Uber Faces Its Biggest Test in India

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Correction appended: Feb. 11, 2014

Mudassir is lost. He calls twice before pulling up in a white Mercedes Benz, twelve minutes after I placed my order. A GPS-equipped iPhone blinks in his Uber cab. Still, he struggled to find my apartment on a narrow street in Bangalore, where the young company entered India in August.

By January, Uber was in Hyderabad, its third Indian city and 68th worldwide. The transportation startup, funded by Google Ventures and others, is growing at blazing speeds across the globe. But in India, the taxi “disruptor” will test its business model with in the face of established competitors and a dearth of infrastructure — mapping software, smartphones and credit cards — integral to its success elsewhere.

Transportation here looks very different from Uber’s San Francisco birthplace. Car ownership is low. On nearly any city street, you can hail a cheap auto-rickshaw, a cramped, canvassed, three-wheeled chugger. Anyone with money hires chauffeurs.

Yet a middle market is emerging. Business for radio cabs, booked through calls or online, is worth around $9 billion and growing 17% a year, according to Puneet Gupta, an automotive analyst for the consultancy IHS. High fuel prices have kept middle-class Indians from new cars and driven up their demand for other options.

“There is a huge gap in the market,” says Siddhartha Pahwa, the CEO of Meru Cabs. In 2007, Pahwa started the first nationwide technology-enabled taxi service. He claims his company now books 700,000 trips a month, earning annual revenues of roughly $77 million.

Of the entire Indian taxi market, Pahwa estimates that only 5% is organized — the rest operate with scant scale or technology. However, several competitors keep jumping in, including Ola Cabs, a three-year-old taxi aggregator with backing from U.S. investors Tiger Global and Matrix Partners.

Uber does not release numbers. But it has clearly poached some well-heeled Indians, who are quick to adopt imported technology and hungry for reliable service. Amrita Chopde, a graphic designer in Bangalore, used Meru Cabs on late evenings until they proved a no-show three times in a row. “For a women alone, that’s incredibly important,” she says. She switched to Uber.

But Dhiraj Kacker, an entrepreneur in the city, was let down by both startups. Finding available and quality Uber drivers, he says, has proved difficult.

In Asia, Uber’s strategy has been to enter as a premium service, then works its way down-market. If it loses riders like Kacker on the onset, though, it has a problem in India. Tech savvy and willing to pay, Kacker is their target user.

And, more importantly, he’s comfortable with plastic.

Uber only accepts credit cards, which less than two percent of Indians own. (The rate is higher among the urban rich, but usage is low. Pahwa says around 85% of Meru Cabs’ customers pay with cash.) Even Indians with cards are reticent to use them, particularly on Uber’s point-and-click smartphone system to store card details. “I literally had to do it for my friends,” Kacker says.

To win over thrifty Indian consumers, Uber has started to cut its prices, which began around thirty percent higher than its competitors. Bhavik Rathod, the general manager of Uber Bangalore, says UberX, its low-end service, will arrive eventually.

Some competitors see luxury as a losing strategy. TabCab, a dispatcher in Mumbai, recently trimmed its premium cabs rates—from 23 rupees a kilometer (around 37 cents) to 20. “We had a lot of resistance from customers for those extra three rupees,” says Prasenjeet Bagchi, chief marketing officer. Asked if a luxury service is feasible in India, he answers brusquely, “No, it is not.”

Gupta, the analyst, views Uber’s future in India as a corporate service, not a consumer one. Companies frequently shell out cash for expensive cars. “They may not want to put a Mercedes on their balance sheet,” Gupta says. But they’ll book an Uber.

In a move to corner this market, Ola Cabs introduced a luxury service in Mumbai in January, before Uber’s expected arrival. (Ola Cabs moved the other direction too, launching taxis at cheap auto-rickshaw rates on February 4th.)

The two companies may also meet in thornier parts of Mumbai:  a court case is pending against Ola Cabs taxis for operating with tourist permits rather than state-issued licenses. Uber, which Rathod says, will likely use tourist permits, risks a similar run-in.

So far in India, the company has avoided the litigious troubles with drivers plaguing its U.S. operations. Rathod insists the company, which does not employ its drivers directly, conducts thorough background checks. Mudassir, my driver, tells me he beat out nearly 170 others at his cab company for a slot with Uber. It came with a 33% pay hike, to twenty thousand rupees ($322) a month.

Our ride lasts 5.3 miles and comes to about $4.60, almost twice what an auto-rickshaw, or “auto,” would be. I exited a cab in India for the first time without reaching for my wallet.

“When it works, it works like a charm,” Kacker admits of Uber. Yet the company may be a victim of its own ascendant reputation. “It’s better than an auto,” Kacker adds. “But it’s not what I would expect from Uber.”

An earlier version of this article misstated the number of Meru Cabs’ bookings per month. It’s 700,000, not 70,000.

3 comments
HeatherA1992
HeatherA1992

Lyft is so much better! The drivers are so much nicer and the fares are still cheaper than UberX


Also, if you're a new user, you can enter the promo code "PROMO1" for a $20 credit

ecab561
ecab561

Well good to know who backed Uber thank you Google for advancing "American ventures." Right... So Google do you know that Uber is circumventing laws and ordinances, like it's going out of style while you stand by and watch. Whole american industries destroyed by circumventing of laws governing the transportation of passenger? Google do you know that by law a driver is required to carry passenger insurance and a hack license, that the patriot act demands that anyone engaged in a passenger for hire business pass a background chek performed by police and their respective townships?  Did you know that the insurance for passenger for hire is about 7,000 $$ a year?  Uber prices are unfair to those who respect the law, and that the only reason they are being able to offer such discounted prices is because most Uber drivers have nothing but regular insurance. Google out of the dirty crap you do this one is the topper. Google Google Google nothing last forever and you are likely to get some law suites and have your Godforsaken little cash cow shut down for good, Lyft and Tag are also on the list. 

To the American public this is what I have to say:

There is nothing wrong with you wanting a cab now...

There is nothing wrong with looking for bargains...

But there is such thing as the law...

And the only difference between hailing a gypsy cab or Uber, is that

Uber sent them...

Beware you could be getting into a car with a rapist, a murderer, or a maniac. 

To top it all off they are not under the law. Because they are based in Holland. Another prime example of American corporate greed... Wher do you stand on this issue. Oh by the way these statements are true, because I have witness dozens of times Uber cars and drivers with no licenses or permits picking people up... in my neighborhood. What next Google?