In a decade or so, when we look back at why the Indian startup ecosystem failed to attain its true potential, Ola will make for a good case study.
Healthy competition is key in a free market. Competition gives customers choice, helps prevent monopolies and encourages innovation and efficiency. But thanks to Ola, neither is the competition healthy, nor the market free.
A free market isn’t one that’s free of all regulation. Regulations are important, particularly when the market fails, and has to be pushed towards desired results. But Ola is not backing regulations, it is helping pave the way for a crony startup ecosystem that thrives on corruption and restrictive legislation that benefits only a few. It is opening the field to a war where court battles, political intervention and lopsided regulations are tools of victory, not better technology and efficiency.
So, what has Ola done?
Recently, it filed an affidavit at the Karnataka High Court in a case on the legal validity of the Karnataka government’s regulations for taxi aggregators.
In the affidavit, Ola has endorsed the new regulations and gloats about the fact that it is the only aggregator to have got the license.
It then says that Uber’s petition challenging the rules are "motivated and has been filed in an attempt to bypass the laws of the land by foreign companies who run their operations in this country for profit without due regard for the applicable laws." (emphasis added)
It points out that UberMOTO, the two-wheeler service, is in violation of the law, and says that without a license, Uber has no right to function.
First, let’s get the “foreign funding” bogey out of the way.
As Uber points out in its response to Ola’s affidavit, “What makes Uber ‘foreign’? The fact that we are established in San Francisco but have a hyperlocal team solving problems that are locally relevant. Or that, just like our competitors, we received most of our funding from ‘foreign’ investors.”
As a blogger points out, “Ola’s own software runs on Android and uses GPS, both American inventions. Among Ola’s investors, Softbank is Japanese, Didi Chuxing is Chinese and DST Global is run by a Russian billionaire. And perhaps most tellingly, Ola’s own name means Hello…in Spanish.”
Not only does Ola’s jingoistic barb at Uber for being foreign reek of hypocrisy, it betrays their strategy of beating the competition by whipping up nationalist passions. Is Ola going to be on the council for Swadesh Jagran Manch next and hit the streets wearing saffron?
And it is laughable that Ola is pointing out that Uber is in India to make ‘profit’ – what are Ola’s foreign funders in India for, social service?
Problematic rules
The absurdity of Ola’s endorsement of the Karnataka On-demand Transportation Technology Aggregators Rules, 2016 becomes clear when you start reading the rules.
The very reason why aggregator services in any sector became disruptive and revolutionary is because they did not have to own the service to provide it to customers. In a fragmented market where there was a mismatch in supply and demand, aggregators played the crucial role of bridging the gap. Karnataka’s rules are an assault on this very core concept, because they mandate that the operator must have a fleet of at least 100 taxies either owned by the company or contracted through agreements with individual taxi permit holders.
This is absurd for two reasons: If you own 100 cabs then you are not a service aggregator anymore. Further this prevents any new player from entering the market now unless they have the capital to own 100 cabs or strike a deal with 100 permit holders. This is classic anti-competitive license raj.
And then come the impractical benchmarks for drivers, with a strong dose of Kannada parochialism.
Here are some of the qualifications for the drivers:
He shall have a minimum driving experience of 2 years
He shall be a resident of Karnataka for a minimum period of two years.
He shall have a working knowledge of Kannada and any one other language, preferably English.
So if I am a migrant from Tamil Nadu with driving skills, looking for a job in Bengaluru and have a car, Ola and Uber are not for me. This is government protectionism 101.
There are all sorts of other obtuse rules, from the color of license plates to where the driver's ID must be placed in the car – all of which could get the license cancelled. Such rules are usually of no use, except when a corrupt babu wants to make some money on the side. You can look up the rules here. With these rules, the babus have created a nice little cottage industry to milk startups, and Ola has endorsed it.
Not surprisingly, Uber has complained that it is not being given the licence in spite of submitting all the required details. It is anybody's guess what game Ola is playing here.
This is not to say that Uber does not have its own problems, or that the rules are all bad. For instance, the safety rules in the Karnataka Act are very important. But to see Ola, an Indian startup, be in bed with the bureaucracy and endorse such impractical regulations is a sad reminder that, in India, it isn’t enough to reform the government, we have to reform the private sector too.
Next time you take an Ola, remember what the company is doing to the startup ecosystem.