
India considers commissions cap for Uber, Ola, unsettling industry - hhs
https://www.reuters.com/article/us-india-transportation/india-plans-to-cap-commissions-for-uber-ola-economic-times-idUSKBN1Y208M
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sumgame
If you do the math in India, the drivers were basically not earning any money
last year. They spend about 30% of their income of debt. Another 30-40% on
fuel and maintenance cost. Then 20% charged by Ola and Uber. There’s other
miscellaneous fees that creep up plus insurance every year which atleast takes
another 10%. So they take home around 10%. That 10% has to pay for food, rent,
children’s education, etc.

The argument can be that they’re technically taking home 40% if you take their
debt payments that’s paying for an asset.

But a car is a depreciating asset, so after 5 years they’ll technically have
lost 50% of that money.

The 10% decrease in fees would go a long way for these drivers. I’ve spoken to
a lot of them and it’s really sad what’s happened.

You may ask why did they join in the first place ? They were attracted to
these services by glamorous stories of cab drivers making 1500-2000$ a month
on these apps. But all fo that income was funded by inorganic incentives that
never fit into the unit economics. It was basically VC funding that was
channelled into a few drivers income, which then brought in a lot more.

I feel strongly about this as I’ve spoken to multiple drivers who make very
little money and work about 12-14 hours a day. You can see a lot of them just
sleep in the car in the night to make sure they can make ends meet.

On the other side, they’ve stopped heavily discounting the rides at the
consumers end, which means demand has decreased because they had artificially
inflated demand by providing a service at discounted prices.

So that means drivers don’t get as many rides either.

It’s basically a double whammy for the driver.

Aggregators charging 20% of the ride costs is just unempathetic and stupid if
they actually did the math.

But obviously they’ll have to recoup all the VC money they’ve invested. It
baffled me for a long that the unit economic never made sense for the longest
time.

They took no fees, they gave discounts and they attracted drivers by inspiring
them of glamourous stories where cab drivers were making more than most
employees in India.

Most cab drivers who saw this as a gold rush, took on a lot of debt to buy a
car and drive people around. With time they’ve realised it’s all a sham but
there’s nothing they can do about it. They’ve already committed to the debt,
and if they stopped paying it, they’ll loose the car, which is all they have
as assets.

~~~
throwGuardian
If this were true, drives would quit en-mass. This is entirely an at-will
engagement, any party can back out at any time if things don't work out

~~~
biased_coin
It is not easy for drivers to quit given the debt that they've taken on. It is
tougher to operate as an independent taxi driver than to be on a platform.
Many of the drivers I have spoken to have migrated from smaller cities and I
doubt it would be easy for them to operate independently.

~~~
rrrazdan
It's auto debt. The car will be taken by the bank. What else can the bank do?

The truth is that cab drivers are making a livelihood, in fact a much better
livelihood than they were making without Uber and Ola.

~~~
rajaganesh87
> much better livelihood than they were making without Uber and Ola

Source please. Also can you quantify "much better"?

~~~
rrrazdan
I think my assertion is much more likely than yours that people were in higher
paying jobs and moved to Uber/Ola, a lower paying job, so you should give a
source for that.

Nevertheless the source is my twice daily ride with Uber and talking to the
drivers. Most of the drivers are youngsters from villages with no degrees and
no skills now making a living. They also don’t own the car and drive for
someone else. The fact that the Uber/Ola commission is able to support the
driver and owner should tell you something.

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foogazi
Just experienced what the lack of app based surge pricing does. After exiting
a major sporting event I expected the streets to be swarmed by taxis - easy
money for them

But there was no incentive, nothing to tell the city’s drivers to show up en-
masse. They would just earn the same city base fare

Thousands of people either had to walk or wait in line at the crowded metro
station

~~~
TeMPOraL
I'm guessing the regular people in the city were very happy that they didn't
experience sudden shortage of taxis, coupled with an extreme surge in price.
Meanwhile, the spectators from the sport event were incentivized to choose the
more efficient means of transport.

Looking at it from the systems level, I'm not at all convinced that when a
mass event spikes the demand for taxis, having drivers go to that event
chasing profit is a good idea. Imagine half the plasma in your body moving to
your digestive tract the second you eat something. I think from the city's
perspective, it's better to have taxis minimize variance than maximize profit.

~~~
dpiers
That’s not exactly how it works. The primary function of surge isn’t to
redistribute a fixed pool of drivers - it’s to incentivize additional drivers
to go online in an area with excess demand. For example, it used to be that
surge would spike insanely high on big days like Halloween and New Years Eve
because demand was drastically higher than supply. Once drivers saw other
people making 8-10x surge, more people started signing on at these peak times
and average surge went down.

