Bengaluru: Ola, India’s largest cab hailing service, has started buying cabs and lending them to new drivers, as it moves to a part inventory model to build exclusivity with drivers and stave off competition from arch-rival Uber.

Ola, owned by ANI Technologies, said the company with financing partners and car manufacturers will invest 5,000 crore towards this cab-leasing programme over the coming year.

Ola has created a separate unit for the programme and will initially invest 500 crore into the unit. The company said it plans to independently raise money for the unit later.

All of these funds will be used to buy cars and maintain them. Under the programme, drivers can lease a car for an initial deposit and then make monthly lease payments with an option to own the vehicle after three years.

Currently, many drivers use both Ola and Uber to get clients; few are exclusive to one service. As the stakes get higher in the market share battle between Ola and Uber, both are trying to sign on as many drivers as possible and make them their exclusive partners.

The move into leasing will allow Ola to ensure exclusivity with drivers by locking them into its system. Ola said it is also putting together a monitoring system to ensure the drivers on its platform using leased vehicles don’t switch to other apps.

Ola will now be able to attract more drivers on its platform by offering them the option of not having to buy cars upfront, said Rahul Maroli, vice-president, strategic supply initiatives. “It is a big challenge to get enough drivers on to the platform. The demand is significant and we are not able to cater to that demand," he said.

Ola hired Maroli from LeasePlan India Pvt. Ltd this month to lead the leasing business.

The entry into leasing represents a big shift in the business model for Ola, which earlier didn’t have any ownership of the cars on its system. In the past, Ola only connected customers with drivers (who owned the cars) using technology. Both Ola and Uber also connect drivers to third-party financing firms for getting car loans. Now, Ola, in effect, will be putting up cash to buy cars.

To be sure, Ola will still get a majority of its business from the marketplace model. The company said it aims to add 100,000 drivers through leasing by 2016. This will account for less than 20% of the drivers on its platform, according to the company’s stated goals of overall driver additions.

Ola’s unit, which the company refused to name, has already piloted the leasing programme with more than 1,000 vehicles across Bengaluru, Chennai, Hyderabad and three other cities. Ola said it is working with Maruti Suzuki India Ltd and other large car makers and financial institutions to reach its goal of having 100,000 drivers through the leasing programme.

A part inventory model, while more cash-intensive than a pure marketplace model, has benefits, experts said.

“A mix of inventory marketplace model allows you to have exclusive drivers because you can lock them in for three-four years; this means drivers won’t move to other services," said Siddhartha Pahwa, chief executive officer at Meru Cab Co. Pvt. Ltd, an Ola rival. “Because we own about one-third of the cars on the platform, Ola and Uber haven’t managed to take away drivers from our platform."

The move into leasing comes as Ola and Uber are competing for a share of the taxi market in India, which some analysts say will grow at an average 20% annually to $28 billion in the next five years. Both companies have been building a war chest to win the battle for market share.

Ola, which says it is a market leader in India doing 750,000 rides a day across 100 cities, has so far raised more than $900 million from investors. Last week, Ola raised roughly $225 million as part of a larger $500 million fund raising round led by New York-based hedge fund Falcon Edge and some of the other existing investors.

Uber, which says it has 150,000 drivers on its network, with an estimated market share of 35%, had in July said it will invest as much as $1 billion in India within six-nine months to enter new cities and doing more than one million daily rides. Uber doesn’t give out details of the number of rides it does a day.

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