Can Uber make it in India?

by on April 17, 2017 at 1:50 pm in Economics, Travel, Web/Tech | Permalink

From Farhad Manjoo at the New York Times:

India’s cellular networks can be spotty and slow, and banking, credit cards and other financial mainstays cannot be taken for granted. More than that, vast differences in education and wealth create a social dynamic between riders and drivers that cannot be smoothed over by improving an app interface.

Not only are many of Uber’s drivers here unfamiliar with smartphones, some are illiterate. Often, drivers and riders don’t speak the same language. Many drivers need financial help to purchase or lease cars, and then require continuing help to manage their finances and other details of their small businesses.

On top of all this is competition. Uber faces an aggressive and well-funded Indian rival, Ola Cabs, which operates in 100 cities and offers a wider range of services than Uber does.

…The companies must also spend time educating drivers on the social dynamics of working for themselves. Many drivers arrive after working as private drivers for middle- and upper-class Indians; those jobs can be grueling — drivers work long hours, are expected to be constantly on call, and often aren’t accorded much respect for their work. When they come to Uber and Ola, the same drivers have to adjust to a job in which they finally have some agency, and the change can be terrifying.

Those are all good points, but I don’t think they get at the two main reasons why Uber will continue to have a hard time making money in India.  First, in major cities you never will know when your ride actually is coming.  The vehicle could be around the bloc, but still take thirty minutes to arrive.  In the meantime, should you just wait?  Second, if it is immediacy you value, there is almost always an auto-rickshaw nearby.

By the way, it turns out that about 80 percent of Uber transactions in India are cash-based.

1 YSK April 17, 2017 at 2:49 pm

Disagree with Tyler’s two reasons. Most Uber users do not want to take the auto-rickshaw however immediate it may be. It’s not true that you don’t know when the ride is coming. In most cases it is predictable. if the app says 5 minutes, the ride will be there in 15 minutes.

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2 Sam Haysom April 17, 2017 at 2:56 pm

A nice rule of thumb for India if it’s bad multiple what you imagine it will be by theee for instance smell, or in your face misogyny.

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3 Ron Fondler April 17, 2017 at 10:46 pm

tongue in fart-hole

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4 BC April 17, 2017 at 2:58 pm

Does the government in India create a cartel in cabs and auto-rickshaws? If not, then Uber probably will not do well. The value of Uber is that, because ride-sharing networks fall into a different regulatory regime than taxis, Uber is able to recover much of the value that was destroyed by the taxi cartels’ regulatory capture. Also, because Uber itself hasn’t (yet) established many regulatory rents, much of that value is distributed to consumers. Uber is a private sector intervention to fix a public choice failure.

From Alex’s post on rent control, perhaps there is an Uber-type solution for rental housing in India, some sort of “housing sharing” network that is not subject to rent control.

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5 carlospln April 17, 2017 at 5:50 pm

The ‘value of Uber’

BWAAA HAAAA HAAA!!

http://wolfstreet.com/2017/04/15/uber-confirms-horrendous-loss-in-2016/

Losing money on every ride….

but making it up on volume!

ps this could only happen on a putative economics blog

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6 Colin April 17, 2017 at 9:22 pm

He is referring more to the contribution of the company to social welfare, compared to before, not necessarily the company’s ability to make money. Uber clearly benefits its customers and society as a whole, even though it struggles to turn a profit.

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7 carlospln April 17, 2017 at 11:06 pm

‘Uber clearly benefits society as a whole’

An unregulated gypsy cab operation?

You drive for it, huh?

How’s that depreciation on your vehicle workin’ out for you?

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8 Mark Thorson April 18, 2017 at 12:25 am

The folks who run Uber are the greatest altruists in the industry, laboring for no profit and sacrificing the most important years of their careers. While also sacrificing their future careers.

http://jalopnik.com/companies-are-making-ex-uber-employees-prove-theyre-not-1793047267

9 Daniel Weber April 18, 2017 at 10:53 am

I don’t like Uber, but there are serious cases of Uber Derangement Syndrome at play here. Especially on an economics blog, people should understand the accounting differences between net revenue and profitability. Uber makes money on each ride.

