21st Century Business Model

21st Century Business Model

Have you ever wondered why and how Ola and Uber can give you ride in a cab at Rs6/Km? How can any cab driver afford to drive at such low fares? Well they don’t run cabs for customer fare but for the daily incentives. On a regular day if an Ola driver completes some defined number of trips then he is entitled for incentives. This defined number of trips can vary, for example it is 10 in NCR and 21 in Chandigarh. The incentive offered is around Rs.3000 for any day. That gives the drivers to earn Rs.90000 per month from incentives only. As soon as the drivers finish their quota of trips they turn the system off and go back home, because they know trips earning is very less compared to incentives. Then how does Ola earn? Ola takes 20% commission from every completed trip. Now consider an Ola driver completes 20 trips in a day at an average fare of Rs.200 each. Commission for Ola in this fare is Rs.800, but the driver gets extra Rs.3000 as incentive. What does it tell you? It is a loss making company. Investors have already pumped in a lot of money for this business and will put more to save the previous investments. If this continues then we are not sure how long will this business run. Although Ola and Uber are incurring losses but they still managed to do few good things for the society. I came across many Ola and Uber drivers during my Internship at Yoride. One thing that I noticed is that they are no longer just a driver who can be directed by others on anything to everything. They have smart phones, they can speak English. They are independent and learning with time and advent of technology. Their earnings are more than the average package of engineers even from top colleges. Their lifestyle have improved, they are sending kids to good schools and living as their own boss. These companies have also encouraged the middle and lower middle class to take taxi more often than before. Simple theory of economics low price more demand. We have whole new class of people travelling by these taxis everyday (24x7).

Ola and Uber gave jobs to many but at the same time made many others unemployed. The local taxi companies which used to serve before have lost their business. They have become obsolete and irrelevant. As there is no investors’ money so fare also remains high. As the business of Ola and Uber grew, these local taxi companies found a way to earn by finding vehicles to attach with Ola and Uber. With every attached vehicle there was incentive promised by the company. UberDost is one such platform. But these businesses were one time transaction. As with more vehicles attached demand and supply became equal. Recent acquisition of Taxi4sure by Ola also leads to ignorance of these local taxi vendors by Ola. In Taxi4sure business model small companies (or vendors) had share in fare commission but Ola scrapped it to reduce cost in their supply chain.

Many cab drivers I talked to were very happy with their earning and aware of the fact that current boom is subsidized by investors and venture capitalist. It is not going to take long before this money wave stops. The taxi owners who now have changed their lifestyle will need the same amount of money to survive in future. This will lead to hike in taxi rates which eventually will decrease the demand. This can be very dangerous as and when the time comes due to large share of business that Ola and Uber have. This will create problems for customers, drivers and even economy.