The moves by rival cab-hailing services Ola and Uber to charge cab drivers for using their services highlight the growing pricing power they have with drivers as well as customers.
Ola (ANI Technologies Pvt. Ltd) and Uber India have started charging drivers Rs.300 per week, as they attempt to prevent drivers from using other platforms, Mint reported. The logic is that a driver who pays the company will stick to it.
As many as 15 drivers Mint spoke to said the move seems to have worked as both companies introduced the charges in the same month, limiting the possibility that drivers will defect.
Ola and US-based Uber are locked in a bruising and cash-intensive market share battle. Ola claims to be the clear market leader and says its cabs complete about 750,000 daily rides. Uber said on 31 July it expects to do more than one million daily rides before next March, helped by the $1 billion it promised to invest in India.
Both Ola and Uber are significantly larger than cab services pioneer Meru, which has struggled to compete with the speed, tech expertise and funding power of the two. A fourth, TaxiForSure, was acquired by Ola in March for $200 million, in a deal that helped expand Ola its lead and consolidate its status as the most attractive alternative to Uber for investors who want to bet on cab services.
For shoppers and drivers, this situation is far from ideal as a potential duopoly of Ola and Uber will significantly restrict choices. Such a scenario is also somewhat unique among India’s nascent but fast-growing Internet market, which investors and analysts say has too many firms in most niches.
Until now, both shoppers and drivers have benefited from the efforts of Ola and Uber to grow big at a fast pace. These companies slashed prices to attract consumers on the one hand (their low-cost offerings are cheaper than auto rickshaws), and on the other hand, they gave incentives to drivers to get them on their platforms and keep them using their services.
While both Ola and Uber still have massive cash piles, they are showing signs of tempering their discounting to customers and subsidizing of drivers. This is not to say that either will stop—prices continue to remain low and incentives for drivers attractive. What is changing, however, is that Ola and Uber are increasingly enjoying more power in setting prices and terms, especially with their drivers, as shown by the introduction of the weekly charge.
Mint reported on 15 July that Ola restarted surge pricing in Bengaluru, five months after it was forced to stop the practice by Karnataka state transport authorities. Surge pricing, pioneered by Ola’s rival Uber, refers to the practice of increasing prices by multiples of the regular fare when companies claim customer demand is much higher than the supply of cabs. During peak hours, Uber and Ola sometimes charge up to three times the regular fare. Shoppers may soon have to get used to such practices, especially if money isn’t as easily available as it was in the funding glut of the past 18 months or if investors at the cab services companies demand a focus on generating profits—both of which are inevitable.
This story was first published on livemint.com