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Ola, Uber yet to find a solution to the problem of drivers on strike

LiveMint logoLiveMint 05-03-2017 Sayan Chakraborty

Bengaluru: Many of the protesting drivers at Ola and Uber in Delhi and Bengaluru may have called off their recent strike, but the flaws in these companies’ business model mean commuters should be prepared for more such disruptions in the future, analysts say.

While the asset-light model of these cab-hailing services has merit, the strikes by drivers over falling incentives, their key attraction to list on such platforms, mean that these businesses cannot afford to rub the dissenters—car and fleet owners—the wrong way.

Thousands of cars affiliated to Ola (ANI Technologies Pvt. Ltd) and Uber Technologies Inc. went off the roads for more than 10 days in Delhi and Bengaluru, beginning 12 February.

While Delhi has limped back to normalcy, protesters in Bengaluru are holding out.

The protesters’ major grouse was a drastic cut in incentives, which has impacted their monthly earnings, and the constantly changing incentive structure of the companies.

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While Ola pays incentives based on the number of rides per day, Uber’s incentives depend on the total value of rides in a day.

“The question here is, who blinks first? But this has been the case across industries, where workers try to ensure they are not getting squeezed when the organization is making money. The irony here is, Uber and Ola are not even making money and still they have to ensure that they have to pass on enough to the drivers to make themselves lucrative. It is not that this will not happen again, but we have seen this across all labour-intensive businesses,” said Vinod Murali, managing director at InnoVen Capital India.

While Ola and Uber did not comment on the loss in business from the protests, RedSeer Management Consulting Pvt. Ltd estimates that Bengaluru, Delhi and Mumbai together account for about 60% of both firms’ overall business in the country.

This implies that a suspension of services for close to two weeks had significant impact on their businesses.

“A small number of individuals, who do not represent the majority of the driver community, has been preventing drivers who want to work from doing so. Drivers’ individual concerns vary tremendously. We care deeply about their concerns and we can and will do better in our communications to reduce confusion,” Uber India president Amit Jain said in a blog post on Friday.

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Jain, who claimed that there has been a 60% year-on-year increase in driver sign ups in January this year, however, said that “earnings are not one size fits all.”

About 80% of the drivers across India who are online for more than six hours a day, make Rs1,500-2,500 after paying Uber’s service fee, Jain said.

Uber is not new to such tirades from drivers.

Over the years, the company has faced similar protests in New York, San Francisco, Chicago, Seattle, Los Angeles and Qatar, among other places.

According to experts, there is no way to immediately put an end to such strikes as both companies were forced to cut incentives in order to reduce cash burn and move towards profitability. On the other hand, increasing the supply of cars and ensuring a steady and loyal driver-base are of paramount importance to the rival companies.

To be sure, both Ola and Uber have set up car-leasing businesses—Ola Fleet Technologies Pvt. Ltd and Xchange Leasing India Pvt. Ltd—over the past 18 months to ensure a supply of cars over which they have strict control.

The leasing business, however, has its own limitations.

“It has limitations in terms of capital. You can get, say about Rs1,000 crore, but not Rs10,000 crore as investment into the leasing business. Ultimately, you would want the business to grow on its own pace to become massive,” said InnoVen’s Murali.

Globally, a large chunk of Uber’s business comes from the peer-to-peer (P2P) model, where any person who owns a car can sign up on Uber and ferry customers around either on a part-time or a full-time basis.

In the US, Uber’s biggest market, a majority of Uber’s business comes from P2P. In China, too, P2P had been one of the company’s main drivers of growth.

Uber tried out P2P in Punjab last year, but it hasn’t launched the service nationally because of regulatory issues, though it is trying to convince regulators to allow it to launch P2P, Mint reported in September 2016.

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