What SoftBank’s $10b investment in Uber means for its battle with Ola in India

Photo credit: Ola.

Scandal-ridden Uber has confirmed a deal to sell a chunk of its stakes to SoftBank. The Japanese giant could invest US$10 billion over the next month to acquire 14 percent or more of Uber’s shares, both in fresh and existing stock.

The investment in Uber comes on top of the billions SoftBank has poured into other ride-hailing companies: Didi in China, Grab in Southeast Asia, and Ola in India. Just a month ago, it led a US$2 billion investment in Ola.

This is similar in strategy to SoftBank’s investments in India’s ecommerce market.

SoftBank boss Masayoshi Son sees a big opportunity in ride-hailing as a whole. So his strategy is to get substantial stakes in all the major players. If one or more of them emerge as winners in the long run – that is, regardless of which company wins these ride-hailing battles, SoftBank will be sitting on top of a huge global business.

This is similar in strategy to SoftBank’s investments in India’s ecommerce market. Initially, it hedged its bets by investing in both Snapdeal and Paytm. This year it upped the stakes by investing US$2.5 billion in Amazon’s biggest rival in India – Flipkart. At the same time, it made a solo investment of US$1.4 billion in Paytm.

As for the weakest player among the trio – Snapdeal – SoftBank tried hard to merge it with Flipkart but the deal fell through when the Snapdeal founders decided to hold out for more.

The inference one can draw from that is Ola and Grab will get backing as long as they remain in contention as market leaders. But if either of them loses market share rapidly like Snapdeal did in 2016, then it could be curtains or at best a distress sale.

Also, it potentially shuts out niche players with the leaders widening their offerings, as Ola has been doing with auto-rickshaws (three-wheelers).

Auto-rickshaws are a popular means of transport on congested Indian roads, clocking nearly 230 million passenger rides a day. Ola says it has onboarded 120,000 auto-rickshaws, and recently equipped them with free wifi. Uber, on the other hand, has struggled to get its auto act going, shutting down services in a few second-tier cities after running pilots.

See: Ola gives auto-rickshaws free wifi while Uber struggles to kickstart 3-wheelers

The advantage Ola has gained here is significant as the share of auto-rickshaws in rides booked online rose to 10 percent in the third quarter of this year, compared to a mere 3 percent in the same period last year. The number of auto-rickshaw rides booked via ride-hailing apps went up from 5.5 million in Q3 2016 to 18.5 million in Q3 2017, according to RedSeer Consulting.

Ola VP Ankit Jain points out how customer needs vary in India compared to the West. “If you land in New York or a European city, you’ll find two or three options, from a slightly nicer car to a less nice car to a car pool. In India, we have people who are willing to pay over 500 rupees for a ride to those who want to pay less than 50 rupees for a ride. So that’s why you see in our offerings that we go everywhere from luxury cars, SUVs, sedans, hatchbacks, and shared cabs to rickshaws, bike taxis, and now we’re even experimenting with bicycles.”

In terms of the mobility we’re driving, we’re almost starting to compete with the entire personal car market.

Ola’s wider play is reflected in its presence in over 100 Indian cities, compared to Uber serving only the biggest 30. That’s a strategic differentiation because Uber is focusing on doubling down and winning in the major cities, which contribute the bulk of the revenue. Ola, on the other hand, could have an early mover advantage by going into areas which are yet to gain momentum.

The mega investments by SoftBank into both Ola and Uber would enable them to make longer term plays for differentiation. Thus, we can expect moves in business as well as tech innovation, and not just competing on discounts for riders and incentives for drivers.

After raising US$1.1 billion from SoftBank, with another US$1 billion in the pipeline, Ola announced a partnership with Microsoft to build a connected car platform to enhance customer experiences. This will be an extension of in-cab entertainment suite Ola Play.

Meanwhile, Uber has been investing in self-driving tech while its US rival Lyft is partnering with Google’s Waymo self-driving project.

Growth stalls, then picks up smartly

In India, both Ola and Uber experienced a slowdown in growth at the start of this year as they cut back on driver incentives to pare down on losses. Drivers went on strike in cities across India, affecting growth and giving a boost to traditional radio taxi operators like Meru.

Recent data from RedSeer Consulting suggests, however, that growth has picked up again for ride-hailing apps. The Indian capital Delhi had a 10 percent monthly growth rate in September; only Islamabad in Pakistan had a higher growth rate in South Asia and the Middle East.

Source: RedSeer Consulting.

Ola has a wider reach with over 800,000 vehicles on its platform in over 100 cities. But Uber has claimed a surge in number of rides this year, despite the distractions of scandals and boardroom battles. Surveys have suggested that Uber is closing the gap with Ola.

App Annie data shows Ola is the market leader with 52-52 percent compared to Uber’s 46-48 percent based on monthly active users in May. More recently, Cheetah Lab data showed a slender lead for Ola in terms of reach based on active users on its platform.

Source: eMarketer.

Into this neck-to-neck race comes the SoftBank investment in Uber, just a month after leading a $2 billion investment round in Ola. This huge influx of capital will make an impact on the ride-hailing scene next year in India, which is Uber’s biggest market outside the US after it lost out to Didi Chuxing in China.

The biggest winner could be the consumer with better offers and experiences as the well-funded Ola and a rejuvenated Uber slug it out. Apart from commutes, ride-hailing has the potential to reduce the usage of private cars and congestion.

As Ankit Jain of Ola points out, “a ride-sharing car typically does nearly 10 times the number of kilometers as a personal car, in the range of 200-250 kilometers a day against 25 kilometers.”

By that yardstick, Ola’s 800,000 vehicles would be equivalent to 8 million personal cars, which is one-third the total personal car ownership in India. “In terms of the mobility we’re driving, we’re almost starting to compete with the entire personal car market,” says Jain.

Add Uber’s 450,000 vehicles to that, and you have the equivalent of half the personal cars in India in terms of kilometers run. Masayoshi Son’s huge bets on ride-hailing can be seen in that context too, and not just the rivalry between the apps.

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