San Francisco-based Uber, the Google Inc. backed start-up that has disrupted the cab industry in the US, announced that it would launch operations in India in a move that is likely to raise the quality of taxi cabs in the country and provide stiff competition to existing firms such as Meru Cab Co. Pvt. Ltd.

“Over the next several weeks, Uber will be in ‘secret testing mode’ in Bangalore; availability will be limited as we work to make more cars available and test our pricing,” the company said on its blog.

Uber, which recently raised $258 million from Google Ventures and TPG Capital, said it would charge a base fare of Rs.150 plus Rs.20 per kilometre. A passenger would have to pay a minimum of Rs.250 per ride and its sample vehicles would be Toyota Corolla Altis, Mercedes-Benz S-Class and Honda Civic.

Uber is the latest entrant in India’s radio taxi sector pioneered by Meru Cabs. Low entry barriers and the potential of converting a large unorganized market have led private equity (PE) firms to invest heavily in cab booking sites such as Olacabs and TaxiForSure.com.

The technological innovations, which include measuring the distance between a user’s current location and the closest taxi available in seconds, have enabled the company to grow rapidly in the US despite the taxi industry being controlled by unions in many states.

However, industry executives are not worried by Uber’s entry.

“The price points are different, consumer behaviour is different, the roads here are not that well planned, traffic is chaotic, payments are mostly in cash...so the US market is very different from India’s,” Olacabs co-founder and chief executive Bhavish Aggarwal said. “So while we welcome competition, it’s going to be tough for a foreign company to operate in India and scale up from day one.”

Price points are certainly significantly different. Most cab operators in Bangalore charge roughly Rs.20 per km, much lower than Uber’s proposed fares.

Cost challenges

Just as with the online retail sector, companies are divided on how to solve the problem of gaining scale while attaining and maintaining high quality customer service.

“The pure asset-light model has three big challenges. First, getting initial consumer acceptance can be tough because there is a shortage of brand presence. Second, maintaining a certain standard of customer service. Thirdly, if any new player comes into the market with a lower fee, because there’s no commitment from the drivers toward the aggregator, they will just shift and that aggregator would be left high and dry. In our case, the driver’s skin in the game is much more,” Meru Cabs chief executive Siddhartha Pahwa said.

Cab booking sites disagree, obviously. They point to the high cost of owning and maintaining a fleet of cabs and insist that delivering quality service under the asset-light model is possible.

“The incentives for the driver in the aggregator model are better aligned. The harder he works, the more customers he gets. And for the customer, there’s more access to different brands,” Olacabs’ Aggarwal said.

Industry executives say that while companies are investing in training drivers and maintaining cars, their ability to spend more is limited by whether state governments allow them to increase fares.

Meru’s Pahwa said that overall costs, including fuel and wages, increased by 15-20% since last year.

“We’ve been working with various state governments to ensure a fair and transparent structure so that when fuel prices change, we’re allowed to change our fares accordingly,” Pahwa said. “And the governments are slowly understanding that to provide good quality service, it’s important to change the fares according to fuel prices.”

Source: https://bit.ly/17mvft8