Around a decade ago, entrepreneurs transformed airline ticket booking in India. Online travel companies like MakeMyTrip.com and Yatra.com started offering customers the ease of purchasing an airline ticket of their choice at the click of a button. In 2005, the Indian Railway Catering and Tourism Corporation, a government enterprise, enabled e-booking of railway tickets. A few years ago, another set of entrepreneurs transformed bus ticketing. Now a new breed of techies is looking to transform an even more fragmented sector in the country’s transportation industry — taxi services.
“We think that the online travel space in India has matured to an extent that one can push the envelope,” says Ritesh Banglani, director at venture capital firm Helion Venture Partners. Helion, which invested in MakeMyTrip in 2006 and later in bus ticketing venture redBus, is now betting on Bangalore-based TaxiForSure. Sunil Goyal, chief executive officer and fund manager of YourNest, an angel fund that has invested in Mumbai-based startup Bookmycab, adds: “When we invest in any company, one of the important factors we consider is the team’s ability to transform the space they are operating in.”
It is difficult to get a fix on the number of taxis in India. Estimates vary anywhere from 500,000 to around one million. The sector includes cruising taxis that can be hailed off the streets, radio taxis, cars that can be hired for half-a-day or a full day within the city, for outstation travel, as well as taxis that are used exclusively by corporates. More than 98% of this industry is estimated to be unorganized with many players having as few as one, two or three cars. There is no predictability of business for them. For the consumer, there is lack of adequate information and assurance regarding availability. There is also a lack of standardization in service quality and no transparency in pricing.
“In a fragmented and unorganized market, the cost of [not] fulfilling a customer promise is very low. A small taxi operator makes his decisions at the spur of the moment. If he gets a better offer for his vehicle, he doesn’t mind giving a confirmed customer the short end of the stick for some extra bucks,” notes Banglani. Phanindra Sama, co-founder and CEO of redBus adds: “The small cab operators are not worried about their brand. This is where an umbrella branded service, incorporating all of these small cab operators, will be sought by customers.”
So what is it that the growing group of start-ups is trying to do? To begin with, they want to match supply and demand. “There is a lot of supply and a lot of demand for taxis in every city, but there is no platform that connects the two. We believe that technology can bridge this gap and add a lot of value to this space,” says Bhavish Aggarwal, co-founder and CEO of Mumbai-based Ola Cabs. A graduate in computer science from the Indian Institute of Technology (IIT) Bombay, Aggarwal worked with Microsoft Research for two years before setting up Ola Cabs in December 2010.
G. Raghunandan and Aprameya Radhakrishna, co-founders and directors at TaxiForSure, which they launched June 2011, note that they are trying to marry a distributed and dynamic supply with a similarly situated demand. According to the duo, this is now possible in a price-sensitive market like India because current GPS technology is more accurate and affordable. Both Raghunandan and Radhakrishna are alumni of the Indian Institute of Management, Ahmedabad as well as the National Institute of Technology Karnataka, Surathkal.
A Network of Partners
A different business model is also at work within the sector. Unlike a typical taxi or car rental firm that owns its vehicles, businesses like Ola Cabs, TaxiForSure, Bookmycab, Savaari, TaxiPixi, YourCabs and others have adopted the aggregator model. “Owning the cars is a very capital intensive business and difficult to scale beyond a point. The aggregator model is asset-light and therefore requires less capital,” says Avinash Gupta, an alumnus of IIT Bombay and co-founder of Mumbai-based Bookmycab. “Since the inventory [cars] is reusable and mobile, it fits well with this model,” adds Raghunandan of TaxiForSure, noting that, “We follow very stringent quality norms for both drivers and cars before adding them to our network.”
The aggregator has a network of partners — either drivers who own and drive a single car, or operators who have a number of cars and drivers on their rolls. Typically, each vehicle in the aggregator’s network is fitted with a GPS device that is used for communication and metering and is integrated with the company’s IT system. This device costs around US$100 and is paid for either by the partner or the aggregator, depending on their business arrangement. The partner has the option to log on to the aggregator’s system only when he or she wishes to. Any business obtained from the aggregator is in addition to his or her existing business. Ajay Singh, an owner-driver in Mumbai says that his business has “more than doubled” since he joined the Bookmycab network last year. “Earlier, I would have long periods of waiting for a passenger. That has reduced considerably now.”
