Why the Ola, Uber business model is a problem
isn’t. Almost all on-demand players have been using money of venture capitalists (VCs) to subsidise their price to a tiny fraction of their real cost. They have been charging passengers less and paying drivers more, and calling that customer acquisition. Of course, both passengers and drivers loved it till the party lasted.
But as the money inevitably started to run out, so did these subsidies. The ecosystem, fed on artificial low prices, started rebelling when the actual cost for on-demand became apparent.
Whether it’s AirBnB running the world’s largest hotel service without a single licence or Uber flouting Bengaluru’s rideshare ban, legislations have forever been playing catch up with these innovative models that seamlessly straddle the real and online worlds. Indeed, a large part of the sheen of these businesses was their ability to create lighter balance sheets because they could control everything without having to pay for salaries/benefits, infrastructure costs, licences/ fees etc.
Most aggregators run on very asset-light models. This means someone else owns the infrastructure, people, maintenance, depreciation, compliance and the domain expertise.
What happens if and when they choose to withdraw from a market? The ecosystem that depends on their demand generation and subsidies could collapse.
Now if, in reaction to Delhi and Bengaluru banning rideshare, Uber and Ola decides to exit these cities, the companies would miss their revenue but can set up shop in another city and get it back.
But what happens to the vehicles that drivers bought with their savings? Banks would repossess their vehicles, many would become bankrupt and homeless.
These private companies, if not checked early, could grow to have a chokehold on our public infrastructure and policy-making. Fortunately, these aggregators are still in their infancy in India, and limited to cities.
The key is to get them into a compliance regime right upfront, and hold them accountable for the supply chain that they choose to own and control, not just their own employees. For a detailed version of the piece, go to http://read.ht/BTCC