Exploring App-based transportation in India
With a population as big as 1.2 crores, the Indian Automotive Market seems as the perfect opportunity to every player in the business world, to expand its operations and start new ventures. The market in India attracts companies around the world with its massive consumption rates and cheap operating costs to virtually set base of operations here. The app-based cab and transportation industry in no exception. The $10 billion industry holds immense potential to make or break competing brands.
The biggest names in the country include the world leader, Uber and Indian origin Ola cabs. With the advent of Ola cabs in 2010, the brand showcased its potential to the Indian consumers for the very first time the concept of app-based transportation as well as shared mobility. The global leader followed shortly after in 2012, probably after exploring an untapped market, when Uber started contributing immense competition to the market solo-runner.
Let us take some time to explore this industry in India, how it operates, how is it different in India, what caters to its growth and what might hamper its future.
Fundamentally different than app-based cabs in the West
In India, Uber and Ola drivers work full-time, and private vehicles cannot be used as cabs unless they secure a transport vehicle permit. In the West, drivers work part-time driving their private cars.
Now since most people in India typically do not own a car, they first must buy one or rent from someone else. Buying a car will mean substantial capital investment, which further implies that the drivers do not get to keep all the money they make as a significant chunk would go towards repaying the loans. To help with this situation, both Uber and Ola in India have ties with banks to ease the process for those looking to buy cars to join their platforms.
A private car employed as Uber;picture:insider.co.uk.jpg
On the other hand, westerners are more likely to be car owners in general, which implies they can drive for Uber or Ola without having to spend on a new vehicle. They can simply use their existing asset to earn. This is the core difference between the platforms in India and the West, based on ‘sharing economy’ which is not operated in the Indian markets.
Another major difference comes in the form of various segments of services offered in the Indian economy, by both Ola and Uber. Indians essentially prefer to use app-based cabs to lower their transportation expenses, in most cases, and then to avail a comfortable ride with a sense of leisure. To accommodate this most prominent first need of the Indian population, Ola and Uber have introduced a number of segments in their working operations.
Segmentation of services in Ola India;picture: Youtube-Ola cabs Hyd.jpg
The segments comprise of the most used and the cheapest ‘Micro’ leading to ‘Mini’ and then to ‘Platinum/Prime’ sedans and finally the ‘SUV’ segment consisting of 6/7- seater cars. Enhancing the affordability, and on popular demand, ‘3-seater-Auto’ and ‘Two-wheeler’ segments were also added to both the service provider’s portfolios.
Two-wheeler Ola cabs;picture:thequint.com.jpg
According to management consulting firm McKinsey the Indian car market, which will touch 5.7 million units mark in 2025, will have 1.5 million taxis, reducing the private car ownership by 4% from the current 87% of the total car market, expressed ETAuto in a report.
The growing popularity of ride sharing among the young working population is one of the key drivers for this change, developed out of the rising cost of car ownership, parking problems, rise in fuel prices and increasing traffic congestion. McKinsey also estimates that about 40 per cent of millennials do not want to buy cars anymore, in cases where it wouldn’t be economical to do so like, when they do not need to drive more than 35 or 40 Km a day.
Increasing number of taxis;picture:techcrunch.com
To cope with these extra costs and to still be table to commute to the daily workplace, a significant share has fallen on the app-based cab services, increasing their overall demand.
Role of OEMs and increased share in Indian PV sector
Indian taxi market is still in a preliminary stage, with huge scope for growth. OEMs have also realized the segment’s potential and have introduced dedicated services to cater fleet operators. Cab aggregators like Ola and Uber have maintained a fleet of thousands of cars across the nation and, consequently, developed a bargaining position with OEMs.
As a result of the bidirectional steps towards a common goal, OEMs have made ties with the cab companies, Ola and Uber, and now provide specialized products based on their imminent needs, that would allow mutual profits of both the parties included.
For an example, an Ola or Uber specced Maruti WagonR, one of the most common small cabs used in India, will consist of the basic features like air conditioning and radio but would lack certain exquisite features like push button start/stop or even a touchscreen in many cases. The maximum speed of such vehicles is also limited by the manufacturer to a pre-approved number, thus ensuring the maximum safety of both the driver and the passengers.
Maruti WagonR as an Ola cab;picture:in.askmen.com.jpg
This partnership allows the cab aggregator to obtain cheap cars, and the OEM to move volume stock without much input. Consequently, this segment within the PV industry now enjoys a significant influence and is expected to account for as much as 15-17% of the Indian PV sales in the near future.
Maruti's school collaboration;picture:marutisuzukidrivingschool.com.png
Increase in PV manufacturing and sales in the future;picture:indiatoday.in
A large majority of millennials prefer taxi aggregators like Ola and Uber instead of committing for monthly installments to own a car. A big reason for this is the fact that commuting through cabs, many times, proves to be cheaper than commuting through own car due to factors like fuel and maintenance costs.
