Online cab aggregators Uber and Ola are fighting a tough battle to increase market share, dumping capital year after year. In an interview with BusinessLine , Ola Chief Operating Officer, Pranay Jivrajka shares his views on the challenges facing the industry. Edited excerpts:
It is not just the competition which is hotting up in the cab-aggregator space, you have also raised concerns about some practices of your rivals. What are the issues here?
It is about the dumping of capital, which some of our competitors in the industry are doing, particularly from the profit margins they generate outside India. This is carried out to lure drivers and attract customers at a price point which is not sustainable. So, one way to tackle this menace is to bring in more efficiencies into the system, sweat the asset more, reduce prices, and pass on the benefits to the consumers by reducing prices, and to the drivers by increasing their daily revenues. Look at what has happened in China. After Didi Didi Chuxing took over Uber, drivers have started protesting outside their offices against the decrease in their earnings.
So, is this leading to a situation where it is becoming difficult for players like you to sustain yourself?
Yes. It is leading to what is known as predatory pricing. It means selling below the cost. So today, every ride that Uber sells in India is below the cost.
What steps are you taking to remain in the competition?
In 80 per cent of the markets we are in, we are profitable today; where we don’t give subsidies, don’t infuse any money in addition to what the consumers are paying…where we are seeing steady growth. These are the markets where we don’t have irrational competition. However, we are forced to do what others are doing in certain markets because we have to maintain our share; otherwise it will be a monopolised market. But we acknowledge and understand that a practice like this — driven by competition — is detrimental to the whole industry. And there is probably no market or industry in the world where predatory pricing has succeeded, lasted or has benefited the ecosystem in any way.
So, you are also dumping capital, and so are your competitors. Where will this lead to?
Well, we have to match the earnings for the drivers, but we don’t pay incentives per ride as much as they (competition) do. I’ll show you a very quick calculation on how it works: let’s say an Ola driver does 15 rides and an Uber driver 10 drives. Let’s assume the average is ₹250 per ride for an Ola driver and ₹200 for Uber.
So, the Ola driver makes ₹3,750, and the Uber driver ₹2,000. We will pay another ₹1,000 on top of it and make it around ₹4,500, whereas Uber will add another ₹2,500 on top it and make it ₹4,500. So the proportion of subsidies from Uber is higher compared with natural organic earning from customers. We are in a position to achieve this because of the inclusion of the platform, the demand we get, the kind of utilisation; and the churn that happens in the platform is significantly more. So we call this technically a utilisation of the asset.
To take off from this, you need to constantly invest just to keep running in the same place because of the predatory pricing you talk about. You would need lot more cash than you have raised so far?
There are smarter ways, actually. If you see this calculation, it is not one-is-to-one dumping, right? With the significant difference in the amount, we kind of do invest, I mean, do give out to the drivers to maintain our market share versus what they do — what Uber does in order to try and attempt to gain market share. So, in markets where we don’t have predatory pricing, we are growing; and if we can grow faster where we can, our overall burn rate will reduce further.
There were reports that after the acquisition of Uber in China, Didi — which is an investor in your company — might buy you as well...
It is a token investment for a particular strategic reason, that is what it is. Globally, if you look at investing patterns, there are investors who have invested on both sides; so, that doesn’t mean or prevent anything. You would not have had this question in a more mature market. Vodafone had stake in Airtel for quite some time, until it went public.
In your next round of funding, do you expect existing investors or new investors to pump in funds?
If you look at our past 3-4 rounds, you will see that our existing investors continue to back us. It’s very hard to predict, but what you’re seeing in the past is what they’ve always done.