Uber Goes Free For This Week. A few Thoughts.

Uber is free for you if you pay via the Uber wallet (T&C : 5 FREE rides up to Rs. 300 per ride).

Uber Goes Free (This Week) For Wallet Users
Uber Goes Free (This Week) For Wallet Users

This is ofcourse a great way to increase wallet usage (something which Ola has cracked very well), though such ‘predatory pricing’ activities are bound to attract wrath from the auto and taxi industry.
From an earlier comment by Anirudh Dammani (Managing Partner at Artha Venture Partners) :


My family is an investor into a taxi booking company so let me be clear that we follow this space closely and we may or may not see higher values for the investment but what I have seen in this space in the last 6 months is disrupting the lives of many taxi drivers and fleet owners.
Here are the major issues I see
1. These cab companies are selling below cost… this is obvious when you take account of the recent strikes that hordes of drivers of the taxi-booking companies went on strike as they were out of fuel! The get the subsidized amount from the customer which is not enough to put fuel into the car and the “credit” or difference comes a week later. Are they supposed to physically push the car until then?
See we invested into this space as taxi booking makes things easier for the riders and gives incremental revenue to the driver which they didnt have earlier. It is a pure win-win and net positive for society.
“We will organize this unorganized market” – That is what the pitches used to say..
But right now we have companies that are selling at unsustainable prices which will drive out all small players and leave the industry in the hands of a few.. this is exactly the opposite of what should be achieved.
This era of free money will come to an end.. and we will be left poorer as a society especially the cab driver who right now is making spending decisions and investment decisions that he/she will not be able to complete.
Isnt this what happened in the housing boom with free money and no controls? Will we ever learn?
2. Rules are being flouted by unlicensed players that have scant regard for any of the laws in the country… what is very interesting (and sickening) is that it is our own local companies that are flouting the laws relating to taxation, KYC, labour, etc.
In the name of adding supply some of them are paying off taxi drivers through pre-paid cards that are registered in the name of the company and not in the name of the user – is this what we want to call “fair” competition? Is this even legal?
When foreign money is being doled out without KYC and without any trace on the money.. what stops that from being used for means that are anti-social?
What happens when the ED. IT, FEMA, FERA, EOW, Service Tax authorities catch hold of these erring companies and shut the show?
What if it is too late by then??
The show is on right now.. and its all beautiful.
Once the song stops.. you will see that we have destroyed whatever semblance of sanity there was in this space.”


Good for consumers. But what about the industry?
Are parts becoming greater than the sum? Think about it while you enjoy the ride.

4 comments

  • “These cab companies are selling below cost…”
    A recent article on Ola had someone from the management claim that the total cost for a cab (fuel + maintenance) was only Rs. 3.50 per kilometer. Accounting for Ola’s share, the cab driver is likely to make Rs. 5+ per kilometer which I find is reasonable.

  • Trying for a uber since morning but no luck today..Wanted to go to office with free rides leaving my bike at home.

  • Authors thought process has not accommodated proper math, his claim of companies selling below cost needs a closer look. Lets understand the economics of 10 km drive in Chennai (I suppose 10 km is Avg) for OLA mini, which is the cheapest in town
    First 5 Km (flat) – Rs. 100
    Next 5 kms (5*12) – Rs. 60
    Income for the trip = 100+60 = 160
    Avg/ Km – Rs. 16
    Considering diesel price at 56/ lit and Avg 10 km per lit, fuel cost per km is Rs. 5.6
    The cabbie is left with Rs.10.4 for ( Maintenance, Tax, Drivers Salary, EMI etc), where is the question of undercutting ? Avg return for cabbie goes up dramatically when you hire higher variant cars.
    As a thumb rule if you are able to make 3 times fuel cost with reasonable trips in a day then its a highly profitable business.

  • Ola/TaxiforSure/Uber surely are disrupting the Organized and Unorganized Taxi Market. What does this disruption mean to various stakeholders?
    1. Increased leverage/freedom and income to hardworking cab drivers. (Note…Hardworking drivers!)
    2. Increased efficiency and low costs to consumers.
    3. Decreased income to existing organized and unorganized Taxi fleet controllers!!!!!!
    To the authors point, the whole industry is being funded by free money!!Is it really free money? Hope this money is not being clubbed with the same league as Black Money(Money really that was made freely or dubiously!). At worst, this money can be taken as subsidized money (equivalent to research money being spent) to give a shot at achieving the two above!!
    Let us look at the cost economics:
    Fuel Economy: Rs 5.6 (Considering the diesel price as in the above post 56/l and and at 10km/l)
    Average cost of car on EMI Rs 5,00,000. Taking 4 years EMI. The costs will be as follows:
    EMI – 13,243
    Maitenance/month – 5000
    Insurance /month – 500
    Driver Salary — 20,000
    Net costs — 38743
    Fuel Economy – Rs 5.6
    Price points Rs 10/km Rs 12/km Rs 15/km
    Gross/Km Rs 4.4 Rs 6.4 Rs 9.4
    No of kms/to drive per month 8800 6050 4121
    to realize costs
    No of kms/Day (@25/month) 352 242 164
    Average driving hours/day 11.74 8.07 5.5
    (@30km/hr city speed)
    (Breaks not considered!!!!)
    (Note—have not allocated any costs to Taxi Companies…or disruptors…yet…running on free money!!)
    This is to ensure a salary of Rs 20,000/month. Hopefully drivers would be able to achieve dignified working conditions soon.
    The above costs are generous. (Depeneds on how one takes). Any efficiencies in costs and fuel economy could add further to Drivers disposable income!!!
    And this article ……. http://www.businessinsider.in/How-Startups-Like-Meru-Uber-Olacabs-TaxiForSure-Have-Transformed-Lives-Of-Taxi-Drivers/articleshow/39865931.cms
    shows that…drivers are already reaping the benefits of efficiency…
    Who is getting disrupted?!!!!! I hope all the money flowing into the market is legal. (Unlike the money…that was/is being used to build office spaces and homes we work and live in) And if not what the heck…..we still have some money in Banks….that can be doled out to improve the livelihood of few members of our society!!!
    To the authors concern, that drivers probably will have to run back to the old organized taxi market controllers…when the money stops flowing….yes…we need to figure out a way.!
    Till then…all good!

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