India taxi aggregators – where is the money?

Taxi aggregation market in India is on the upswing for past decade. Fasttrack and Merucabs had been the some of the initial companies who made a big impact during late 2000s. And then came companies like Ola, Uber and TaxiForSure that took this whole taxi aggregation business to a completely new level.

Types of taxi aggregators

Technology is evolving at a very fast pace and different companies in this market in India have adopted these newer technologies at varying levels. Hence I would classify these companies based on the depth of their technology adoption. Some work based on phone contact centers while others use Mobile phone based technologies extensively. The key differentiation is with regards to the pricing strategy

  1. Passive pricing – Companies like Merucabs, Mega cabs, Fasttrack, Dot cabs and other work based on fixed per kilometer charge. So, the customer gets charged around Rs 14/km for a small car and Rs 20/Km for large car. There could be additional charges but 80% of the final bill is decided by one of the above two rates. These companies and drivers have a fairly predictable business model and revenues. There is no loss at any point in time and growth in revenues is directly related to growth in volumes (customer bookings)
  2. Dynamic pricing – Companies like Olacabs and Uber are the poster boys of this industry today and they have adopted dynamic pricing in a very big way. These companies are running their businesses by discounting customer rides but paying the full amount (like the passive pricing players) to their drivers. This is resulting in a situation where these companies now have to make a successful transition from acquiring customers at a loss to maintaining the same customers to generate profits.

So, where is the money going to come from for the poster boys of this industry? Definitely not by the following:

  1. Charge customers more per ride? This is extremely difficult to implement without losing customer trust. Remember, customers are not fools to simply absorb a 50% increase. These companies tried surge pricing to meet the Rs 14/Km or Rs 20/Km cost they are incurring to drivers – but surge applies only to a small percentage of all rides and Governments in various States will start banning it since it is unethical pricing.
  2. Reduce disbursements to drivers? This is not even possible since the input costs are already optimized – labor, vehicle maintenance and fuel. There is no further scope to reduce the payments being made to drivers

There is a way out though. These companies have already started working on some of these measures.

  1. Premium customers – hotels in all cities keep a fleet of dedicated cars to cater to their clientele. Taxi aggregators can target this segment with some premium cars and pricing. While volumes will still be low, they will at least start seeing profitable revenues slowly flowing in
  2. More customers per ride – provide a subsidy to customers for agreeing to share their ride with other passengers. Try to include 3 customers per ride and there will be a profit coming up from every ride. This is what Ola and Uber are currently trying with their separate launches. Ride pooling is the next big thing in Taxi aggregation market since this is a key way in which profits can be generated. What makes this more likely to succeed is the fact that more and more customers would be opting to call these taxis for their daily commute to work and they would not mind sharing a cab if that saves the some money individually
  3. Mass transit – the future of Taxi aggregation however lies in a program that is still in its infancy stage right now. Ola calls this Ola Shuttle. Other providers will start something similar. The next wave of customers are going to come from middle income groups where there will be daily requirement for a transport option that is safe, clean, comfortable and predictable. So, the pricing is going to be cheaper than ride pool option but overall revenues and profits will be much higher given the extremely high acceptance from general commuters in our cities. Central Government has already made the required provisions to allow technology based aggregators into mass transport in urban areas and THIS IS GOING TO BE A GAME CHANGER

Final words

In short, the next big revenues for taxi aggregators is going to come from mass transit. Our cities need better transport options and local transport corporations are too slow to cater to the growing needs. Entry of organized private players who will be using technology in best way possible will change the way people commute – and it will change it in a very good way.

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