What will be the survival strategy for other players in the taxi-booking space? Industry experts weigh in
The budding online taxi-booking space in India witnessed a major consolidation with Ola acquiring rival TaxiForSure for $200M in a cash and equity deal, which edges out rivals such as Uber and Meru Cabs. This is the second-largest buyout in the consumer Internet market after Flipkart’s acquisition of fashion portal Myntra last year for approximately US$300 million.
Ola and TaxiForSure will continue to operate as separate entities while the co-founders of TaxiForSure Aprameya Radhakrishna and Raghunandan G will move to advisory roles. The current CEO Arvind Singhal will take over as the CEO at TaxiForSure. TaxiForSure started its operations in Bangalore in June 2011 and is present across 47 cities in India, with a fleet size of over 15,000 drivers clocking over 5 million rides. The sale comes in less than four years after TaxiForSure started and just a few months after it received the Series C round of funding.
Bhavish Aggarwal, Co-founder and CEO, Ola said, “Ola and TaxiForSure share the same vision of revolutionising urban mobility. TaxiForSure has a great team and they have built a very exciting business in a short time. There’s a lot of complementary value in the strategy TaxiForSure has followed.” With this acquisition, Ola becomes a leader in the taxi aggregator business in India with over over 100,000 vehicles across 67 cities. Investors in TaxiForSure will roll over their stock into Ola.
The main reason for the acquisition to take place was to gain competitiveness against rivals. It will lead to higher economies of scale as both the companies have a similar customer base.
Ravi Gururaj, Chairman and Co-founder, Frictionless Ventures and Chair of the NASSCOM Product Council
“This acquisition makes a lot of sense from Ola’s perspective. Ola is ably led by Bhavesh who has now acquired a major local competitor, got access to more talent, injected new capabilities like the TaxiForSure call center platform and grown the fleet of drivers and customers database,” said Ravi Gururaj, Chairman and Co-founder, Frictionless Ventures and Chairman of the NASSCOM Product Council.
“While I am thrilled for the TaxiForSure founders, with my “consumer” hat on I must admit to harboring a tinge of disappointment since consolidation often does reduce options and may slow down the pace of innovation. Having more players in the market always ensures access to superior quality services and innovative offerings,” he added.
Closer look at the taxi-booking space
According to several reports, the Indian taxi market is estimated to be around $8-9 billion, out of which only 5-6% is under the organized sector. It is being projected that in the next 5 years, the organized players will capture more than 17% of this market. Hence, all the players in the space have a lot of room for growth. Increasing penetration of Internet, faster adoption of smartphones, rise in the disposable income and late working hours have led to an increase in the adoption of taxi-hailing apps in India. But according to industry estimates, taxi companies are struggling to keep pace with the rising demand and cannot accommodate the rising number of bookings.
The onset of Uber in India, which is its second-largest market after US, has changed the game for taxi business in India. Local players such as Ola, TaxiForSure and Meru Cabs started offering huge discounts, mobile wallets, referral schemes and smarter features to stay ahead of competition. Ola made huge gains on mobile, with almost 70% of their bookings coming from the mobile app and became a leader in in the app store rankings. Its low cost rides along with various promotional offers attracted huge attention. Ola also started a completely new business with auto rickshaws and kaali-peeli cabs.
TaxiForSure focused heavily on the economy segment of cab consumers with innovative offerings like Tata Nanos as part of their fleet and INR 49 (US$0.79) as base fares in the past. And Meru Cabs also launched its Genie cab service which was a pocket-friendly, air-conditioned cab service for a common man’s city travel.
The major players including Meru, Ola and TaxiForSure spent huge amounts in launching their mass media campaigns to create awareness about their brands. All of these companies have adopted several methods to stay ahead of competition and become the preferred choice of consumers leading to a vibrant taxi-booking market in India. It has also seen huge interest from investors including Japan’s SoftBank which invested $210M in Ola, Tiger Global, Steadview Capital and Accel Partners among others.
Threat to Uber?
