UTOO Cabs is a Chennai-based cab-hailing firm that owns its own fleet

Uber and Ola lose millions everyday then why is a small Chennai-based company competing with them
Atom Startups Thursday, June 15, 2017 - 10:50

The cab aggregator market in India is a highly competitive one. What once started out as competition between a couple of players has now come down to a battle between homegrown aggregator Ola and US-based Uber. 

Some like Taxi for Sure got acquired by Ola and eventually shut down and some older players like Meru are struggling to hold fort. 

At a time like this, would it make sense for a new player to enter the market? Can it survive against international players like Uber and cash-strapped players like Ola that continue to attract investments?

There are some who have that confidence. 

Promoted by Aircel founder C Sivasankaran, UTOO Cabs is one such player and it was founded in June 2016 in Chennai. 

UTOO was started with a market potential identified for customers who don’t mind paying a little more for a comfortable, clean and professional cab. 

“The idea stemmed from the issues we face as consumers with the existing cab operators. A trip to the airport had a major inspiration for a better cab service. Ever since the competition started to subsidise the cost of travel, a direct impact has been in the quality of offering. It is a blessing nowadays if we get a cab that is clean and comfortable. Most cabs operated by our competitors are in bad condition as they do not directly control the cabs,” says Fazil Badrudeen, Head - Branding & Marketing, UTOO Cabs.

UTOO follows a hybrid business model. All the vehicles in the fleet are owned and maintained by UTOO directly. This, the company says, is done to ensure the service offerings are uniform across the fleet and the envisioned ride experience is always maintained. 

Cabs can be booked either through its mobile app or by calling the customer care number.

The drivers join as partners, are salaried and drive the vehicles on a daily basis. 

This is where UTOO starts to move away from the model employed by Ola and Uber. 

Ola and Uber do not own any of their cabs and drivers are paid on a commission-based model. This keeps their costs low. 

The cab hailing industry in itself is a very capital-intensive business with high customer acquisition costs.

“On top of it, if you want to keep your cars on your books, in my opinion, it is not a very scalable model,” says Venkat Vallabhaneni, general partner, IDFC Parampara Early Stage Opportunities Fund.

Ashish Sanganeria of LongHouse Consulting says that there are only two to three scenarios in which a third player will have a chance.

One scenario is where there isn’t enough supply for the demand. Meaning, when an Uber and Ola is unavailable and you need another service.

“But I don’t see a demand supply gap right now. Usually, the maximum wait time might be 10-15 minutes. But that’s not a very big differentiator for me to have a third app,” says Ashish.

However, at times when the demand is running high, one big issue every user has with a service like Uber and Ola is its surge pricing. The fare sometimes surges up to as high as 4X the base fare which makes a cab ride unaffordable.

This is where UTOO Cabs, with its principal of no surge pricing may win customers. 

“Adding to the pain of travelling in a shabby cab was the addition of Surge Pricing. We firmly believed that surge is just a gimmick to fleece more money from the customers. Hence as a founding principle, UTOO will never charge surge pricing,” Fazil says.

And in cities like Hyderabad, it says that during peak hours, users take to UTOO because there is no surge pricing and no unexpected prices.

The rate policy is also at par with competition. UTOO charges a base fare of Rs 50 and Rs 10 per kilometer and during peak hours when an Ola and Uber is exorbitantly priced, its low charges may attract commuters.

However, Ashish says that it requires a lot of money to sustain that kind of a pricing model. 

According to UTOO, its biggest USP is ensuring clean, comfortable and safe rides. And owning its fleet helps it keep quality in check. In fact, Fazil says that UTOO has a segment of customers who use its cabs during occasions because their cars are brand new and well kept. 

But is that enough for the company to sustain in the long term?

The leaders of the Indian taxi market have the largest share. Ola, which registers around 1.3 million rides a day holds 65% share while Uber, which does around 650,000-800,00 rides, holds around 35% share. That’s 100% put together.

Even for expansion, Ola has been on a fund raising spree and has raised around Rs 1,000 crore in the last few months. 

In a market as fiercely competitive as this, Venkat says there might not be room for another large player. 

“But there could be a small hyperlocal car service that concentrates on a regional local area could do well and sustain itself. But for customers to come to this service, there has to be a differentiator. They should be offering some specialized service for which users will come to their platform. If not, I don’t see this as a very scalable operation,” he adds. 

Ashish agrees as well. 

“Just another ‘me too’ business model will not work. Take Snapdeal for example. It had no differentiator and it couldn’t survive competition against Flipkart and Amazon. How are you different from competition really matters. For example, services like Savaari have a different target segment and so will work well. But with a model similar to Ola and Uber, I don’t think another player can come and make a dent - very difficult to make money,” he adds.

UTOO’s no surge pricing policy and quality of cabs seems to be working for it. Having started a year ago, it owns a fleet of 1000 cars and 2500 drivers. It currently clocks 5000-6000 rides on a daily basis across Chennai, Hyderabad and Bengaluru.

And while the market leaders are struggling to reduce cash burn and increase profitability, UTOO Cabs has reached an operational break even and claims that it will turn net profitable in 9-12 months. It even plans to expand its services soon to six cities including Tier -II cities.

UTOO is very confident of its prospects in the Indian Taxi market. “When there can be several banks and airlines, why can’t there be another cab operator?” asks Fazil.

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