~~~
foogazi
Yes that was part of my thought too

In response to a pricing surge I expected more drivers to be incentivized to
get out of bed at 11PM and make more money

But if that hour of work at 11pm is worth the same as waking up 8 the next day
then they lose out on thousands of people willing to pay surge pricing

~~~
TeMPOraL
> _In response to a pricing surge I expected more drivers to be incentivized
> to get out of bed at 11PM and make more money_

That's true. But they also may be incentivized by demand surge in itself -
when the demand overwhelms supply, they can earn maximum effective hourly
rate, which is not the case when the demand is roughly matching the supply.

Adding surge pricing on top of that means wealthy people get prioritized,
which is a separate effect and one that can be considered a) unfair, and b)
disrupting to the regular city life, especially if the attendees of a mass
event that caused the demand spike are wealthier on average than the regular
citizens.

------
hiyer
This is a welcome move. For short, small-value rides like with auto-rickshaws,
Uber and Ola's commission can be close to 100% or even more. You can travel
(slightly) cheaper by negotiating with the famously fleecing rickshaw drivers
themselves.

~~~
nindalf
> famously fleecing

Fleecing who? Natives would never pay more than a dollar or two for a short
ride, and never more than 10-20% more than the “fair” value. It’s even better
in places like Mumbai, where everyone uses a standard meter.

Tourists would pay 10x but in my experience they don’t even notice or care
they’re getting fleeced because $10 for a short (5-6km) trip is a reasonable
price to them.

~~~
thrwe4234safd
> Natives would never pay more than a dollar or two for a short ride, and
> never more than 10-20% more than the “fair” value. It’s even better in
> places like Mumbai, where everyone uses a standard meter.

Please. Autowallahs have their own versions of "surge pricing", which is even
more frustrating and non-transparent. Night time ? Triple rate. Going to a
residential area ? Double rate, because the vehicle need to return empty.

~~~
pritambaral
Not in Mumbai.

Source: I'm a resident.

~~~
thrwe4234safd
Ah Mumbai, the place where taxis wait under the noses of policemen at the
domestic arrival gate, only so that they can pick up unsuspecting idiots and
then fleece them of 5-10000 Rs for the privilege of taking them to the
International departure gate (or for a lower fee after just 100 m).

Little wonder everyone is advised to use prepaid taxis in India. I've been
told by various sources that this the development of the petty "anti-
capitalist" politics that dominated India since its supposed independence.

------
throwGuardian
Disagree with this move. Uber & co. have been a net positive to the country,
people and the economy. After pouring billions into creating and proving a
market, the government is baselessly capping their earnings.

Here's a fair proposal:

1\. Encourage competitors and allow the free market to set prices and revenue
shares. A vendor undercutting prices will get higher ridership

2\. Prevent price gouging via collusion - do not let the companies cartel up

3\. Limiting surge pricing to 2X is the only reasonable policy in their
proposal

After all, every stakeholder in this vertical is an at-will participant, with
no compulsion to stay if the economics do not work out

~~~
yipbub
> After all, every stakeholder in this vertical is an at-will participant,
> with no compulsion to stay if the economics do not work out

That's not true. There are only 2 aggregators to choose from. Staying off one
is not a feasible option for most.

> the government is baselessly capping their earnings.

They are not capping earning, they are capping percentage of fares. The cab
driver puts in most of the cost.

> Encourage competitors and allow the free market to set prices and revenue
> shares. A vendor undercutting prices will get higher ridership

How? A company trying to enter this market would have a loong cash burn ahead
of it with no certainty of a profit. Like social media, there's an inertia to
users platform switching.

~~~
ReptileMan
I don't know. With the Ubers you don't have the network effects as strongly.
As long as the ride if safe, you will pick up the cheapest for given comfort
level and be done with it. Cost of switching for the user is 0. And cost of
switching for drivers is probably not high since any serfdom agreement for
freelancers can be struck down as invalid.

~~~
yipbub
What I mean is that it's very hard for any new company to compete. It's also a
very bad bet for any VC to back them.

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say_it_as_it_is
This is how regulators wind up securing established companies. Capping
commission rates favors Uber because Uber already has the infrastructure and
resources at its disposal so that it may afford earning less, cutting head
count as necessary, where as entrepreneurs who want to compete with Uber
don't. They have many more mountains to climb and less opportunity once
they've reached the market.

