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Business News/ Companies / Start-ups/  Uber vs Ola battle means windfall for drivers, riders
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Uber vs Ola battle means windfall for drivers, riders

Flush with cash, Ola and Uber are spending heavily to recruit new cabs, offer subsidiestodrivers and low prices to customers

While Uber India, slashed prices in Delhi earlier this week and is offering rides for as low as Rs20 in Mangaluru, Ola plans to respond with discounts and price cuts of its own in some of its markets. Photo: ReutersPremium
While Uber India, slashed prices in Delhi earlier this week and is offering rides for as low as Rs20 in Mangaluru, Ola plans to respond with discounts and price cuts of its own in some of its markets. Photo: Reuters

Cab-hailing service Uber India is again starting a price war as it looks to regain the initiative from Ola, whose market share has increased dramatically since it launched Micro, the lowest-cost ride offering in the market yet.

Uber India, which is flush with funds after its parent raised a mammoth $5 billion in cash, slashed prices in Delhi earlier this week and is now offering rides for as low as 20 in Mangaluru for a week. Ola plans to respond with discounts and price cuts of its own in some of its markets, according to one person familiar with the matter.

The price war will result in a windfall for customers and independent drivers at Uber India and Ola, while significantly increasing the ballooning losses at these two companies.

Uber and Ola didn’t respond to emails seeking comment.

Uber’s price cuts come after the company lost out to Ola since the latter launched Micro in early March.

Over the course of 2015, Uber significantly increased its market share by spending heavily on recruiting new cabs, paying huge subsidies to drivers, offering attractively low prices to customers and by accepting cash payments from riders. Uber’s market share soared to roughly 40% at the beginning of this year from just 5% a year ago, according to Uber executives.

To win back market share, Ola, which disputes Uber’s claims of market share, launched Micro, the cheapest cab offering in the market. Micro has helped Ola reverse much of last year’s market share loss to Uber and opened up a big gap with its rival.

But Micro’s launch was expensive and has increased the company’s cash-burn rate.

“Discounting is never sustainable. (But) Ola also has its own set of investors who will be willing to support the company as they are still the largest in India," said Harish H.V., partner at Grant Thornton.

Mint reported on Tuesday that Ola, India’s largest cab-hailing service, had initiated talks with investors to raise $300-400 million in fresh funds as it seeks to maintain its lead over the arch rival.

Ola has raised roughly $1.2 billion in cash, most of it over the past 20 months, from SoftBank Group, Tiger Global Management, Matrix Partners and others. Last July, Uber promised to pump $1 billion into its Indian operations over nine months. It’s not clear what is the actual amount the company has so far invested in its India operations.

As expensive as the price war in India is for the two companies, it pales in comparison with what is playing out in China. Uber China and Didi Chuxing, the market leader in China, have together raised more than $11 billion in equity and debt over the past 18 months. Uber Technologies Inc., the US-based parent company of Uber, has separately received $12.9 billion in equity, according to the Wall Street Journal newspaper, and a few billions of dollars in debt.

India is the most important market for Uber, which is present in 461 cities globally, after the US and China. While Uber dominates its home market, it is struggling to gain ground on Didi, which is also a strategic investor in Ola, in China.

The importance of India is only likely to increase for Uber this year as analysts expect the company to struggle to overcome Didi in China.

If Didi continues to win by a significant margin in China, India may become for Uber what it is for Amazon.com Inc.: a market it cannot afford to lose. In that case, Ola will face stronger competition and may need a bigger capital cushion, analysts say.

Separately, a Tata group firm and Uber said on Thursday that they signed a deal to offer vehicle-purchase financing solutions to drivers. Drivers on the Uber platform will now be able to buy cars such as the Indica and Indigo from Tata Motors Ltd and gain access to financing from Tata Capital Financial Services and Tata Motors Finance Ltd, get insurance from Tata AIG and seek operational support from Tata Business Support Services.

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Published: 17 Jun 2016, 01:00 AM IST
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