During the last three months, I have almost stopped driving for intra-city (Mumbai) travel. In particular, I don't take my car out when I am alone and traveling for work-related meetings. Being driven helps me gain that extra 30-60 minutes to prepare for a meeting or to respond to missed calls / emails after a meeting. It also helps that I can save 10-15 minutes in not having to look for some place to park. And I have email invoices that I can use for expense reimbursement or management without having to keep tab.
Yes, I have discovered the benefits of Uber and OlaCabs.
Not only do I have a chauffeured vehicle when I need it but I often spend less than if I used my own car. With the frequent discounts and offers (thanks to private equity funding!), I can get a car on demand at about Rs 15 per kilometre... my own car costs me Rs 12 to 15 / km for fuel, it would be much more. Things can't be better!
There is obviously some sort of a break-even point here, of owning a car and hiring a driver vs. using services like Ola/Uber. Consider a typical use case: drive 25km daily to office and back, plus 20km every weekend for shopping / entertainment... that's 630km per month. Fuel cost for a mid-size car would be Rs 5-7 per km but a driver's salary at Rs 6000-8000 adds Rs 9-12 per km. Therefore, the marginal cost of using a vehicle would be at least Rs 15 per km. So, even if you own a car, and you want to be driven, unless you use it for 700-1000km every month, it would make sense to use a Uber/Ola like service.
I have not done the supply-side economics yet... from my conversations with the car drivers, it appears that they (the vehicle owners) are making good money. In fact, many of them are buying new cars so that they can add to their Ola/Uber fleet. But I have a sense that they are currently being subsidized by the service providers (trip bonus, being online for 12 hours bonus, etc.) I wonder if this is sustainable.
Some more thoughts on the disruption that we are observing in the transportation / automobile industry (note, I am not referring to a "taxi service" market here).
Behaviour Shift
The value of Uber or Ola is not just that they are taking share away from traditional metered taxis but also expanding the market. They are essentially getting more people to use a "taxi service". If you had a car, you were earlier not a likely customer for the taxi market. But as I (anecdotally) demonstrated above - and I hear many of my colleagues/friends reinforce the point - non-users are being brought into the "taxi market". The initial discounts helped - for a while I was using Ola & Uber at prices lower than the regular yellow cabs. Now, prices have gone up, yet I am so used to the convenience that I am willing to pay even Rs 20 per km for the service.
Also, while auto manufacturers need not worry as yet about lost sales, I would wager that, in metro markets which are also seeing improvement in public transit facilities, some impact would be felt soon.
They two key drivers (pun unintended) for the growth of Ola/Uber are:
1. Convenience - The ease of service discovery, purchase and consumption is a clear draw. The mobile apps are extremely easy to use and the payment mechanisms (using a pre-paid wallet) are highly convenient. Being able to track your driver and ride makes the process transparent. The invoices sent to your email are detailed and efficient.
2. Availability - The tip-off point for the new taxi services is their ready availability. A lot of local travel (except perhaps airport drops) is unplanned and subject to the vagaries of moving schedules. Earlier, the service providers required you to book a taxi at least an hour in advance and that restricted their appeal. Uber entered the Indian market with immediate availability and its competitors have followed suit. As the popularity of these services grows, more drivers are signing up, consequently, availability improves and therefore, more customers feel encouraged to use the service. There is a clear network effect at play here.
There is another important factor at play here which relates to the business model of network aggregation. Uber/Ola are intermediaries that are enabling vehicle owners/drivers and commuters to discover and transact with each other. Their asset-light model has the ability to scale very fast (riding on others' capital investments); their focus remains on innovation and marketing.
Ben Thompson has this wonderful post at Stratecherry where he explains density and network effect as liquidity of the car service... he also uses this to describe why it might be a winner take all market. I am not sure if the Indian cities have reached that stage of maturity -- as long as there is scope for significant growth, I can see the opportunity for at least 2-3 players. My dipstick analysis reveals that most drivers are today exclusively working for a provider, except in the Prime (SUV/Innova) category where I have found a few drivers two-timing. Further, given the lack of existing (quality) infrastructure, Uber and others would need to (directly or indirectly) invest in adding more vehicles and drivers on the streets, thus preventing the creation of a virtual monopoly.
(By the way, these three factors -- Ease of Use, Density and Network Aggregation -- are applicable to many other industries. Financial services sector could surely learn a thing or two from them... given that the banking business is nothing but intermediating between savers / investors and borrowers / investees. The recent success of Lending Club provides an indication of the possible unraveling of the traditional banking models. It would be worthwhile thinking about other blue oceans that can be created by adopting these three factors.)
Even as Ola, Uber, Taxiforsure and others bring in huge investments in this space, they have a long way to go. They must not repeat the mistakes that many others have made in India before... chasing growth without creating infrastructure and skill foundations. In the follow-up post, I will share a few suggestions for Ola/Uber to improve customer experience and to build sustainable businesses.