India is essentially planning on fortifying Uber's position. Well done.
Mission accomplished, lobbyists. Go long on Uber stock.

~~~
badestrand
It's a business with a very low barrier of entry. Same like food order
platforms, both will have new players enter the market. If anything, the cap
is dangerous for Uber as they have very high fixed operating costs, compared
to a startup.

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sifar
Totally unrelated to the finance minister blaming increasing ride sharing
usage to the slump in the Auto sector sales :) [1].

Really myopic. Yes Uber/Ola overcharge and don't pay the drivers enough, after
enticing them with offers and getting them in debt. But Uber had done this in
the US and shouldn't have been a surprise.

The so-called fleecing, arrogant auto rickshaw is more resilient, can navigate
the traffic better.

[1] [https://www.telegraphindia.com/india/nirmala-sitharaman-
blam...](https://www.telegraphindia.com/india/nirmala-sitharaman-blame-it-on-
uber-ola-mindset-too/cid/1704039)

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puranjay
I can't see any situation where Uber retains its current volume if it
increases its prices.

I'm not a particularly price sensitive customer, yet I find myself taking auto
rickshaws more and more. The gap between their fares and Uber are becoming a
little to unjustifiable. I'm comfortable with an Uber being 1.5-2x more than
an auto, but fares these days are often 2.5-4x higher.

My Uber usage is now reserved mostly for edge cases - going to the airport,
going home after a night out, bad weather conditions

~~~
gtyras2mrs
I use Uber for almost all my transport needs, despite my own concerns about
how Uber operates. Despite the higher surge prices.

My issue with using auto rickshaws are two-fold.

The first is comfort and safety. Rickshaw rides just feel crap and I can never
feel safe enough to just wear earphones and relax.

The second is integrity. I don’t mind paying more. But there have been 3 auto
rides out of my last five where drivers ask for one amount drive halfway there
and demand 2x. I don’t know if it’s because I’m not a local or if I just look
vulnerable. I just feel like I’m being used.

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rrrazdan
I see lots of people assuming that the drivers are in a debt trap. Its auto
debt. They can just default and go home. The bank will take their car.

I have talked to multiple Uber/Ola drivers. Sure the economics aren't as good
now. But they are still better than alternatives. That's the sad truth. Unless
people can get them better jobs, Uber/Ola will have to do.

~~~
llampx
Its India. They might get a few broken limbs in the repo process. Its not as
easy as you make it sound to walk out on a loan.

~~~
rrrazdan
I live in India so I don’t understand what you mean by “Its India”.

No nationalized bank( majority of auto loans) will use a coercive process.
Hell no private bank will use one. RBI has clamped on that practice as illegal
in 2010. Worse case is the bank repos the car and auctions it.

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Mengkudulangsat
Why would it be "... another blow" ? Isn't this fantastic news for Uber? Since
it applies to everyone equally, this signals the end of the race to the bottom
between the aggregators.

Any lost of income can just be mitigated by raising headline fares. Since most
drivers are on all apps at once, they will take the job that post the highest
fares.

~~~
hiyer
In many Indian cities the maximum fare is also fixed by the government.
Uber/Ola make money only from the commission. They attract drivers not with
higher fares but with various reward schemes - e.g. complete X rides within Y
time to get a bonus of Rs. Z.

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paulsutter
This is a way better help to drivers than forcing them to become employees.
Uber used to charge a flat 20% but now optimized to squeeze out as high a
percentage as they can take. This is the real problem for drivers. Not
employee / contractor

It’s unions pushing to force drivers to be employees, not drivers.

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modi15
Ridiculous meddling by the government. There are a zillion ways to circumvent
this ruling - each of which are easier done by big guys rather than smaller
startups. The only thing all this meddling ends up doing is making the space
hard for startups to start in and increasing the cost of business.

~~~
django1993
A startup that keeps eating more and more money like a blackhole without
emitting a single penny of profit.

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Gys
Regulation is always beneficial to esthablished companies.

GDPR, European VAT rules, data security, encryption requirements, etc. In the
end all this just makes it harder for newcomers. Existing companies only need
to adapt, newcomers need to comply (spend more time and money), before they
even can enter the market and start competing.

Having a better position for future regulation is another benefit for being a
first mover advantage.

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oceanboy81
People like Masayoshi Son are gonna lose the shirts off their back.

