Rush Hour: How newcomers are challenging the Uber-Ola duopoly

As Uber and Ola grapple with a driver shortage in the aftermath of Covid-19 and shift to a profit-first approach, nimble newcomers have zoomed in to capitalise on their inefficiencies, reshaping urban transport in the process

“Hello madam, what is your drop location?” “Koramangala.” Ride cancelled. “Hello madam, cash or online payment?” “Online.” Ride cancelled. 

“This is my struggle every day now; spending over an hour having these awkward conversations with at least half-a-dozen drivers before I finally get a cab for my commute,” shares Bengaluru-based IT professional Reshma. If you are a regular user of cab-hailing apps, you are perhaps all too familiar with this. 

But things weren’t always like this, at least not before Covid-19. In that idyllic past, the value proposition that Ola and Uber offered driver-partners and customers was clear: seller would meet buyer in a mediated market that promised a fair deal for both. What ensued was a fierce competition between the two giants for every ride and driver, as they outbid each other with discounts and incentives, in a quest to capture the Indian market. 

By the middle of 2020, though, months of lockdowns, enforced isolation and deserted streets had delivered the online mobility sector a body blow. In the depths of the pandemic, demand for Ola and Uber’s services plummeted to zero.

We have widened our geographical presence, introduced buses, and achieved growth in all aspects, including category expansion

Prabhjeet Singh 
President
Uber India and South Asia

Then, just as dramatically, demand came roaring back after travel restrictions were eased. But many things had changed for the duo by then. They had made the long-anticipated pivot to focus on profitability. Many driver-partners did not return to the platforms, and those that did found that their real earnings had shrunk significantly thanks to a steep rise in fuel costs and the 30 per cent commission levied by the platforms. And the chorus of disgruntled drivers and customers that had started building before the pandemic reached a crescendo, forcing these two key stakeholders to search for alternatives. That search has opened a gap in a closed field and a wide array of competitors promises to bring the focus back to that value proposition from the good old days.

To understand this shift, we need only look at India’s IT capital Bengaluru. Here, according to Tanveer Pasha, President of Ola-Uber Cab Drivers’ Association, the number of cabs has reduced to approximately 40,000-45,000 from the pre-Covid-19 figure of 100,000.  Many drivers relinquished their dreams of becoming micro-entrepreneurs and sold their vehicles after business crashed. 

The supply crunch led to a significant decline in service quality, with complaints of badly maintained cabs, frequent cancellations, and long waiting times becoming a common occurrence. Plus, ride costs increased by at least 1.5 times, per industry estimates. Together, these factors have pushed the industry into uncharted territory, one that the duopoly has not encountered since it was established.

ON AUTO PILOT 

But first, we must begin at the beginning—that is, with the apps. Ola and Uber saw demand plunge from about 1.5 million rides per day just before the pandemic to zero at its peak. The platforms slashed driver incentives and user discounts, marking their long-awaited shift to profitability. Industry observers said both firms’ core ride-hailing business managed to find that path as demand returned after lockdowns were eased. This marked a massive milestone for the decade-old Uber and 13-year-old Ola. 

This also meant that the platforms had to retain the new lean and mean operating structure, steering clear of the growth-focussed, capital-burning past that kept them in the red for far too long. But there was a consequent fall in investments in innovation.

“After such a long battle for market share, both companies seem to be tired. They are practically doing nothing other than taking a cut of every ride. They are neither investing in technology nor in fleet. That is unfortunate for both users and drivers,” says Kaushik Madhavan, VP of Mobility at research firm MarketsandMarkets.

Our business model is more sustainable because we don’t play with incentives. We [feel we
are] easily the No. 3 in the market already

Roman Ermoshin
Director-APAC
Indrive

A TINY SLICE

This shift in orientation, in turn, has been necessitated by the sobering reality presented by their books. Despite a decade of operations here, Uber’s India business accounts for just about 10 per cent of its global rides, per industry estimates. And Uber India Systems Private Ltd, that manages the mobility business in the country, recorded Rs 560.52 crore (about $68.46 million at current exchange rates) in revenue in FY22—just 0.2 per cent of Uber’s US revenue of $31.88 billion.   

“The scale of operations and revenue in India are very negligible when compared to their global operations. They (Uber) are a clear leader in their successful markets. They [have been] here for about a decade, yet don’t have significant numbers to show. What is the best use of an Uber dollar globally? I don’t see India being that market because if you are 10 years old and still [account for] less than 0.5 per cent of global revenue, why should the company spend here?” says a venture capital investor.