A customer can typically book a taxi through multiple channels — the aggregator’s website, its call center or through a mobile phone application. The aggregator passes on the customer requirement to its partners. Once a partner accepts a particular request, the passenger and driver details are shared. The driver then reaches the pick-up point at the scheduled time. “To the end customer, we are a car rental company. We control the entire experience,” says Gaurav Aggarwal, founder and CEO of Bangalore-based Savaari, which has a network of 150 vendors and 3,000 cars. Aggarwal notes that to be a successful pan-India player, the aggregator model is the most suitable. “In a large and diverse country like India, every city has a different context and local partners know it best.”
While day-to-day operations and maintenance of vehicles are taken care of by the drivers and operators, all aspects related to technology, branding and marketing are the responsibility of the aggregator. Most companies develop the technology in-house. The aggregator’s revenue comes from a commission on every trip that the partners undertake. Currently the commission ranges from around 10% to 20%. “Once we reach a scale where the operators are committed to us, we can look at in-cab advertising as [another] source of revenue,” says Raghunandan.
Not Without Bumps
According to Guhesh Ramanathan, who until recently was COO at the N.S. Raghavan Center for Entrepreneurial Learning (NSRCEL) at the Indian Institute of Management Bangalore (IIMB), the aggregator approach is a “win-win” model. Ramanathan, who is currently a mentor at NSRCEL and working with TaxiForSure, notes: “The aggregator model gives the cab owners access to a wider pool of customers and reliable business. This allows them to optimize their assets. To the customers, it offers choice, convenience, accurate billing and also a degree of safety since the driver and trip details are registered with the company.”
Ramanathan, however, adds a note of caution: “It seems like an easy model to replicate, which is why many new players are jumping into the fray, but it has inherent challenges.” Helion’s Banglani agrees: “In this business, the margins are razor thin and operations have to be very tight. Even with great back-end technology, it is a difficult market to crack.”
Customers have had a litany of complaints, even with the current players, and especially when it comes to local point-to-point travel: Many drivers are not familiar with routes, taxis arrive late, taxis are not available at short notice and even confirmed bookings get cancelled. This in turn influences customer behavior. For instance, some resort to booking multiple taxis and take the first one that comes.
According to Aashish Bhinde, executive director for digital media and technology at Avendus Capital, the biggest constraint for these companies is amassing an adequate supply of cabs and licensed drivers. “This is a critical factor because the demand tends to multiply as the average wait time for a cab reduces,” Bhinde notes. “This in turn is largely dependent on supply of cabs in the system.” Aggarwal of Ola concurs: “It is a self-reinforcing cycle.”
The entrepreneurs are building their networks steadily. Ola Cabs for instance, has a network of 1,500 operators and 4,500 cabs across the four cities of Mumbai, Bangalore, New Delhi and Pune. TaxiForSure has a pool of 18 operators and 1,750 cabs in Bangalore and New Delhi. Bookmycab, which works directly with owner-drivers, has 3,000 cabs in Mumbai.
Each is looking to expand its network and also foray into more cites. For example, Bookmycab holds the exclusive license to aggregate those taxi owners in Mumbai who hold state government permits for the yellow and black (non-air conditioned) taxis and Cool Cabs (air conditioned taxis). These are cruising taxis that are permitted to pick up passengers from the streets. In 2010, the state government, in a first of its kind initiative, floated a plan to organize this unorganized sector and invited firms that could offer them an aggregating platform. Of the six firms that bid for this initiative, Gupta’s was given the go ahead. Gupta estimates that there are around 60,000 to 70,000 active permit holders of the yellow and black taxis and Cool Cabs in the city and he is looking to gradually bring them into his fold. “Our immediate target is to increase our network to 5,000 by March next year,” he says, adding that the state government of New Delhi is also thinking on similar lines. (In India, taxi services come under the state government purview.)
Firms are also looking at more avenues to generate business. For instance, TaxiforSure has tied up with MakeMyTrip to tap into that site’s customers. It is also in talks with redBus for the same. The partnerships would allow a customer who books a bus ticket on redBus or an airline ticket on MakeMyTrip to also book a taxi for the airport or a bus depot pickup and drop. “For the customer, this means a complete door-to-door travel solution. For us, it expands our pool of customers,” says Radhakrishna.
