While Ola hasn’t completely denied the possibility, Uber says it believes in controlling its own destiny in India.

Can Uber and Ola really merge to become one entity in India
Atom Cab Aggregators Thursday, March 29, 2018 - 22:55

Days after Uber sold its Southeast Asian business to rival Grab orchestrated by common investor SoftBank, rumours of an Ola-Uber merger in India have started doing the rounds. This deal too, is reportedly being facilitated by the same common investor.

According to a Business Standard report, the talks have been going on for nearly a year and it quotes sources as saying that the deal may be closed in a few months with Ola most likely acquiring Uber’s India operations.

An Ola spokesperson didn’t confirm or deny talks of a possible merger but said that it is always looking for expansion opportunities.

“In India’s transformative digital journey, Ola will always be an active and integral part for decades to come. SoftBank and all other investors are committed to realising this ambition. Ola is always actively looking for opportunities for expansion of its footprint,” an Ola spokesperson said.

The reason why this possibility has set tongues wagging is that Uber has done something similar twice already. In 2016, it ceded operations in China to Softbank-backed Didi Chuxing in return for a 17.7% stake in Didi.

A few days ago, it exited the Southeast Asian market by selling its operations to Grab giving Uber a 27.5% stake in the former and Uber CEO Dara Khosrowshahi joining the board of Grab.

Uber faces similar competition in India against Ola with both holding nearly 50% market share each.

But can this merger actually happen?

For Uber, India is one of its largest markets. Uber CEO has reiterated it saying that it is more focused on organic growth in the markets Uber operates in.

“The great news about our Grab deal is that it allows us to double down to invest aggressively in our core markets—and we consider India very much as core to Uber’s success. We’d of course look at any deals that can add value to our partners and shareholders, but we believe in controlling our own destiny in India,” Dara Khosrowshahi said in an emailed response.

By the looks of it, Uber wants to chart its own growth in India.

Sanjay Jesrani of Go North Ventures shares a similar opinion. He says that Uber will most likely want to stay independent in India.

“India remains one of the only economies in the world that is growing rapidly and will continue to do so at above 7-8% for the next 10 years at least. Ignoring this market will be a bad idea. Take for example Apple, it was very late in having a localised strategy for India in terms of sales and pricing strategy and it paid the price for it and Samsung took over. Therefore I feel that Uber will want to stand alone and continue to grow on its own,” he adds.

Siddharth Pahwa, ex-CEO of Meru Cabs and an industry expert says that while on a global level, there are operational benefits of such deals, it might not be the best idea in India because the unit economics of the business model has not yet been proved.

“With the current rates, neither the driver nor the operator can make money and therefore someone has to burn money to ensure consumers remain on board. But if you increase rates, there is a possibility that these operators will lose a large amount of customers because in India, we don’t have capability to pay Rs 15-20 per km to travel every day,” Pahwa says.

Therefore, a merger will not serve the purpose in India. What will serve the purpose is if Ola and Uber get unit economics right, which will only happen by large use of share taxis.

“If sharing doesn’t go up and become 70-80% of the business, they can’t make that unit economics work and that’s what needs to be done rather than merge the two organisations,” he adds.

But then again, like any VC-controlled firm, SoftBank has quite an important say in Uber’s growth strategy.

Regulatory hurdles

However, a merger may prove difficult with regulatory hurdles coming in the way in the form of the Monopolies and Restrictive Trade Practices Act. Pahwa says that for a large merger such as this, which has public interest, there could be public interest litigations (PILs) filed by smaller rivals such as Meru or even by public forums.

Another contention would also be that with Ola and Uber controlling nearly 99% of the market, drivers and consumers could easily be taken for a ride.

Not an official merger?

And while Pahwa says that a merger may not serve the purpose, he says that it is something that has to happen, but maybe not officially.

There could be a side deal by both players where they may decide to jointly take up fares, jointly reduce driver incentives, etc.

“Or there could even be backend deals where Uber vehicles show up on Ola and vice versa or ride sharing gets merged and you will not even know it happened. Such technology plays are possible without formally merging two organisations,” Pahwa adds.

But if SoftBank does succeed in making a merger happen, Pahwa believes that between Ola CEO Bhavesh Aggarwal and Uber India head Amit Jain, Bhavesh will be in a better position to lead the growth of the taxi market in India. 

Meanwhile, Uber says it is confident about its competitive position in India in terms of driver sentiment, rider sentiment, the quality of service. India is one of Uber’s healthiest markets in terms of growth rates and Uber wants to increase that by 5 times or 10 times over the next 10 years. 

It now remains to be seen how SoftBank views the Indian market and what strategy it has for its presence here.

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