Ride Hailing in India

There are two different operating models for ride-hailing companies in India. They are represented by Uber and Blusmart. Uber represents an asset-light marketplace model where the role of ride-hailing companies is limited to matching demand (customers) with supply (drivers). The companies neither operate the car nor are responsible for fuel. Blusmart represents the asset-heavy fleet-management model. In addition to sourcing demand, these companies also manage the entire fleet of vehicles and fuel which is used to service the demand.

The asset-light marketplace model has the following advantages

• Lower Capital Expenditure: The companies don’t own the vehicles; the drivers provide their own. This reduces the capital requirement for purchasing, maintaining and replacing the vehicles.
• Scalability: The companies can enter new geographies easily, without needing to acquire physical assets.
• Operational Flexibility: By not owning the vehicles, companies can adjust to demand fluctuations without being tied down by fixed assets.
• Increased ability to experiment: Companies can exit a geography very easily.

The asset-heavy fleet management model has the following advantages

• Better Service and Quality: Companies have full control over vehicle quality, driver training and maintenance, thus ensuring consistent quality
• Better brand consistency and higher customer trust: Customers often trust well-maintained, branded fleets that offer standardised services, potentially building customer loyalty
• Lower Cost of Providing Service: The cost of operations decreases because of economies of scale. The vehicles cost less and they are cheaper to maintain as well.

While the companies operate on each end of the spectrum today, the steady state of these two companies will be a mix of fleet management and marketplace. The fleet of vehicles directly / indirectly associated with the ride-hailing companies will be given priority access to demand in return for their guarantee to not decline fulfilling the baseline demand. This leads to better service and quality. The fleet will also be provided with priority allocation to the higher-margin part of the business which typically caters to a premium audience. For example, airport rides, concerts, sports matches, etc. Working as part of a fleet seems also better for the individual drivers who can only direct their focus on driving and not maintaining a vehicle. The excess demand not serviceable by the fleet will be allocated to the individual drivers.

Companies like Blusmart will ultimately allow independent drivers to service the demand on their platform. The reason they haven’t done this yet is because of their positioning as an EV-only company and the lack of external infrastructure to support EVs. Companies like Uber will tweak the rules of their marketplace to at least incentivise fleet management companies if not operate their own fleet.