More than Technology
But expansion will bring new challenges: Managing scale efficiently and offering a consistent customer experience. “This is a volume game and robust technology along with a strong operations team will be critical,” notes Raghunandan of TaxiForSure. Radhakrishna adds: “The biggest challenge for us at present, especially in local point-to-point travel which accounts for most our business, is to ensure that our cabs are present where the demand is. If we are able to predict the demand depending on the day of the week, time of the day, holidays and so on, we can direct the drivers to be present at the right locations.”
Satyajit Majumdar, professor and chairperson at the Center for Social Entrepreneurship within the School of Management and Labor Studies at the Tata Institute of Social Sciences, notes that while technology is important, other factors also play a critical role. “Identification of partners, terms of reference for partnership and the service value are key success factors. A lot depends on the choice of partners and also service specialization,” says Majumdar.
Sama, who, along with his team, is credited with having pretty much re-written the rules of bus ticketing in India, says that he and his team think of redBus as a bus ticketing company rather than a technology firm. “Every one of us — consumer companies in different industries — is better off thinking that technology is a means to serve a purpose and not a purpose by itself,” he adds.
One major problem that passengers in India have to often deal with is rude attitude and bad behavior of taxi drivers. Technology cannot make up for this. The start-ups in the space realize this. They have embedded soft skills training in the driver onboarding process. Gupta of Bookmycab says: “We pay special attention to soft skills training like personal hygiene, being on time, greeting the customers, handling money, dealing with difficult customers and so on. It is mandatory for every driver to undergo this training before he joins our network. This is followed by regular refresher sessions. Depending on customer feedback, we reinforce the training.” But Gupta also points out: “Changing driver behavior is a long term activity. It will not happen overnight.” Radhakrishna of TaxiForSure adds: “The drivers need to understand that they have to put in effort to optimize the network. Once they realize that our systems allow customers to rate their behavior, they will also realize how this impacts their ability to attract business.”
Analytics is another key area of focus. Going forward, these firms are looking to use analytics for differentiation. The idea is to offer different facilities like variable pricing, discounts, vehicle upgrades and loyalty points based on usage patterns. There are other features also in the works. TaxiForSure, for instance, is looking to commit to not just the pickup time but also the ‘drop time’. “We realize that taking a cab is a pre-event. It is not an event in itself. So we will use our insights about traffic flow at different times on different routes to suggest the pickup time to our customer,” says Radhakrishna. “The stickiness of the customers will come from increased service levels. And the stickiness of the operators and drivers will come from the increased and predictable business that they get from us.”
Not everyone is convinced. Siddhartha Pahwa, CEO of Meru Cabs, the largest radio taxi firm in India, notes that the aggregator model is not sustainable. “It has huge pitfalls because it is a very loose model. You can maintain consistent quality and consistent service only by having 100% control over the vehicles and the chauffeurs,” says Pahwa. Meru, which started in 2007, currently has a fleet of around 5,500 cars and operates in four cities.
But Meru, too, has tweaked its model. While initially all of its cars were company owned, the company is now moving to a hybrid model under which some of its vehicles are owned by the drivers. “But unlike in the aggregator model, these drivers work exclusively for us and have to be within our network at all times. They cannot do their own business or be attached to anyone else,” says Pahwa. He adds that Meru helps its drivers to purchase their cars by getting them special rates from manufacturers and from financial institutions. Meru also enables drivers who have worked with the company for more than five years to purchase cars from its own fleet. At present, of Meru’s fleet of 5,500 cars, around 550 are owned by drivers. “We provide them with enough business that their vehicles are fully utilized,” Pahwa states.
Pahwa is of the view that while the asset-light aggregator model enables an easy entry into this space, “only those who have put money on the table will be committed to this business in the long run.”
Meanwhile, there is talk that Uber, the San Francisco-based online taxi firm, is looking to launch its operations in India. The Indian firms are watchful, but bullish. They point out that globally also the taxi aggregator model is also fairly recent development with the launch of companies like Uber, Hailo (U.K), Get Taxi (Israel) and MyTaxi (Germany). Aggarwal of Ola Cabs points out that India is a very different market and has unique challenges. “For instance, in the developed countries, basic infrastructure like roads is taken care of, there is a lot of information available regarding traffic flow and weather conditions, and drivers are comfortable with technology,” he says. “We don’t have these advantages here. And India is also a very price sensitive market.”