Okay, after a week’s break for personal reasons, the blog is back up. Writing from Berkeley, CA today.
The Karnataka Government (of whom Bangalore is the capital city) recently announced that it would like to have more private players in the ride-hailing app market, not just an Uber-Ola duopoly. Read the Transport Minister’s interview here. Which got me thinking, will this market sustain multiple competitors, if at all?
A classic winner-takes-all market is defined by three conditions – presence of strong network effects, high multi-homing costs, and the absence of any special needs. Let us first analyse if ride-hailing is a WTA market, and then talk about what kind of resources would another player require to compete in that market (remember Taxi-for-sure sold out some years back).
The ride-hailing app market enjoys strong cross-side network effects from both sides – more the drivers on the road, more the riders adopt; and vice versa. Simple. What are the multi-homing costs for the riders – just the real-estate on her phone for installing multiple-apps; and possibly any loyalty rewards, including maintaining her rider-rating. The multi-homing costs for the drivers are higher, though. He needs to affiliate with multiple firms; maintain multiple devices and payment/ banking information; and more importantly ensure sufficient rides taken on each of the platforms to sustain his incentives. Given the way Uber India and OlaCabs provide incentives (based on the number of rides per day), it would become increasingly difficult for him to multi-home. There are only two segments of customers in the ride-hailing app market: those who take them regularly (say 15-16 rides a week), and those who use them sporadically (say 2-3 rides a week). And both of these segments have the same preferences – low prices, high convenience, quick access to cars, and good customer service. So, this market seems like a WTA market, in the absence of a strong differentiation.
So, how does a new competitor differentiate? There are four options – long rides (say for instance, airport drops in a city like Bangalore); more variety of cars (larger vehicles for the big Indian family/ friends network); short/ weekend holiday trips; and rental cars (for self-driving by the riders).
Not that these needs are not being served – specialised competitors like Meru Cabs and Mega Cabs serve the airport market. In fact the Bangalore International Airport Limited (BIAL) has not authorised either OlaCabs or Uber to pick up passengers from the airport. Even in San Francisco, I saw a sign today morning, that said “all app-based cabs can only pick up from the departure level”! Some agreements need to be signed between the airports and the aggregators to ensure seamless experience for the riders. And this is true of a variety of airports across the world. Here is where, entrenched competitors like Meru can make a difference.
The large vehicle/ variety of vehicles was the forte of the neighbourhood taxi operator. The operator (or sometimes a local aggregator) would have on his list a variety of cabs ranging from the smallest hatchback to the large 15 seater van. You signed up on a hour-km base rate and a topup rate for exceeding either (time or distance, or both). Here is where a new ride-hailing app can begin differentiating. Take the example of Lithium cabs in Bangalore, which is appealing to the environmentally conscious consumer, by deploying only electric vehicles in the fleet (read here). Similarly, there could be specific apps for off-roading, mountainous trails (think the Manali-Leh highway – don’t forget to see the map in Earth mode), or for biking/ trekking/ hiking trips.
The short weekend holiday trips are possibly the most underserved market in India. A lot of small families would drive out their own cars, leaving at least one member of the family super-tired and unable to enjoy the holiday as much as the others. Especially if the road is not very good, and the car is not in the best of the condition, it can be treacherous ride rather than a enjoyable holiday. Some may argue that the drive itself was the enjoyment, but that is a different discussion. Here is an opportunity for ride-hailing apps to easily extend their services. The daily office-going commuter is not on the roads during the weekends, and the cabs are being under-utilised. Here is a win-win for both the drivers and the riders. OlaCabs has just began the Ola Outstation service for serving just this need – it is early enough to get more drivers (and bigger cars) to get on the roads on weekends, but I am sure they will get there sooner.
The car rentals (driven by the riders, as in Hertz in the USA) has its share of competitors – Zoomcar is a good example. For someone on a day trip to a familiar city, such rentals would be a great service, providing flexibility, control, and convenience. However, these rentals have not attained sufficient scale for the network effects to kick-in as these are asset intensive (the cab aggregator has to own all the cars); caught in regulatory conundrums (is it a private vehicle or a taxi – white number plate or a yellow number plate, or black/ yellow); how is insurance managed; and the coordination costs are very high (see how the airport pickup from Bangalore airport works, including the limited number of drop-off locations – serious limitations on the last mile to home).
Address the special preferences
In summary, in order to fulfil the Karnataka Government’s wish to break the monopoly, we need competitors to differentiate. We need the airport taxis to become cheaper, more efficient, and provide better customer service; we need the taxi/ cab aggregators to not just include more and more variety in their cars – from electric vehicles to sedans to SUVs, but differentiate on the value proposition; expand the capacity utilisation of their cars during the weekend by serving the weekend holiday trips market; and car rentals to expand their network significantly (four drop-off locations in Bangalore when you take a car from the airport, seriously?).
Cheers and happy weekend.