Elsewhere, Uber has been ruthless in exiting markets perceived to have limited growth opportunities. It exited China by selling its local arm to Didi Global Inc., and Southeast Asia by selling its operations to Grab Holdings Ltd. It recently discontinued its mobility business in Israel. In India, too, reports had suggested that the firm explored selling its ride-hailing business.

“With Bhavish (Aggarwal, Ola’s CEO), they were never able to [agree] on a valuation. Bhavish would always say ‘you are smaller and I’m bigger,’ and they would never reach consensus. If Bhavish were to give it a chance, SoftBank would have funded [the transaction to acquire Uber’s operations] to create a monopoly. I don’t think Uber ever received a good valuation in India. That is why they haven’t left the market,” says the VC.

Others paint a different picture. According to some industry watchers, Uber has gained market share at Ola’s expense. “In 2021-22, Ola had higher market share, probably just above 50 per cent. It is now in the high 30s. Uber has a professional leadership and stable team, and they kept executing really well,” says a former entrepreneur in the mobility sector.

Uber has recently led a $20-million investment round in fleet management firm Everest Fleet to provide its drivers with better access to electric vehicles (EVs). 

Prabhjeet Singh, President of Uber India and South Asia, tells BT that the company is focussing on new categories in cities where it is operating, while expanding new products in other regions. “We have widened our geographical presence, introduced buses, and achieved growth in all aspects, including category expansion,” he says. 

Uber is also going aggressive on the multi-model opportunity. According to Singh, one out of two trips on Uber is on two- or three-wheelers. “We have also expanded Reserve, our pre-booked travel offering, to 13 cities. I am excited about high-capacity vehicles in India. We are running bus pilots in Gurugram and a smaller one in Bengaluru and I am very keen to explore the possibilities. And more recently we have introduced Uber Green in India, our global flagship EV product, which means you can now get an EV at the tap of [the] app,” he says.

Be it new EV fleets coming in or commissionfree applications like us, [we] are
coming in to bridge the gap and fix the broken pieces

Firdosh Sheikh 
Co-founder and CEO
DRIF

EYE ON EVs

Meanwhile, Bhavish Aggarwal and Ola appear to be solely focussed on the EV business, per sources, a decision that is proving costly for its mobility dreams.   

Several people that BT spoke to say the layoffs and top-level exodus at Ola over the past few years have significantly weakened its mobility team. “The continuous churn at Ola went on and there is no strong leadership to really run the mobility business. There has not been a dedicated senior-level person looking at mobility for some time. It is running on auto pilot,” says a person who has worked with the company.

In an effort to make the cost structure of the electric division appear more reasonable, Aggarwal is allocating some of the mobility resources, states a former employee.

“When electric started doing well, it was a clear decision from Aggarwal to go slow on mobility. He owns about 40 per cent in the EV business, and just about 8-9 per cent in mobility. In his mind, it is very clear that every second devoted to EV is more beneficial than time devoted to mobility,” says a person closely aware of Ola’s operations. Ola did not respond to a detailed questionnaire sent to it till the time of going to press.

Ola Electric was valued at $6 billion in its last funding round in May. Per market intelligence platform PrivateCircle Research, Ola’s ride-hailing business unit—ANI Technologies Private Ltd—was valued at $6.5 billion as of May 2022. But investment bankers say its mobility business might struggle to get even half that valuation now. That’s perhaps why the firm isn’t rushing to complete its planned IPO.

As the market opens up, it presents Uber an opportunity to raise its share further. The key lies in its commitment to investing in innovation and strategic collaborations. “After being so big for a long time, if you lose so much market share, it is extremely expensive and near impossible to gain back. Ola doesn’t have the money; nobody is funding mobility. So it is very unlikely that they will be able to regain market share. It is now up to Uber as to how much they want to push. If they want to spend money and gain market share, [this] is the right time and [it] would be fairly easy,” says the former mobility entrepreneur quoted earlier.

SMELLING BLOOD 

As the market leaders’ shadow shortens, many challengers have latched onto the sliver of sunlight passing through. And these firms are aggressively targeting the market with differentiated offerings. 

Prominent among them is BluSmart, India’s first all-electric ride-hailing service, which has positioned itself as a premium, reliable alternative to the market leaders. 

“In the existing ecosystem, all three participants—the customer, driver and the platform in the middle—have been disgruntled. We said we won’t do anything jazzy. We will go back to basics, [to] what a customer needs when booking a cab—be on time, give a clean cab and one that he can afford. For drivers, we want to offer livelihood in a city by using his core skill, which is driving,” says Tushar Garg, Co-founder and CBO of Gurugram-based BluSmart. 

It offers fixed prices and scheduled rides, addressing users’ concerns about surge pricing and cancellations. The company has an EV fleet of over 5,000 cars and says it is adding 500-1,000 every month.

