Uber’s U.S.-style business model will not work in India
From an economist’s perspective, Uber’s business model in the U.S. is elegant and beautiful. Because it is a way for resources that were sitting idle to be used productively. From a layperson’s perspective, this use of previously idle resources is a triple win — for Uber, drivers and passengers. Yes, it hurts the taxi industry, but that’s the nature of economic change.
Let’s see where the idle resources come from, and how they are used.
1. Start with the large number of people who already have a nice, late-model car. The owners are already able to pay the loan for the car, or they have bought it for cash.
2. Some of these cars are idle for many hours of the day. People are work or they are at home — they don’t drive their cars 24/7.
3. Some of these car owners are free for some hours in the day. In these hours, they are not working — for their bosses or for themselves. So, both cars and their owners are idle.
4. Out of this group, some want to earn extra money and like to drive. The extra money they earn should be enough to cover the costs of the extra driving — plus some money to spend/save. The drivers don’t need the extra money to pay for the car.
Uber connects these idle cars and drivers to passengers. And the fares are low. Taxi drivers make their living and pay for their cars from their fares. But, not Uber drivers — they can accept lower fares because they have other, additional ways to make their living.
Example: In one of my Uber rides, the driver told me that he is a real estate agent. On slow days, he earns some extra money as an Uber driver. Another driver told me that she is a secretary. She becomes an Uber driver on the weekends so that she has some extra money.
I have listed four conditions that make the Uber model work so well in the U.S. But, these conditions are not present in India. That is why Uber is in trouble in India.
First, most car owners are relatively well-off people who will not become Uber drivers. Some of the car owners employ drivers, instead of driving themselves. Others do drive themselves, but they tend to work full time. And, they don’t want to lower their status to becoming a driver for someone else.
In other words, few car owners in India want to be Uber drivers.
But, there is huge demand for Uber-style transport. Also, after being forced to leave China, Uber is keen to make it big in India.
And, there are people in India who want to make the good money that Uber promised. But, they don’t have a car. They don’t earn enough to buy a car.
So, that’s the problem. In India, there are hardly any idle cars whose owners are ready to become Uber drivers.
So, Uber decided to become a car sales agency in India. That’s right — Uber is in the business of selling cars in India. Not to everyone, but to people who want to become Uber drivers. And, Uber promised these lower-income people that they would be able to pay their loans from the money they earned.
At the same time, Uber set fares low — lower than the fares charged by the decrepit Indian taxis.
Those old taxis were in poor shape because the taxi drivers could not afford a new car — they did not earn enough.
So, how could an Uber driver charge less than the taxi, and yet be able to pay for a new car?
Answer: Not possible.
Uber hid this fact by giving the drivers bonuses in the initial months. Uber said that the bonuses were linked to performance. But, it was easy to earn the bonuses, which were higher than the income from the fares. The money for the bonuses came from the losses that Uber was willing to bear initially.
These loss-making bonuses had to end at some time.
That ‘some time’ is now here. Uber drivers went on strike in New Delhi a few days ago.
Sorry, Uber, but It is not possible in India for Uber to charge lower fares than India’s old-fashioned taxis and still offer good service in a clean, comfortable car.