Why it makes sense for Uber to sell India operations to Ola
Uber has increasingly been finding it difficult to operate in India. It seems to have underestimated the ‘dimaag (brain)’ of the Ola Cabs co-founder, Bhavish Aggarwal, a ‘baniya (merchant by caste)’ and an IITian no less. Uber, the most-funded company in the history of the world, is playing a cash-burn game with Ola, which is backed by Japan’s SoftBank Group (now also an investor in Uber) and has deep pockets.
Uber’s global strategy does not seem to be implemented well in India. The company is run by consultants, which is reminiscent of the firms started in India by German start-up investor Rocket Internet. None of them was able to break out, and compete with owner-driven competitors. Uber couldn't focus on growing profitably and is still losing money on each trip, as is Ola. As an e-commerce founder once told me, “in this industry, synergy will be -1 + -1 = 0’. At least, the burn will reduce.
The Uber app, ‘born in the US’, does not consider a number of critical local aspects. For example, Ola allows customers to book cabs without an internet connection (something that bike-taxi company Baxi pioneered six months before the ride-hailing firm), and has an in-house wallet for easy payments for rides. By contrast, Uber still relies on digital payments firm Paytm (which benefitted more from the relationship than Uber did) and credit cards, which sometimes lead to friction while booking.
While Uber did not build the right foundation to scale, Ola has been focusing on creating the foundation of the cabs’ business, which it has now taken to auto-rickshaws, bike-taxis, e-rickshaws, shuttles, and other products. Ola always has had a good ear to the ground and has built products from the ground up, well-suited to the market and consumer needs, unlike Uber, which has standard products across countries. Innovations like Ola Money, Share Pass, Ola Play and Ola Select have correlated to stickiness of its customers, which has resulted in Ola’s 60% plus market share in India.
The leasing model seems to have given a new lease of life to Ola, at least in the cities where it directly competes with Uber. They don't need to depend on the attached drivers anymore. The drivers who joined the company in the last two years, lured by artificially high incentives, will now have to work long hours, or join Uber that could heavily penalise them for even minor infractions. By stemming losses from fraud rides (they now charge a fixed daily rental from the driver), Ola may actually start making money.
Meanwhile, Uber recently shut its Xchange Leasing business in the US, so chances are the firm might do that in India as well. It is a capital-intensive game where 30% of the assets lie idle at any given point in time, and each driver in the system is an unpredictable moving part. Multinationals like Uber prefer to stick to the same playbook in every country that they operate in, so it seems that the days of Xchange Leasing India are numbered.
Ola has had very low senior management churn, and the two co-founders are still together. Added to that, Aggarwal is an extremely hardworking guy, who operates from the first principles. Being the entrepreneur behind the venture, he can take much more risk compared to the senior management at Uber India, who mostly come from a consulting background with a chip on their shoulder. The management churn at Uber HQ, where they lost a number of CXOs in a short period of time, would definitely be giving the local team some anxiety.
After selling their China business to Didi, the Russian business to Yandex, and now the South East Asia business to Grab, Uber is still fighting a losing battle with Ola in India. With their initial public offering being planned in 2019, it makes immense sense to cut a deal with Ola as well, to stem the losses, and focus on their home market.
With the new chief executive officer (CEO) in charge, the focus has been on consolidation. In a recent event in Delhi, on being asked how he plans to tackle Ola in India, Uber CEO Dara Khosrowshahi smiled and said that Ola and Uber are jointly fighting against car ownership in India. An indication of an impending merger?
This merger is also important for SoftBank. After investing in Grab, Lyft and Didi, it ran the risk of investments going sour, once Uber went public. Why would anyone buy shares of investee companies when the biggest player globally is already listed? Hence, the strategic move to invest in Uber as well, where it now has a say in the future strategy of the company. There is no point fighting on multiple fronts with an ever-depleting war chest. And Ola is in no mood to blink yet.
Rohit Thomas Koshy, an IIT-Delhi graduate, is part of the founding team at Baxi, India’s first bike-taxi company. Views are personal.