Now, such a mindset along with other concerns has affected the auto industry in India. Domestic sales numbers, although increased on paper, actually show decline in line with the predictions and domestic sales trends.
Millennials prefer cabs than buying a car;picture:liveblogspot.com.png
The auto industry in India has lost its ‘boom’ that was supposed to last for a few more years before the economy could get stable and now, on one hand the growing demand of cabs is increasing PV sales, but on the other, it is also affecting the Indian automobile industry in adverse manners.
App-based cabs sure saved our lives from paying ridiculous prices for pre-paid taxis and from the uncomfortable auto rides which, though cheap, were not the best way to commute. However, in the due process, these cabs grew exponentially in volume and can today be seen flocking around busy marketplaces or corporate complexes waiting for their riders.
During peak hours, it has become a painful task to be just able to navigate your way out of the complex’s entry/exits where most of the cabies are allowed to wait. While these cabs provide us a ready ride to our desired destination relieving us from the fuss, they also create congestion on the roads.
Cabs flocking outside a corporate complex;picture:timesofindia.indiatimes.com.jfif
Traffic congestion with multiple cabs;picture:telegraphindia.com.jpg
Cheap rides have been possible because of a rise in the number of cars, but this increase in number is ultimately experienced on the roads while driving. Essentially, the cabs which were meant to popularize shared mobility and reduce the road traffic, are actually the ones contributing the most to traffic gridlock and congestion.
The market’s expansion and boost in profits was naturally noticed by other brands as well, posing as competitors to the top two players Ola and Uber. This recognition of the market potential and the opportunity to tap it came as a healthy competition for the consumers.
Increasing competition in the app-based business;picture:indianexpress.com.jpg
Main competitors in the market;picture:quora.com
Ola and Uber damaged the lives of many taxi companies in India, during their early days, with low pricing and high flexibility with waiting periods and choice of car. Cab companies like ‘Meru’ cabs and other radio cabs’ business was affected by these offerings at first, however, they soon realized the only way to stay in the game was to adopt the changes. And they did.
The benefit for these brands was that they had a potentially huge customer segment to cater to, without any burdening pressure or previous figures to live up to.This way, they could operate within their best interests while serving the passengers their best ever services and not think just about catering to every passenger out there, which can be taken care of by Ola and Uber.
For example, Meru cabs, after overhauling their business operation, soon became popular for the one task they were originally started for, airport transfers. They benefited from the app-based infrastructure by increasing their market reach and offering low-cost services, but at the same time, did not have to worry about transferring people for any other needs. They would be open for hire for general everyday commute, but the people would not usually prefer to hire a Meru for a back-to-home commute from work.
Meru radio cabs ;picture:bankinfosecurity.asia.jpg
Meru cabs prefered for airport transfers;picture:meru.in
Similarly, other brands opened for business as well, tapping into the customer base of Ola and Uber. ‘Shuttl’ started operating app-based public transportation services by offering shuttle busses/coaches on popular routes, where passengers could book a seat for the daily commute between home and workplace. The venture became a huge success in certain cities, like Gurugram, offering extremely cheap, air conditioned and quality commutes to passengers.
Shuttl busses/coaches available to hire on per seat basis;picture:qz.com
Shuttle's app-based transportation services though AC coaches;picture:lbb.in.jpg
Fall of the industry
The app-based transportation industry, after witnessing its best days in the market, saw a sudden decline in its growth when the number of cars employed by the top aggregators in the country dropped to a five year low in 2019. As per a report by , PV market leader Maruti Suzuki sold just 3000 units to cab aggregators in 2019, a turn steep down from the 80,000 units sold in 2016.
The main reason behind this downfall is low utilization of vehicles following a limit on the amount of incentives provided by the aggregators, inability of the service providers to penetrate small cities, big city’s markets reaching saturation points and poor credit profile of driver-partners.
Decline in growth;picture:indiatoday.in.webp
With the rapid increase in the number of cars employed, companies started to rationalize their driver’s incentives, which further limited their incomes. As a result, more drivers started to prefer hatchbacks rather than sedans, as their customers would also choose small cars due to fair advantage. This cycle affected the car sales in the country as many OEMs had business agreements with the cab aggregators to sell cars directly to their drivers.
Maruti recorded sharp decline in PV sales;picture:profitsheets.com
Automakers are persistently hopeful that faster replacement cycles of vehicles utilised by cabs, compared to personal vehicles, would drive demand in future. The market potential remains massive waiting to be exploited, bound to take a turn from the dead-end and grow prosperous once again.
App-based cab services are expected to regain their popularity in India;picture:bgr.in.jpg