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Why Uber CEO Travis Kalanick’s resignation is good news for Ola

LiveMint logoLiveMint 21-06-2017 Sayan Chakraborty

Bengaluru: The resignation of Uber Technologies Inc. CEO Travis Kalanick, who was a big backer of the company’s money-losing India business, may cause uncertainty in the short term at Uber India and boost Ola’s chances of retaining its market leadership, analysts said.

The change at the top could force Uber to cut its aggressive spending aimed at gaining market share, analysts said. If Uber reduces spending on driver incentives as well as keeping prices low for riders in markets like India, it will hit growth and benefit rivals, they added.

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“The new chief executive may not be as aggressive or forward thinking as Kalanick. A company with a founder as CEO will have more aggressive growth than a professional CEO who is likely to take a cautious approach. In the long term, things will stabilize, but in the short and medium term, Uber may take a hit. Secondly, the investors may rethink further investments and will wait and watch. A professional CEO and chief operating officer will continuously be guided by the board, which will look for profitability,” said Jaspal Singh, partner at Valoriser Consultants, a research firm focused on transportation.

"We all got to know about Travis’s exit this morning around the time the story broke in the media. Right now everybody is stunned and still coming to terms with the news, but it’s business as usual otherwise"- An Uber India executive

Kalanick’s resignation, prompted by investor pressure, came after a wide-ranging probe into Uber’s practices on tackling issues such as sexual harassment at the company and the professionalism and ethics of its leaders. Uber’s board hired two law firms, Perkins Coie and Covington and Burling, to conduct the investigation after reports emerged earlier this year about instances of sexual harassment and inappropriate behaviour by members of the company’s management team.

Two of Kalanick’s trusted leaders—Uber’s business chief Emil Michael and Eric Alexander, former head of Uber’s Asia Pacific business—were forced to resign in the last two weeks.

Still, Kalanick’s resignation came as a shock, not least to Uber employees.

On Wednesday morning, junior employees and executives at Uber India were caught off guard by the news about Kalanick’s resignation, according to two company executives. Only later in the day did they hear officially from the company when Kalanick wrote an email to employees, according to the executives.

“We all got to know about Travis’s exit this morning around the time the story broke in the media. Right now everybody is stunned and still coming to terms with the news, but it’s business as usual otherwise,” said one Uber executive, on condition of anonymity.

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An Uber India spokeswoman declined to comment on the potential impact of Kalanick’s exit on the company’s India business.

Since its launch in India in 2013, Uber has been spending aggressively on discounts, driver incentives and increasing supply. Uber was expected to increase spending in India to beat Ola after it sold its China business to local rival Didi Chuxing last year.

In a September interview, Uber India president Amit Jain said that Uber’s completed trips had risen from 165,000 a week in January 2015 to 5.5 million at the end of August 2016.

####SUBBOX####

Both Uber and Ola claim market leadership in India; analysts say the two are running neck and neck with each other.

Ola, run by Bhavish Aggarwal, has mopped up about $350 million in fresh funding over the past six months led by existing investor SoftBank Group Corp. While the company had to raise funds in a so-called down round that valued the company at $3-3.5 billion as against $5 billion in 2015, analysts believe Ola chances of keeping its position as market leader have improved after Kalanick’s resignation; so have its chances of attracting more cash.

“When top management changes, two things happen. One, immediate funding may get slower. Second, international level changes in policies may not happen for some time. Companies don’t resort to transformational changes in the initial three to six months. Instead, there will be local decisions in countries in line with the risk appetite of the company. When a company is in stabilizing mode, the competition tries to win the war. Given that there is uncertainty with the biggest competitor, rivals can benefit and there is a possibility that if they are raising funds, they might get an edge,” said Sreedhar Prasad, partner (e-commerce and start-ups) for KPMG in India.

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