OLA vs UBER
While comparing both their offerings, there are a few differences that you should keep in mind. Ola lets users make advanced bookings with the Ride Later option, while Uber does not. Uber has a cancellation free, Ola does not. Both services have a per-minute charge as well, which varies from Rs. 1 to Rs. 2.5 depending on the car’s category. Ola’s per-minute ride-time tariffs only start ticking five minutes after the ride in some cities, according to the tariff charts.
Apart from this, in Hyderabad and Bengaluru, Ola levies an ‘Airport rate’ that has a much higher fare and minimum bill amount, which can prove costlier than radio taxis, based on surge pricing. Both companies have launched ride sharing services and private carpooling services in Delhi. Ola plans to launch Ola Share in 20 cities across the country over the next six months.
A quick analysis of all the fleets, (which range from hatchbacks to sedans, to luxury sedans and SUVs,) operating in the Indian metros reveals that the lowest minimum fare for a cab is in Kolkata, where an UberGo starts at Rs. 45. At the time of writing, UberGo had a per kilometre charge of Rs. 6 in Chennai, Rs. 7 in Bengaluru, Delhi, Hyderabad, and Kolkata, and Rs. 8 in Mumbai. On the other hand, an Ola Mini costs Rs. 10 per kilometre in Bengaluru, Hyderabad, and Chennai, and Rs. 11 per kilometre in Mumbai. The only city where it is cheaper is in Kolkata, where it costs Rs. 7 per kilometre.
In Delhi, an Ola Mini costs Rs. 8 per kilometre, with a minimum fare of Rs. 100 for the first four kilometres, while an UberGo has a minimum fare of Rs. 60. Generally speaking, it appears that UberGo is likely to be the cheapest on your wallet, barring any surge pricing. Predicting which app will have higher surge rates at any point in time is something that’s worthy of a PhD thesis.
Is UBER becoming the target?
While Uber’s global presence might make the app more appealing for frequent travellers, Ola is making headway internationally – partnerships are forming between Uber’s rivals, to challenge it globally.
According to a Bloomberg report, Uber lost $1.7 billion (approximately Rs. 11,500 crore) despite earning $1.2 billion (approximately 8170 crore) in revenue over the first three quarters of 2015. It’s biggest competition is China’s Didi Kuaidi, which completed 1.4 billion rides a year, and invested in Ola in September 2015.
In December, Ola inked a pact with Didi, and also with Uber’s biggest competitor in the US, Lyft, allowing users to seamlessly travel across China, US and Southeast Asia. Partner products are expected to roll out early this year.
In response, Uber has experimented with many India-specific features, such as cash payments in May 2015, and Uber Auto, which was shunted in late 2015 after being tested in New Delhi.
To sum it all-
Ola Cabs is currently not making any profits but the business model of Ola Cabs is currently working on the strategy of capturing the market and tapping the potential of a large number of Indian commuters by offering different services like local transfers, outstation travel and full day/half day rentals thereby catering to the varied needs of the customers. Currently Ola Cabs is working to gain market share while trying to provide an enjoyable experience to the customers and thereby gain their trust. To attract more and more customers they provide discounts/ referrals/ coupons etc.
The business model of Ola Cabs also works by getting money from grocery deliveries, peak time peak charges etc. OLA Cab provides different services like Ola Mini, Ola Prime and Ola Luxury depending on the needs of the customers and charges fares accordingly. For example OLA Mini Charges for a Cab service in Delhi Rs 100 for the first 4 kilometers and the Rs 8 per kilometer.
But is this data enough for you to decide OLA is better right now?
Start Up Street analyses OLA and its business model in depth i.e. how it affects the passengers , the drivers and the company to see whether OLA is really worthy enough of the position. The mathematical, statistical and financial analysis of the team suggests –
For the Passenger: The Rs. 7 Per Kilometer is actually Rs. 13.5 per Kilometer
OLA advertises its lowest fare in Bangalore at Rs. 7 per km charge but that is utter bull. For an average 10 km ride in the city, it costs much more:
a Rs. 35 base charge that has no free usage, which would be Rs. 3.5 per km.
Rs. 7 per kilometer run
Rs. 1 per minute as a driver fee. For an average of 3 minutes per kilometer this comes to Rs. 3 per km.
These add up to Rs. 13.5 per kilometer. That’s how much you pay for an auto as well.
At Rs. 13.5 per kilometer, your car would have to give you a fuel efficiency of 6 per liter for the economics to make any sense. I see comparisons of – oh you pay X for the fuel, Y for the driver cost, Z for the parking…this is utter bullshit. Owning a car means I will drive it; I don’t need a driver (if you do, your economics are different from mine, and I believe people like me are FAR more prevalent). Plus I’ve already paid for the parking – it comes with my house!
The annual costs of a car are tiny nowadays (Rs. 1 per kilometer, assuming Rs. 12,000 service costs for Rs. 12,000 driven). So if my car gives me 12 kms to a liter of petrol, i’m still paying just Rs. 5.5 per km for petrol and Rs. 1 for parking.
