Uber, Ola have hit speed hump, but are still seeing growth

The number of cabs affiliated to either Uber or Ola has dropped by 25% in the first quarter of 2017

As the slugfest between Uber and its Indian counterpart Ola wanes, the growth of the country’s ride hailing market has plummeted for the first time since 2014.

After both companies invested billions of dollars in growing the market for on-demand cabs, news reports citing market researcher RedSeer suggest the number of cabs affiliated to either Uber or Ola has dropped by a staggering 25 per cent in the first quarter of 2017.

While the prime reason for this drop in inventory has been a cut in driver incentives, others argue that both firms had overstocked on supply and the drop is a much needed correction.

As the media paints a picture of doomsday in the ride hailing sector and drivers advice their peers to look elsewhere to make a quick buck, new driver signups on both platforms are down.

“What has actually happened is that there is a slowdown in the recruitment of new drivers. This industry has always been prone to high attrition, and this was the case even when incentives for drivers were high,” says Jaspal Singh, partner at Valoriser Consultants.

“Earlier they were recruiting more people than the number quitting the platform, but now it’s the reverse.”

Despite this big drop in the overall number of cabs available on both platforms, the number of rides Uber and Ola receives hasn’t fallen. Growth, however, has hit more realistic figures. According to Singh, whereas the industry was growing at 10-15 per cent on a month-on-month basis last year, growth has slowed to around 5 per cent today.

Ola claims that it has over 650,000 drivers signed up on its platform, across all categories - shuttle, cabs, autos and bikes. Uber, on the other hand, claims it has over 240,000 active driver partners on its platform in the country, but only offers cabs on its platform. While these numbers might be quite large, analysts say at any given point of time only 30-35 per cent of driver inventory is active.

The cut in driver incentives has largely been fuelled by investor pressure to conserve cash, but going forward while Uber and Ola will continue to expand their services, they will do so in a much more efficient manner. One of the key changes one might expect is a relatively smaller base of cabs but with far higher utilisation so as to ensure drivers get adequate business.

The call to reduce driver incentives is also a precursor to an increase in fares for customers, as both companies set their sights on making profits. This will also help drivers, who have been complaining of inadequate earnings, make more money per trip and reduce their reliance on incentives. It’s a cyclical trend that’s seen in all such businesses experts say.

“The future of our business depends on making driving with Uber the most attractive choice. Given the strong demand from riders, drivers across cities continue to join the platform to get entrepreneurial work at the tap of the app and we are committed to supporting them in this journey,” says an Uber spokesperson.

Ola declined to comment for this story.

The alarm bells are not ringing just yet, say analysts and industry watchers. However, it is to be seen how Uber’s global restructuring after the exit of CEO Travis Kalanick affects its India business. While Amit Jain, who was made the head of Uber’s India business, has delivered results in just two short years, any lethargy from the headquarters could hurt the company’s India unit.

Further, Jain’s stellar performance in India had put him in the good books of Uber’s investors. As they now call the shots in determining the company’s future leadership team, Jain could very well be offered a global role at Uber. If this happens, it could have repercussions for the India business.

Despite Uber’s weakened position, Ola, quite uncharacteristically, isn’t planning any strikes just yet. A senior official at the company on the condition of anonymity says that the general consensus at Ola is that drivers will move to Ola organically as Uber implodes.

“Drivers of Uber will slowly start moving to other competitors. In India, of course, they will come to us. The reason is there will be a management shakeup, people will start feeling insecure and this will go down to the drivers,” says the Ola official. “We should just focus on our business, not grab business.”

Moreover, Ola’s largest investor, Softbank, has put its foot down, robbing the company of $2 billion in valuation when it invested $230 million at a valuation of $3 billion. The primary driver for the drop is said to be the company’s insatiable thirst for capital being spent on incentives, discounts and promotions. Over the past six months, however, the company has been reducing its burn and looking at more meaningful growth even at the expense of a little degrowth.