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10 mulp April 17, 2017 at 2:59 pm

“but I don’t think they get at the two main reasons why Uber will continue to have a hard time making money ”

I didn’t see the reasons Uber can’t make money.

Uber loses money. Uber has too much trouble getting car owners to gift Uber with their money.

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11 Anon April 17, 2017 at 3:23 pm

Not sure how Uber is doing , but in major cities like Hyderabad I think Ola may be doing quite OK and many are happy that they have an alternative to the Autorickshaw.

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12 Boris_Badenoff April 17, 2017 at 3:27 pm

Mark Rogowsky, who used to work for Uber, had an article in Forbes the other day http://bit.ly/2puwYdV – Uber’s losses continue to grow with their staggering revenue growth. This is very concerning as to the viability of their long-term business model. After all, it’s an app linking GPS locations of customers & “independent” drivers & credit card processing for a cut. Other people can write apps, too – sooner or later, someone will propose a clearinghouse to do what Uber does at a big discount. Customer loyalty seldom survives price competition. Or are the losses just a manifestation of mismanagement, as with Twitter? Either way, I’m not spending too much time analyzing Uber’s future problems when red ink may sink them before they get there.

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13 Daniel Weber April 18, 2017 at 10:58 am

Uber has very little lock-in. It takes time and money to build a driver network big enough that riders will tolerate, but that’s hardly something that competitors cannot reproduce.

sooner or later, someone will propose a clearinghouse to do what Uber does at a big discount.

There’s no reason that the company who does this won’t be Uber. It might not, but they are certainly best positioned, apart from scandals, to capture the stable business that emerges.

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14 Ben Knieff April 17, 2017 at 3:32 pm

Just to offer a data point – I was in Delhi (and suburbs) for about 2 weeks about a month ago, and took probably 20 Uber trips all told. On past trips we would have a hired car for the day. This time we used Uber almost exclusively (myself/wife and her sister, brother as well). It was a sea-change in how we got around town and how free we felt. A few thoughts:

1) We never had to wait more than a 3 or 4 minutes for a car, and being able to see the car’s location on the screen helped both riders and drivers. Previous commenter described (5 minutes = 15 minutes) which is commonly known as “India Standard Time” – but the app doesn’t lie and one can adjust position if need be. Despite the crazy traffic in a busy city like Delhi there were always plenty of cars and I found the times quite accurate. For the distances we were traveling (5 – 15 Km) and auto-rickshaw would have been an option, but not a preferable option, though we did use them sometimes for shorter distances. Maybe we were in busy areas, but on this trip we were really never in tourist areas. It might have helped that my wife speaks Hindi and could call the driver to find an optimal pick up point, but in general it was really reliable.

2) Compared to hiring a car+driver for the day, Uber was more convenient and cheaper – we used to hire a car and they would have to park and we would have to find them and it would always be a bit of a run-around. It always seemed to me a deadweight loss having someone getting paid to just stand around in a car park just waiting for us. Some drivers would know that and pick up small jobs while we were shopping/eating, but then they wouldn’t be around when we were ready to leave – irritating when you think you’re paying for someone to be there.

3) Safety and security – India has a bad reputation for transportation safety, especially for women, when it comes to public transportation and hire cars. We did not experience this, even when the ladies in our group were alone at night. The worst experience was a driver that did not pick us up, but went to our destination anyway. Uber refunded the ride without any issue. There is a level of accountability with Uber that seems a net positive.

4) Simplicity – even though I have a US Uber account and a US card attached to it, there were no problems with using Uber. Sure, many/most folks in India don’t have credit/debit cards – but the experience was seamless – exactly the same as I have in the US. I wanted to try Ola, but there really wasn’t any need. Even my in-laws that live in Delhi were at least comfortable with Uber. Our local friends tended to pay with a card attached to the app. For a non-local having a clear up-front fare, even if it is a bit higher priced, is a big advantage opposed to negotiating with an auto-rickshaw where you might get ripped off.

