June 5, 2017 11:00 am JST

Bangalore cab cooperative challenges Uber, Ola

Critics question founder's motives as state election approaches

ELIZABETH MANI, Contributing writer

Bangalore drivers for Indian ride service Ola have been protesting moves by the company to cut payments. (Photo by 101Reporters.com)

BANGALORE -- A taxi cooperative established by a former state chief minister is set to give Uber and Indian rival Ola a run for their money in Bangalore, where drivers have been protesting the cab aggregators' negative impact on their earnings.

The city's drivers are angry with Uber and Ola because the ride aggregators have reduced the size of cash incentives paid to drivers -- many of whom have taken out loans to buy their vehicles. The fiercely competitive aggregators were seeking to cut operational costs estimated at $30 million to $40 million a month each.

In a move that could have implications for the aggregators throughout India, H.D. Kumaraswamy, a former chief minister of Karnataka, the state that includes Bangalore, has seized the opportunity to organize drivers in the city into a taxi cooperative that he says will provide more regular income and better benefits.

Measured by revenue, Bangalore is India's third largest market for taxi aggregators, after New Delhi and Mumbai. A technology hub, the city has often been the site of policy experiments that were later followed by other cities. Uber's Indian operations and Taxiforsure, a local aggregator that is now a subsidiary of Ola, were launched in Bangalore.

Critics have questioned Kumaraswamy's motives, noting that Karnataka will have elections next year, and that there are 60,000 drivers' votes to be won. Kumaraswamy is chief of Janata Dal (Secular), a regional political party. However, K.C. Sadananda, Kumaraswamy's spokesman, said the HDK Cabs cooperative is aimed only at providing stability to drivers.

Hundreds of drivers in Bangalore, Hyderabad and New Delhi hit the streets in February to protest cuts in incentives. Two drivers drank poison outside the Ola office in Bangalore. Elsewhere, an Uber driver in Hyderabad killed himself because of the bonus reductions. Cab drivers have now launched online campaigns against Ola and Uber and in support of HDK.

HDK members will contribute 10% of their revenue to a fund to finance the cooperative. In return, drivers will get life insurance worth 1 million rupees ($15,560) and medical insurance for their families. Vehicle maintenance and insurance will also be paid for from the fund. Drivers will be free to work for other companies.

Participating drivers say they are confident of recruiting from Uber and Ola, and an HDK ride-hailing app paid for by Kumaraswamy will be launched in June.

"More than 40,000 drivers have signed up for HDK Cabs," said Tanveer Pasha, president of the Ola, Taxi for Sure and Uber Drivers and Owners Association, which represents 15,000 drivers. "We were helpless, with no alternatives available. HDK Cabs has given hope to thousands of drivers," said Pasha.

Thalath Ali, an autorickshaw driver for 20 years, said he was considering joining HDK Cabs. "Ola and Uber are outsiders. We are Kannadigas (speakers of Kannada, a local language) and we stick together."

K.S. Deepak, 30, a driver who works for Ola and Uber, said that Ola had sidelined him and assigned rides to drivers to whom the company had extended car loans. "Now, I switch between Ola and Uber," he said. "But that does not work for me. It is drivers like me who built the brand. If we do for HDK what we did for Uber and Ola, it will become a big brand."

K.L. Dharmegowda, another driver, said that even if Ola and Uber added incentives to retain drivers, he and others would still move to HDK Cabs because of the better benefits. "One of us met with an accident last month. Ola refused to pay his medical expenses. All of us had to chip in," said the 36-year-old.

Difficult to compete

Ola refused to comment on the record, and Uber did not respond to queries. But a senior Ola official, who asked not to be named, dismissed the competition. "HDK Cabs cannot be a competitor. It's not about building an app but an ecosystem for drivers. HDK Cabs is a political gimmick."

Analysts also said that while there is room in the market for new players, the cooperative model might not work. "Since the online cab market is still in a growth phase in India, there is scope for new players to enter the market," said Anchit Singh Sekhon, a taxi sector expert with RedSeer, a research and advisory company.

"But with the cooperative model proposed by HDK cabs, it would be very difficult to compete with the likes of Ola and Uber to acquire new customers as the funding would be relatively smaller for HDK."

Sekhon added that HDK's funding model would not be enough to sustain growth. He said that HDK's driver-friendly policies needed greater financial backing, which would eventually require higher cab fares.

"This will be the major bottleneck which HDK will face in order to keep hold of their driver base, as fewer customers would mean fewer rides for drivers, which in turn means lower income," he said. Kerala Taxi, a comparable initiative launched by the Communist Party of India (Marxist) in the neighboring state of Kerala, has failed to prosper since its launch in March 2016

Ola has raised $1.5 billion since its inception in 2011, including $104 million in a funding round in May. But the company is still loss-making. In the year to the end of March 2016, Ola incurred a loss of 23 billion rupees on revenues of 7.6 billion rupees.

Uber made a modest net profit of 187 million rupees on revenues of 3.74 billion rupees in the same period. In July 2015, Uber said it would invest $1 billion in India, but it is unclear how much has been committed.

According to RedSeer, the app-based cab sector has huge potential because it accounts for just 6-7% of the $11 billion to $13 billion market. The sector already employs more than 300,000 taxis.

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