While traveling in Ola, Uber cabs you might be surprised about how they are making profits by offering cheap cabs at auto prices.
There are a lot of interesting things happening in Cab-riding industry. First of all, we need to understand that both the operators have substantial investments from world’s top investors like SoftBank, Matrix Partners, and Tiger Global Series B, Amazon, etc.,
The bitter fact is that till now both the companies didn’t make any significant profits worldwide including India. Similar to other startups they are initially investing huge funds in acquiring the major market share.
First, they identified the potentiality in the cab-riding industry. Until Ola and Uber arrival people mainly depending on the unorganized and nonprofessional auto sector. By offering similar pricing to the customers Ola, Uber migrated the customers from Autos to AC Cabs.
At present increasing the client’s base is the primary target for those companies. In the later stages, they focus on break-even and making profits. Both the companies suffering from huge losses, but they don’t care. Gradually they are minimizing the losses by implementing innovative strategies in recent days.
How much losses the companies making?
If we analyze the income and expenditure of one Ola cab, we can get an idea of the facts behind the scene.
Take driver Srinivas as an example. He makes nine rides per day. Ola in return pays Rs. 3,000 as gross, deducts 20% commission, i.e. Rs. 600 and the net revenue for the driver is Rs. 2,400.
So Ola spends Rs. 2,400 per day on Srinivas. Each ride Srinivas finished may earn Rs. 150 on an average. So for his nine trips, Ola makes Rs. 1,350 (Rs. 150×9 trips)+600 as commission, and the total is Rs. 1,950.
So for every driver Ola gets a big loss of Rs. 1,050 (Rs. 3000 what they paid to the driver minus Rs. 1,950 it earns from the trips).
How are they minimizing the losses?
Ola and Uber are gradually implementing few measures to reduce the losses.
1. Surge pricing:
In the initial days, there are no peak-time charges for the customers. But now, except a few hours, round the clock, we are greeted with peak charges while booking the cab. 1.4x, 2x peak prices reduce the losses drastically. Ola started “Ola Select” subscription and charging Rs. 549 per month to get rid of peak pricing. Most of the users paying the subscription to overcome peak-time. This is the additional income for the company.
2. Reducing incentives to the drivers:
Until last year, every driver running cabs in Ola, and Uber made up to Rs. 1 Lakh per month revenue. But this year the companies reduced the daily incentives. At present Ola Mini, Micro cab drivers getting only Rs. 25-30 thousand net income per month while Prime and SUV owners are getting Rs. 30-35 thousand per month.
3. Grocery delivery
Ola started Ola Store to deliver groceries to the households and also to partner with mobile manufacturing companies like OnePlus to deliver smartphones to the doorsteps. All these innovative ideas make a certain amount of revenue.
But whatever the strategies they are following to succeed in the market, it seems like a bubble to the customers and the drivers. Drivers have a lot of doubts in their minds about the future of the both the companies.