BENGALURU: Ola and Uber are taking a series of steps to increase revenue and cut costs, a departure from their previous strategy of spending heavily to gain market share and in line with the trend in the rest of the consumer internet space.
Among the steps they have adopted, the rival ride-hailing apps have started raising fares in top cities, reducing the amount they pay as incentives to drivers and tightened vigilance to curb fraud by drivers, conversations with company executives, investors and drivers show.
All of this is aimed at improving ‘unit economics’, or the amount of money they make or lose for every passenger, as the growth rate in large cities plateaus and the two companies dig in for the long haul. According to investors and analysts tracking the ride hailing app business, Ola and Uber each burn $30-40 million every month.
“Subsidies won’t last forever, and customers need to slowly get used to it. This is a step in that direction,” said a person briefed on Uber India’s plans.
“We are always working to make Uber the most affordable mobility option for our riders and an attractive economic opportunity for hundreds of thousands of microentrepreneurs on our platform,” an Uber spokesperson said. Ola did not reply to emails seeking comment.
Consumer internet companies have been turning their attention to unit economics as the pace of funding slows down this year and companies hit saturation points when it comes to adding new users. In the case of Ola and Uber, the move to control unit economics comes when both companies are facing a ban on surge pricing in markets like Bengaluru, and the supply of drivers on the platform has increased by nearly three times in Delhi. They have spent millions of dollars on incentives to woo drivers and riders over the last two years, but they are now entering anew phase.
Ola has cut driver incentives based on the number of trips completed by as much as 20-40% in Delhi as compared to a year ago. For instance, drivers completing eight trips with Ola in Delhi now get an incentive of Rs 2,400 as compared to Rs 3,000 a year ago.
Uber has also tweaked its incentive model to reward drivers based on earnings, and not on the number of trips, according to drivers and industry experts.
“For shorter distances, the base fare partially takes care of the cost, but the longer the distance, the more cash we end up spending and it’s an added cost for both Uber and Ola,” a source said. The added advantage of raising fares is that it could push riders towards the car-pooling service operated by them.
Uber upped its prices for trips beyond 15 km in Bengaluru and Hyderabad a year back saying it was to incentivise drivers to accept long-distance bookings. Last week, it raised fares for distances over 20 km in the Delhi-NCR region. Ola too has the same structure.
These measures come after Ola and Uber also increased fares for most popular categories, Micro and UberGo, respectively. After 20 km, customers will be charged Rs 12/km on UberGo and Rs 13/km on UberX. Up to 20 km, they will still ride at Rs 6/km on Uber-Go and Rs 9/km on UberX, the company said on its website. The base fare on both categories remains the same.
Ola Micro too charged Rs 6/km up to 20 km and Rs 12/km for additional distance, matching Uber prices.
“The focus is on building a real business now. The supply game on quantity in Ola’s view beyond a point does not build anything of value,” said an investor in Ola. According to another investor, Ola is focusing on better matching demand and supply and rewarding drivers who do better. For Ola, the tightening of the belt comes as it negotiates with potential investors to close a large new round of funding. For Uber, the importance of India as a market has only increased after it effectively bowed out to Didi Kuaidi in China.
SPENDING MORE TIME ON ROAD
According to several drivers that ET spoke to in Bengaluru and Delhi NCR, they too are getting more accustomed to using one or the other app and don’t switch as frequently between apps as they used to a year back. However, achieving targets and quality standards set by both companies, especially on cancellation and rejection of rides, has hurt them and made them spend more time on the road.
“It’s getting harder to achieve targets set for incentives,” according to one driver who said he spends an additional two hours on the road to earn the same amount of money.
But even as both the players look to improve quality of drivers on the platform, especially with an eye on bringing down the fake rides, they are increasing focus on the leasing business. Uber recently told ET that it plans to lease as many as 200,000 passenger vehicles over the next two years to drivers who want to join its cab-hailing platform. Ola said last year that it, along with financing partners and car manufacturers, will invest Rs 5,000 crore towards this cab-leasing programme over the coming year.
“The focus has shifted now from just adding more rides to achieve profitability,” said Jaspal Singh, a partner at Valoriser Transport Consultants.