5) Every driver I spoke to felt they were earning more and better off. Some said they were doing “lease to own” arrangements and while I didn’t learn the terms, the drivers seemed really astute about the economics of their decisions. When I asked how much they earned before doing Uber, most suggested they were were doing 20%-40% better considering all costs. Unlike in at home in NYC where most drivers I ask say they are even on money (but ahead on flexibility) the drivers in Delhi seemed to suggest they were much better off. The drivers also specifically said they get more rides and spend less time idle than before Uber. One driver said he went from 8 – 12 rides a shift to 10 – 20 rides/shift. While some rides were shorter, he said it added up to much better money overall.

I think Uber (and others) can do very well in these markets, possibly with tourists/non-locals first, then with higher-earning locals. Bigger cities are the obvious places, but one could imagine an “Uber-minibus” which serves outlying areas with a model similar to Uber Pool. There are plenty of folks waiting by the road for an informal minibus, connecting them with drivers would be very efficient I think.

Uber might not be the one to do it, and I agree that the smartphone-featurephone divide is important, but all in all, my observation is that there is a win-win

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15 Harun April 17, 2017 at 4:40 pm

Taiwan recently banned uber, because Taxi Drivers vote.

But, I think it was really quite dumb of them. They expect foreign tech people to come to Taiwan, and then fumble around to download some Taiwanese made app because its more politically palatable to the taxi drivers?

Maybe China can get away with that, but its not a smart policy.

I also think its hilarious that certain countries demand market access to the USA, but when face with US supplied services that might harm some of their workers, they throw virtual up walls.

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16 CD April 17, 2017 at 4:46 pm

I was in Delhi and Chennai for a while in December and had the same experience. The main constraint was cell-phone signals.

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17 Anon April 17, 2017 at 5:26 pm

Thanks for this detailed comment.
My brother visiting India from Paris was also mentioning how convenient Uber was for him during a recent trip.
My daughter however struggled to download the App on her India phone , but that may have been a
technical issue.

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18 Anon April 17, 2017 at 5:32 pm

Also with the cash shortages after Demonetization , there is no choice but for cash transactions to go down.
Ola has a Ola wallet , assume Uber also must be having some equivalent.
https://www.cnet.com/news/india-trades-cash-money-for-digital-wallets/

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19 Ankur April 18, 2017 at 3:01 am

They have a tie-up with PayTM for a wallet

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20 RH April 26, 2017 at 9:07 am

I’ve been in India for the last 5 weeks and have not witnessed a single occurrence of a cash shortage.

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21 Alex Tabarrok April 17, 2017 at 5:46 pm

Everything that Ben says regarding Uber is correct. Uber has been superb for me. Not quite as good as in the United States but still superb.

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22 Chocolate Seller April 17, 2017 at 10:07 pm

Good points overall.

Outlying areas minibus pooling – good idea and definitely viable as the cellular network improves! You should pitch this to Ola / Uber.

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23 yga April 17, 2017 at 6:18 pm

I’ll second (third?) what Ben said.

Just got back literally this morning from another trip to India. Could name several examples where having Ola/Uber would have been a life saver (had I had data, which I didn’t, so I couldn’t use them):

* Getting from Gurgaon back to Delhi – there’s no way I’m taking an autorickshaw for that. Ditto getting from the Bangalore train station to the airport
* Getting frankly anywhere in the heat – temperatures can easily top 90 degrees and I’m in business gear! Again – having an autorickshaw is hellish
* Scheduling a ride – I had a 6AM pickup at one point, and couldn’t find any rickshaws, and started sweating…

On top of the other issues which Ben highlighted (and the safety issue strikes me as a major one, especially for female travellers)

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24 yga April 17, 2017 at 6:20 pm

Should also add — avoiding the constant negotiations with taxis/rickshaw drivers (outside of Mumbai, where the meters are reliable) is a huge plus for many folks!

