards. Data from the Reserve Bank of India reveals that there were 27.55 million credit cards issued in 2007-08,which fell to 17.65 million in 2011-12 as banks tightened issuance during the global financial crisis. However, with banks once again taking an active interest in issuing credit cards, the number has increased to 19.6 million in 2012-13.

Palaniappan agrees that the credit card challenge is a significant one. “To be honest, it does limit the reach. But the way we think about this is that the opportunity in India is big. We have started to see quick growth in a very early stage of our business here. It’s just a matter of time that we add it [debit card payments] to our services,” Palaniappan says. Singh of Seedfund says non-availability of debit card usage will severely impact Uber’s business. “Not many people trust credit cards in India.”

However, Palaniappan says Uber is a technology-driven company and want to be that way in any market it goes. “As a company, there are certain things we hold non-negotiable. We want mobile only driven requests and seamless electronic payments,” he adds.

App problem
One big problem for Uber in India could be the same thing that gives it an edge elsewhere - its technology. The Indian market is still not mature enough for cab service providers to be totally dependent on bookings through mobile applications.

A report titled, Technology, Media and Telecommunications India Predictions 2013 by Deloitte, says that almost 16 percent of smartphone users in India have never even downloaded a single app. The report cites various reasons, such as lack of understanding of the functioning ofsmartphones, lack of data infrastructure, cost of data, etc.

A senior employee at TaxiForSure, another Bangalore-based cab aggregator, says that though apps are the future since they help control costs, the number of app registrations have disappointed him.

“India is not yet ripe for an app-only service to be offered to customers. We are hardly making 70-100 bookings through our app in a day, which is three percent of our total bookings. Though that three percent booking is very cost effective,” the employee says who wishes to remain anonymous.

Uber’s Singhal is defiant though. “I think a lot of frustration of customers is due to the existing apps of other companies. People still have to talk to customer care centers with them. Reliability is the differentiator for us.”

This article first appeared in Entrepreneur India magazine.