The Surge and the Squeeze: the Private Cab Games in India


Ever seen a great idea collapse under its own success?  Well, in India, Ola and Uber cabs are facing that situation.  Slowly the squeeze by the companies on both the sides – payments to drivers and cost to the customers – is tightening things up.

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Companies often indulge in hidden surge which the consumers don’t really seem to understand or is even communicated.  And, strangely these companies have over the years also gone into reducing incentives for the drivers as well.  Look at the infographic below from ET.

As we can see for Ola definitely at least, the incentives for the drivers in Delhi came down a whopping 20-30%!!  If you take the peak hour incentives, then we are talking about a bigger hit – 40%!

And how is it for the consumers?

Well, the consumers are also seeing the surge in their costs.  Earlier this year, both Ola and Uber hiked their fares by 50-70%!

The cab companies also indulge in Surge Pricing, where when there are situations like rains, there is an increase in the fare.  This is often done to increase the supply of cars on the roads so that drivers do not avoid taking people.  Like one guy on Quora shared how he was being charged Rs 1100 for a distance of 19 km where he would usually pay Rs 200! See the estimate he got below.

Uber Surge pricing

These surge prices are actually calculated by either company’s sophisticated algorithms which keep equating the requests at a point and the supply of cars and then adjust the fares accordingly.  As in the case of this Quora contributor above, the increase in fare could be 4-5 times as well!

Cab aggregators such as Ola Cabs and Uber create algorithms that calculate the number of requests at any given point, and equate it with the number of cabs available. The process and fares are dynamic. The higher the demand, the higher the surge, at times as high as four times the base fare.

During surge, cab drivers clock higher fares. A portion of this goes to the cab aggregators. For example, Uber takes 20% of the total fare. The higher the surge, Uber makes more commission. Surge also helps in prioritising travel. A person who needs to go for a meeting or reach the airport takes the cab at the surged price, but anyone who wants to go out for shopping waits till the surge ends.

In some cases around the world, Uber has charged a surge pricing of even 50 times the base price!  However, in the last year or so, Delhi HC and Karnataka HC have banned the surge pricing.  Meanwhile, Maharashtra is already working on restricting the surge pricing as well.  Although arbitrary fares have been limited but even in the cases of Karnataka and Delhi, the limit may still be 3 times the normal rate!

Whats the Future?

Future of such cab aggregators is more government regulations.  As the cab companies literally do take everyone for a ride if proper laws and rules aren’t crafted to manage them.  They do not report to their customers after all but to the stock market.  Specially in a country of 1.25 billion people and hardly half a dozen credible can companies.  More blogs like this can be found on Gain Knowledge Section. Please visit here


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