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25 mikey April 17, 2017 at 6:46 pm

> First, in major cities you never will know when your ride actually is coming.

In Chennai this was not my experience at all. Also, the ease in describing the destination (you don’t have to) and common understanding of the fare is the important value here.

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26 Some Guy April 17, 2017 at 7:15 pm

India is big and stratified enough that the premium segment ‘Uber Black’ alone might be a good business for them.

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27 P April 17, 2017 at 8:42 pm

I’ve been taking delhi rickshaws for a few years and Uber is a huge step up. Prices are marginally higher than rickshaws, but there is no negotiation, less air pollution, no circuitous routes from rickshaws trying to make an extra buck, and no dealing with drivers who don’t want to go to your destination. It’s true there are some startup pains such as drivers who don’t know they are supposed to drive to your pin– but these are uncommon and well worth the benefit of not having to deal with rickshaws.

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28 freethinker April 17, 2017 at 9:26 pm

“many of Uber’s drivers here unfamiliar with smartphones” That is surprising. I recently had to travel a lot in small towns and all the local autorickshaw drivers and shopkeepers I met had smart phones and were using them intelligently. Mind you these are small towns in rural areas. Uber drivers are located in big cities and finding drivers who can use a smart phone well should not be difficult. perhaps the main reason uber may not be popular is because , as Tyler put it, there is the auto-rickshaw nearby.

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29 Chocolate Seller April 17, 2017 at 10:03 pm

Ola/Uber sure beats the auto rickshaw because:

1. Heat
2. No need to haggle / negotiate the fare (a problem everywhere except Mumbai, as someone else noted)
3. Wait times are not as unpredictable as the author makes it sound

Also the author’s point about drivers’ unfamiliarity with smartphones is nonsense.

Competition from Ola is a good point – however Ola is losing money like crazy. For example, in Delhi Ola offers drivers a “minimum guarantee” of RS 6400 if the driver makes 17 rides in a day. The actual fare collected is about RS 4000 only. There are similar incentives for completing 11 or 14 rides, with Ola losing about RS 1000 to 2000 per car per day! Uber apparently offers similar incentives. (Incentives are based on number of rides to increase availability of rides for the customer, I presume).

Drivers have become used to good incentives and any cut-back on incentives by the companies faces stiff resistance from drivers. I have met many drivers who’ve shuttled between Ola and Uber as their incentive policies change. I am not sure how sustainable this is.

By the way, in some cities like Chennai you can also hail a auto rickshaw through Ola. In Mumbai, you can hail a city-taxi (black-yellow ones) through Ola.

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30 Ron Fondler April 17, 2017 at 10:50 pm

Pussy-grabbing? Try grabbing Malcolm Gladwell’s abnormally large forehead.

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31 RM April 17, 2017 at 11:48 pm

For those of you who are technically skilled, how does Uber find addresses in places like India, where it is not uncommon to have an address like: Marlan Hostel, opposite Parliament House (or some such). I find this all puzzling.

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32 freethinker April 18, 2017 at 3:16 am

That kind of address is OK. In one city you have addresses like 16/234/45/504H with the street name. And somehow the post reaches that destination!

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33 Kris April 18, 2017 at 6:44 am

Routing in India is based on landmarks, and not on roads and intersections (and compass directions.) It can be endlessly frustrating for foreigners (and returned expats), not to mention inefficient (one has to stop every few minutes to ask someone how to get to the next landmark.) But locals are mentally attuned to this system, and the postmen are after all locals.

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34 Ricky Tylor April 19, 2017 at 9:29 am

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35 edwardseco April 20, 2017 at 1:13 am

There are a number of radio taxi alternatives in India such as Meru so it indicates the feasibility of Uber as well as the challenge.

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36 Murali April 22, 2017 at 7:27 pm

Can we define what’s making money? By some are we stuck with the old fashioned notion of profitability ?

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