Industry observers believe BluSmart’s focus on airport rides has likely helped it capture a high single-digit market share in that segment and it enjoys better profitability due to larger-ticket trips and cost savings facilitated by its EVs. 

Garg said the company measures market share based on revenue. “Our personal reading is that we could be in double-digit percentages when it comes to revenue market share in the two cities (NCR and Bengaluru) we operate in,” he says. 

Others too are addressing the value proposition mentioned earlier as they get ready to lap up disgruntled drivers and customers. Take for instance California-based inDrive—which had a soft launch in Chandigarh in 2019 and operates in 12 cities today. It claims to have completed over 15 million rides (across cabs, autos, bikes and intercity) in 2022. It operates on an auction-based model, allowing drivers and passengers to negotiate prices for the ride, and charges much lower driver commission at 10 per cent.

“The biggest weakness for these platforms [Uber and Ola] is that they have very high commission for drivers and they cannot really lower that because their expenses on user bonus and driver incentives are very high. When they start reducing these marketing tools, users will [come] to competitors like us. Our business model is more sustainable because we don’t play with incentives. We [feel we are] easily the No. 3 in the market already, and we are going to compete for the second place,” says Roman Ermoshin, Director-APAC at inDrive.

He says the company is making headway in capturing market share from Ola and Uber in cities like Kolkata, where it has already secured a 10 per cent market share. With over 100,000 drivers, the company is looking to clock 30 million rides in 2023. “I would say the duopoly is already being broken. Our target is to get to 20 per cent of the market, or even upwards of 25 per cent by 2025-26, because we have a unique selling proposition,” he adds. 

Then there is Drife, which started operations in November 2021 with just 25 driver-partners. It says it has a fleet of 25,000 cabs in Bengaluru, doing about around 1,000–2,000 rides a day. It works on a subscription model where drivers pay the company a fixed amount for using the application. It lets customers select their preferred driver and fare, while drivers can view the pick-up and drop locations along with the expected earnings.

“I guess a new revolution happens every decade and it is time for that in the ride-hailing space—be it new EV fleets coming in or commission-free applications like us, [we] are coming in to bridge the gap and fix the broken pieces. They (Ola and Uber) know that they are losing this market and [if they] invest more money they will only increase their losses,” says Firdosh Sheikh, Co-founder and CEO of Drife.

We said...we will go back to basics, [to] what a customer needs when booking a cab—be on time, give a clean cab and one he can afford

Tushar Garg
Co-founder and CBO
BluSmart

RICKSHAW RETURNS 

It isn’t just cabs that are jostling behind Ola and Uber; there is also the humble autorickshaw. A burgeoning crowd of dissatisfied customers is hitching autorickshaw rides for the daily commute. 

According to one market observer, during 2018-19, Ola led this segment with approximately 400,000–500,000 rides per day, and with Uber’s entry in 2018, the duo collectively accounted for about 600,000–700,000 daily rides. During the pandemic, a considerable number of autos shifted to online platforms, resulting in substantial growth, reaching an impressive 1.5 million rides per day shared between Ola, Uber, Rapido, and Namma Yatri. 

Since its foray into the segment in 2020, Bengaluru-based Rapido has made steady progress, and currently operates in 35 cities. According to Co-founder Pavan Guntupalli, Rapido currently facilitates around half-a-million rides and holds the top slot in the three-wheeler segment in Hyderabad, while it is also nearing the second spot in several other markets. Rapido began as a bike taxi service and is currently the leader in that segment. “Auto rides have grown 30-35 per cent year-on-year (YoY) in the last one year. We anticipate 30 per cent YoY growth for auto and 50 per cent YoY growth for bikes,” says Guntupalli. 

Bengaluru-based auto booking app Namma Yatri, which works on the ONDC network, has garnered about 20-25 per cent of the market share in the city in less than seven months. The app was built by Juspay Technologies on behalf of the autorickshaw drivers’ union amid an escalating dispute between the Karnataka transport department and Ola and Uber over higher fares. It now has a fleet network of over 81,000 autos and has completed over 5.7 million rides so far.

Like with Namma Yatri, ONDC’s core principles of unbundling and interoperability are expected to help it create a new ecosystem that can address the online mobility industry’s inadequacies. “ONDC unbundles demand and supply as two separate businesses where any large consumer app can become the buyer and any dedicated mobility player can become the seller by on-boarding drivers or vehicles,” explains Nitin Nair, Senior VP of ONDC. 

ONDC is currently looking to include cabs and other modes of transport, and plans to launch in multiple cities. Large consumer applications such as Paytm and PhonePe are also expected to launch mobility verticals on their apps.

Clearly, the ride-hailing market is entering an intriguing phase.