Indian Cab Industry : Survival of the fittest


Recent news on Softbank, writing off its investment in OLA; and change in revenue model by Uber; clearly validate the below hypothesis which was published in my previous article.

Hypothesis# 1: – Cab aggregators are not working towards answering the most important question of this industry

“Which side of the cab equation (drivers and consumers) should they subsidize and for how long?”

Neither Ola nor Uber is satisfying unit economics; but just burning cash to incentive either side of the equation.

In a market like India, where there is a need of on-demand, cost-effective, safe and reliable transportation, the real question becomes, which of the two business models: asset-heavy or asset-light will survive in the long run?

However, careful study of both models brings us to our next hypothesis.

Hypothesis #2: – Neither asset-light model (Uber/Ola) or asset-heavy model (Meru) will survive in the long run.

In association with IIM Bangalore, we did a focus group study with consumers who avail cab services in Bangalore, Faridabad, New Delhi, Gwalior, Mysore, Indore and Coimbatore.

This discussion was around following questions:

Question 1: – What are you expecting from an app based cab service?

Majority of the responses were around reliability, on-demand availability, affordability and safety.

Question 2: – What are your concerns regarding app based cab service?

Majority of the responses were around safety and reliability.

Looking closely at major cab providers in asset-light model, we concluded that while Ola is pro drivers, Uber is pro consumers. Hence, more drivers are turning to Ola and more consumers are turning to Uber; disrupting the entire equation of this industry.

Moreover, these asset-light cab providers can’t guarantee safety, as they don’t have tight control over drivers.

Now if we look closely at major cab providers in asset-heavy model, we conclude that though they have better control on safety aspect, they are unable to deliver on availability.

But, wait, is there a middle way? Can we use a hybrid model, which can give us the best from both the worlds?

Our research at IIM Bangalore led us to the following hybrid business model:

Asset – Medium Model: This allows cab providers to remain asset light, by not owning cab fleet but still ripping the benefits of asset-heavy by partnering with small cab operators. They can do so by coordinating and knowledge sharing with their partners. However, it is important to note that individual drivers can’t be coined as partners.

This smart-control approach involves six management techniques.

  • Embedding or collocating people in partner organizations.
  • Duplicating some partner activities.
  • Controlling inputs.
  • Controlling outputs
  • Controlling Systems.
  • Establishing true win-win relationships with critical partners.

Above smart-control techniques will allow companies to achieve benefits of asset ownership without the capital commitment.

Mantra is : Survival of the fittest

Stay tuned for detailed research work on this model: Asset – Medium Model

PS: Special thanks to co-author of this article, IIM Bangalore colleague, and my wife – Kritika Sharva.


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Adds NextBigWhat team : A related piece: Ola Play : Does it make sense?

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