And then, OLA cars are not available when you want them – wait times are upwards of 10 minutes most of the time, unless you’re in a favoured location. Then, there are spikes – if it rains, OLA goes to 1.5x “surge” pricing. All this will not vanish because drivers too have their economics which ensures such practices (long wait times, surge pricing) will continue.
For The Driver: You Pay Rs. 100, the Driver Makes Rs. 300: OLA Pays The Rest
I travel about 7 kilometers to office per day. My bill is between Rs. 100-120, given slightly longer than average time to destination. The driver, though, gets nearly Rs. 300 for my ride. How?
The Rs. 100 I pay
OLA pays Rs. 100 “incentive” per ride
If he takes 12-13 rides per day, he gets another Rs. 1,200 which is Rs. 90 per ride
Out of the Rs. 300 he makes, he apparently “pays” OLA 25%. So he makes a net fee of Rs. 225.
This is awesome for him, because:
For 12 rides a day, he gets Rs. 1200, plus Rs. 100 per ride incentive = Rs. 1200, plus Rs. 100-150 per ride as a fare = Rs. 1200-1800.
That’s about Rs. 3600 – 4200 per day.
Of which he pays Rs. 1000 or so to OLA, and nets Rs. 2500 to 3000
Most drivers I’ve met say that their target gross number is Rs. 2,000 per day – if they make it they consider it a good day, many just drop out after that. (There’s a lower Rs. 500 incentive for 8 rides, and many make their Rs. 2000 target at that point)
That’s about Rs. 60,000 per month for a driver (gross) and net, around Rs. 45,000.
His costs are:
Rs. 15,000 as EMI for the car
Rs. 10,000 for fuel costs and service
Net costs of Rs. 25,000 – they’ll take home Rs. 20,000 or so, which is sweet because it’s about 15% more than they can make as a standalone driver.
For OLA: This is a Lousy Deal, So Probably Called Marketing Expense
OLA only gets what you and I pay. I pay Rs. 100 per ride. If you multiply that by 12 rides, that’s Rs. 1200 that they get, per day, per car. Let’s be nice and say they get Rs. 1,800 at the average of Rs. 150 per ride.
The driver, as you can see, makes Rs. 3,000 per day, even after “paying” OLA their fees.
So OLA’s paying the rest, at Rs. 1,200 per day of net losses.
(Apart from this they pay 14% service tax, and apparently don’t charge the drivers yet, so that’s an extra loss)
For 12,000 drivers (this is the average figure I hear in Bangalore from the drivers) that’s Rs. 1.5 crore, or Rs. 15 million per day.
In Dollar terms, that’s $250,000 per day.
For 30 days, that Rs. 45 crores, or $7.5 million – per month, of losses in Bangalore alone.
The annual losses will be around Rs. 500 cr. or more, just short of $100 million. This is not considering any other expenses like marketing or salaries or support.
This is now, when incentives are low. They started with a Rs. 250 incentive per ride, and even higher number-of-rides incentives.
So, what should OLA cabs do to ensure the whole market share?
If drivers drive 1.5 km to connect with you today, it’s because they’re getting paid that Rs. 300 (okay, Rs. 225) per ride, no matter what.
They don’t crib about where they you want to go. They don’t mind going to a remote place. OLA’s incentives make them go for it. In fact, after 7 or 11 rides, just to make that last one count, they might ask a friend to book a small ride – of say Rs. 50 – so that they don’t lose the incentive. They even request customers – and in one case, when I had to drop a friend off in the middle, I even did it on my own (because OLA’s supposed to be point to point, so I told him I’ll rebook where my friend was dropped).
If you take away these incentives, it will go back to the Auto problem. Drivers will call and ask you where you want to go, and then refuse the ride. OLA might think that this will reduce driver rating which will kick them off the system. But if this is rampant, no “rating” system will help – and as we have seen in Autos, it *is* rampant, even though there are 2x more autos on the road than demand.
And if you increase fares, many drivers will not even use OLA – you will be able to pick them off the road which is how you pick up Autos. A simple app to measure distances is all you need – and there are tons today. That saves drivers and passengers the 25% that OLA would otherwise charge. And it saves the hassle of having to struggle with surge pricing and all that. A service to call taxis is not very difficult to build, and if OLA takes out incentives these kind of services will easily find their way into every city.
In effect OLA has to keep losing money, for a long time, to drive all competition into the ground. And then hope that as a monopoly it can raise prices and cut incentives. And regulators must not interfere. And public transport should not increase appropriately. And oil prices should be stable. And incomes should go up substantially. There is a non-zero probability of this happening. But even without the math, you get the feeling it’s a lot closer to zero than to one-zero-zero.
While data seems to indicate that Ola is presently in a leading position in India, it’s too early to declare a winner with UBER ready to make $2 billion investment in Indian markets