Why Uber's $1 bn bet on India is unlikely to be its last; app-based taxis are hot

Uber, the taxi-hailing app that has grown like wildfire all over the world, prompting copycat ideas everywhere, has proposed a $1 billion additional investment in India, thanks to growing competitive threats from savvy Indian rivals such as Ola, Meru, Tabcab and others still at a nascent stage of growth.

When last heard of, Softbank-backed Ola was about to raise $500 million in additional funding, taking the company to a possible valuation in excess of $4.5 billion.

Why are app-based taxi companies so hot? It’s not as if India lacks taxi services, with yellow, black-and-yellow, fleet-based services, and autorickshaws now ubiquitous in every Indian city or town. In fact, these services see a mortal threat in app-based taxi services.

There are several reasons why app-based taxi services are here to stay and prosper.

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AFP

First, acute traffic congestion in big cities and the rising cost of employing private drivers has changed the economics of private car ownership, as I have argued last month here, and as this Economic Times report confirms today (31 July) in a report.

Second, kaali-peelis and autos ought to have filled this need for private transport beyond buses and underground metros or suburban train services, but the fact is they are not commuter friendly. They tend to be whimsical in serving customers, often refusing to ply where the passenger wants to go, never mind the law. App-based services, apart from being temporarily cheaper than kaali-peelis, accept passengers without having the right to say no. This is vital to their USP, though one hears that some app-based taxi drivers do occasionally say no. Moreover, the Ubers and Olas are undercutting the kaali-peelis as they are well-funded and in the phase of expanding the market with cut-rate offers. (Some of Uber’s fresh cash infusion will probably be used to guarantee earnings for new drivers and keep fares enticing.)

Third, app-based services offer the option of proper billing that you can charge to a company without filling up an arbitrary transport invoice. They also dispense with the need for cash payments. E-wallets work quite well, and the payment mechanisms – despite occasional failures and blips – are fairly seamless.

Fourth, the poor state of public transport in most cities makes it difficult for city fathers to deny app-based taxi services the right to expand and multiply. The recent addition of vehicles to suit all purses - from minis to three-box cars to SUVs and even autos – makes the service available to a wider cross-section of people, even potential first-time car buyers and bikers.

In response to Indian customer preferences, these app-based operators have adjusted to a mix of cash and wallet payments, and modified their business models to provide both current and future taxi bookings. Uber, which only provides the “ride now” option, is challenged by the Olas and Merus which allow a customer to book taxis at a time of their choosing. This takes the “iffiness” out of dependence on taxis, and this is the future direction of app-based services. Many customers will want a taxi for sure, not a taxi that may suddenly charge a premium if demand at a particular time is high.

While traditional taxi services will always coexist, the competition from app-based taxi services is bound to impact their performance for the better.

Not only that. the increasing use of app-based transport will also impact public transport. Reason: every cab takes several private cars off the road, making roads less congested for public transport.

The next frontier may well be app-based car-pooling. If lots of private cars currently on the road choose to install GPS sets and offer rides to potential co-travellers in the same direction, it would revolutionise urban travel.

Well, you ain't seen nothing yet. Uber's $1 billion is unlikely to be the last of the major investments for app-based services are part of the answers to India's broken urban transport infrastructure.

 

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Updated Date: Jul 31, 2015 22:55:34 IST