With a massive war chest, huge valuation and a prolific technology, Uber is clearly a global market leader. It has attracted early-adopters through world-class services, free rides and referrals thereby building a loyal customer base. In order to expand into new markets, Uber has also been adding new products and features over time. In India, it also offers low-cost options in various cities to make the service accessible to everyone. It has recently slashed taxi fares up to 40 per cent across various cities and has been doing local promotions to attract customers. But Uber’s ride in India has not been smooth after the company was banned by the Indian government due to the alleged rape of a woman in New Delhi by an Uber driver on job.
However, experts believe that this acquisition will not have an impact on Uber in the near term because of its global branding, better services and a loyal customer base. “The Uber management team led by Travis is now battle hardened and faces adversity and competition on a daily basis in numerous markets worldwide. Uber has captured the imagination of investors and consumers like very few companies ever have and I would be hard pressed to bet against them,” Gururaj said.
Rumours also suggest Uber is in talks to buyout Meru Cabs to improve its footprints in India.
Sanjay Nath, Co founder & Managing Partner at Blume Ventures, and an early investor in TaxiForSure, said, “While Uber has a great brand name and a formidable global platform, India is unique and so are its customers, taxi drivers, and other stakeholders. We’ve seen that a once-size-fits-all strategy doesn’t always work. Uber will have to look at creative ways to stay ahead in this large segment, given that the combination of the Ola-TaxiForSure duo has shown that it understands the needs of Indian users.”
Should other players be worried?
This acquisition will affect the relatively smaller players operating in the market like TaxiPixi, Bookmycab among others. The traditional players such as Mega cabs and Easy cabs will also lose a significant market share to the duo. However, Meru and Bookmycab seem less worried. According to Siddhartha Pahwa, CEO Meru Cabs, this is the first sign of consolidation in the business. “Our driver aggregation rate has increased since the news on Ola acquiring TaxiForSure as drivers realise that Meru is a much more sustainable and stable organisation. Meru is the leader in this segment and will continue to consolidate its leadership position,” he said. It is currently operating in 19 cities and will be in 22 cities by the end of March.
Avinash Gupta, CEO of Mumbai-based Bookmycab said, “This acquisition is a sign that the industry has matured in a very less time. Ola and TaxiForSure have created awareness about the category through mass-media advertising campaigns which has helped other smaller players also. It is a welcome move because consolidation is the key to survive in the future.” Bookmycab.com recently acquired CabonClick.com, an online taxi booking service provider in Hyderabad and parts of Telangana for an undisclosed sum. The acquisition is part of Bookmycab’s strategy to increase footprint in the southern markets of the country after the western (Mumbai) and eastern regions (Kolkata). The company is looking for further acquisitions to expand into newer markets.
Who wins the game?
Industry experts believe that consolidation is the future because none of the players in the consumer internet space is achieving profitability. Globally, the taxi-booking app space is also witnessing consolidation with the merger of Didi Dache and Kuaidi Dache, two of China’s leading taxi-hailing apps, creating one of the world’s largest smartphone-based transport services.
“The remaining smaller players now have the ante upped on them to innovative faster or else their very survival will be at stake. They will need to capture the untapped localized segments and create newer categories to run ahead of the now two dominant players – Ola and Uber. This acquisition also ensures any new entrants will have to launch very well capitalized to be credible,” said Gururaj.
According to Nath, unless the smaller providers focus on niches of urban transportation, the space is likely to see less fragmentation and thus fewer players emerging at the very top. He feels that one big area for innovation is opportunities on the back end – around supply chain, logistics and last mile delivery. The players should also look at creating aggregator apps for other segments beyond cars and taxis.
Experts also stated that it is important for the players to ensure faster booking time and cab tracking using GPS to attract the consumers. Avinash Raghava, Co-Founder & Fellow at iSPIRT Foundation pointed out that all these players started with a premise of using technology to drive cab-bookings but none of them are following it. The drivers lack training so they continuously call the customers for the pick-up location instead of following the route via their GPS-enabled smartphones. This is a complete failure for all these online cab-booking services and they should ensure proper training of the drivers to provide a seamless experience. He also feels that the loyalty of a consumer is now moving towards the aggregator that offers better deals hence there is an opportunity for every player.
Lastly, in order to succeed in this fiercely competitive market, the taxi-booking companies should accommodate more bookings, have better safety measures, ensure proper training of drivers and offer attractive deals to tap the growing base of users in India.
This post was originally published on e27.