SoftBank and Uber deal could end fare honeymoon

Your days of enjoying subsidised rides on Uber and Ola might be over soon. With SoftBank’s deal to buy a 20 per cent stake in Uber’s global operations falling into place, the Japanese firm has created a monopoly in India’s ride-hailing sector.

Ola, the home-grown rival of Uber, already counts SoftBank as its largest investor. With significant stake in both the players, the ball to curb erroneous spending by the two ride-hailing players, who have engaged in trying to rob each others customers, will end.

“Now both (Uber and Ola) will be directed not to undercut each other,” said a source at Ola who did not want to be named. With a merger of the two entities not being on the cards just yet, SoftBank will clamp down on land grab expenses that both firms have had.

Instead, spending will primarily be on growing the base of riders and drivers who utilise the ride-hailing services. This might include subsidies to lure customers and drivers into using the services in order to make it a habit, but the days of price wars between Uber and Ola are over.

Ola did not wish to comment for this story, while Uber and SoftBank did not comment on the impact of the deal specifically on India’s ride-hailing sector.

“The ride-hailing market in India is extremely price and time sensitive. A customer will check both Uber and Ola apps before booking a ride, which is what has kept pressure on them to keep fares low. A backchannel truce might come in handy here for both of them to stop burning money,” said Anil Kumar, CEO of RedSeer Consulting, a firm which tracks the sector in India.

He added that customers in India are willing to pay 10-15 per cent more, but the battle between the two companies has kept fares low. Moreover, a truce will be beneficial for both because India is currently Uber’s highest burning market, while it will free up resources for Ola to invest in some of its subsidiary services.

Masayoshi Son, the chairman of SoftBank, will in all probability, push for Uber and Ola to adopt electric mobility in India. 

His plan of funding one million electric cars on Indian roads could be set into motion now that neither of the largest players in the country has to be distracted by competition.

Ola is already piloting its electric mobility model in Nagpur, but insiders say the trials have only had limited success. The high cost of electric vehicles coupled with their low range and long charging times makes the economics of the model unsustainable. However, as vehicles get better and cheaper, it might be of some advantage to burn money now and perfect the model.

While SoftBank’s shareholding in the two companies does increase the possibility of a merger between them, the complexity of the deal along with regulatory approvals will mean they will function separately for now. However, Uber has sold its Chinese and Russian businesses to local players in the past.

“The possibility of a merger is low right now. Just look at how Bhavish Aggarwal limited the participation of SoftBank in Ola’s latest round. It was done to restrict SoftBank’s ownership in the company out of the fear that the investor would stage a merger of Uber and Ola,” said another person close to the developments who did not want to be named.

SoftBank’s investment in Uber will deliver a big blow to Ola. Bhavish Aggarwal, the founder of the Indian firm, has long held that the company possesses the technology and business acumen to beat Uber in India. Now, the company will be forced to share the spoils of India’s growing ride-hailing space with its bitter rival Uber.

While SoftBank’s ride-hailing dreams are global, India is a key focus market for the Japanese investor and its many investments in the space. Uber’s largest market after its home market in the US is India. The company already has set up a development centre here which not only looks to build products for India but also the rest of the world.

Grab Taxi, another of SoftBank’s ride-hailing bets from Southeast Asia, has set up a development centre and back office in India, to tap India’s highly-skilled talent base. Then there’s Ola, a company in which SoftBank is vying to increase its stake to around 40 per cent.

Business Standard reported on November 22 that SoftBank was in talks to give a partial exit to US investor Tiger Global, picking up an additional 10-12 per cent stake, which will add on to its existing 25-odd per cent holding in the Indian ride-hailing company.