"So, where do you hail from?" is my literal "pickup" line every time my Uber cab picks me up for yet another torturous journey in the Silicon Valley of India, Bangalore. A journey of about 8 miles in the stretch I regularly commute takes about 90 minutes in the peak hours, both in the morning and in the evening; and a good chat with the cabbie is probably the best way to pass away the time.
Bangalore has got an acute Acromegaly problem, unable to even recognise itself in just a few years, reeling under Government apathy and the invasion of the software industry - while what it really needed was a strong shot of infrastructure, a completely different industry jumped in and took stock of the situation, not really solving it though.
"You've to give up driving !"
As my doctor told me the main reasons for my high Blood Pressure, there was only one immediate (lazy/easy) solution I could look to, install the app and commute ! Public transport in a overly crowded city was not feasible and definitely impractical for long distances. The real cost of independence and driving my own vehicle was clearly not on my wallet but on my health - and health was something I was paranoid not to screw with. 90 min of travel required about 30 min of rest post travel, just to come back to normalcy !
"Multiply that by two for the return journey and we can clearly see where the productivity gets lost"
I believe that's where cab-aggregator services like Uber and Ola hit the nail on its head. It was about time in Bangalore where owning a car was no longer a status symbol (unlike in many other parts of India) and more of a "negative" status symbol - A person who was still driving his own vehicle to work was slowly being seen as someone who had lots of time on his hands and also as someone who couldn't afford a cab ! Well, things had certainly changed a lot in the last few years.
Now that we established the demand side of this business, the more interesting side of this is definitely the supply side.
What Uber basically had was this - How to you take a proven product that works in the US and get it up and running in a completely different setup, with probably very different supply and demand and everything around it ?
When Uber initially started, they were giving a lot of incentive to the drivers, so that more and more drivers join in - the money was good and the drivers were making around INR 150,000 per month, way, way higher than what most software engineers would earn per month - and considering software engineers are probably the highest paid in Bangalore, this came quite as a "Gold Rush"
"Gold Rush created Entrepreneurs"
What this produced was a very interesting phenomenon - cab drivers associated with small cab companies rapidly left their jobs, bought commercial plate cars priced around INR 600,000 on vehicle loans around 9.5%, repaid them in around 8-9 months and turned into mini-entrepreneurs buying more cars and employing new drivers to drive their cabs for a fixed salary - who'd again leave his employer as soon as he knew what he was capable of - exploding like a nuclear reaction.
The money was good, but Uber(India) would go bankrupt if they incentivised to such a large extent - it had to stop somewhere - and it did. Incentives came down, and given the rivalry of Uber and Ola in India, many drivers started shifting to Ola which was riding high on its funding and hence better incentive models.
Uber then started a new incentive model - Upon completion of 12 trips per day, a separate incentive of about INR 5000 would be given to the driver - while the thought behind it was to encourage drivers to take up more trips, little did they know that cab-drivers were hacking it in a completely different way!
"We Indians are best known for 'hacking' our way around things, we call it jugaad"
I was practically blown away by the ways that some of the cabbies tried to hack the system and later how Uber got around them, controlling all of it, purely by playing with the levers of the incentive model !
The Phantom Rides
After dropping customers off at their destination at the fag end of the day typically after completing about 11 trips, the cab-driver would offer INR 50 and ask the customer to book an empty ride - he'd just go around the corner and come back to the same location, end the trip and drive away. While some people rejected his offer, many others obliged, mainly because it was not affecting them in any way, but the poor cab-driver was benefiting, and the bigger organisation was losing some VC money, which was well, okay for whatever reason. Uber started collating this information, identified these fake rides and started penalising them with an iron hand, then made sure this didn't happen by not even considering that customer-cabbie combination immediately after a ride ended. So if a customer requested for another ride immediately after he completed his ride, that ride-request would always go to some other cab-driver.
The DoS attack
In the early days of Uber in India, the destination was shown to the cab-drivers when a customer requested a ride; and unknown to Uber was the rejection culture of Bangalore ! If the destination was far away, nobody would accept the ride due to fear of not completing the "12 trip" finish line. Naturally cab-drivers only accepted those rides that were only around 1 or 2 miles away - Since Uber did not differentiate on ride-distance in its incentive model, it was a sure-shot way of reaching the 12 trips. Once Uber realised this, the solution was simple, simply hide the destination from the request - As soon as this was done, the graph evened out, lesser rejections and more trips - a simple solution for a complex problem - that too however was not completely fool-proof - the cabbie wouldsometimes ask the customer where he wanted to go and then cite some random reason why he wouldn't be able to make it, forcing the customer to cancel the ride. Uber wasn't in the mood to let go - it started heavily penalising cabbies who had a cancelation reason called 'refused to ply'.
The Airport Problem
While most trips in Bangalore averaged somewhere around 6 to 9 miles, there was one specific destination that was about 28 miles from anywhere in the city - the Airport. The problem with the Airport was the connectivity and it would easily take about 2 hours to reach the Airport and along with it also came the airport toll booth and parking charges - needless to say, these were biting pretty hard on the cabbie. So all in all, about 4.5 hours of wastage for just 2 trips - Cabbies started protesting against this unfair destination - What was the solution Uber came up with ? Every ride to the Airport would now be counted as two rides ! Simple - so in 4.5 hours, 4 trips - this was probably better than riding within the city because the mileage was always better on the last leg of the Airport route. Incentive was clearly working it's charm.
Moonlighting Drivers
Given the Gold Rush, a lot of cabbies wanted the best of Ola and Uber - and so registered their cabs with both the companies and accepted rides from Ola or Uber as and when the incentives changed. One of the earlier incentives with Uber was on the completion of a smaller number of trips, and after that the next level of incentive was at a very high number of trips (say > 12) - because of this, Cabbies would use Uber till the smaller figure was reached, then switch over to Ola and continue accepting orders from there - Uber and Ola recognised this problem and immediately got to the optimal number of trips to complete in a day along with incentives for completing some X number of trips per week - make it too low, it will be abused, make it too high, the interest dies down - I'm not sure how they got to the magic number (pretty sure this differs from city to city) but it definitely killed the moonlighting - cabbies understood that Uber or Ola is like a long term deposit and short-term gains were lower compared to long-term gains - They took a call and went for one of them. This was very vital because in any kind of supply-chain industry it is very important to understand the capacity of the supply-chain during both planning and promising.
Surge Pricing
While probably a lot of the above things were done right and had the right effects as well, the most widely known infamous incentive model of "Surge Pricing" hasn't somehow gotten it right so far in India - While it's the most simplest lever to artificially hike the price of a commodity in shortage, it somehow breaks the promises Uber/Ola had made when they entered into the Indian market - promising to replace the auto-rickshaws that were infamous of charging double the meter - Well, now people had to pay about 300% on an average during peak hours especially on Friday evenings from places that didn't have pubs nearby - and it definitely doesn't take rocket science to figure out why.
But is it right to penalise the customer when there are not enough cabs in his vicinity (although penalising someone for not going out for drinking on a Friday evening somehow seems an even better idea) ? I'm not too sure - however I do believe that the cabbies need to be incentivised to pick up people from places where there the ratio of cabs to customers is very low - there could be a better way of doing this without penalising the customer - by simply making such trips count as 1.5 rides - So if two rides are taken from such localities, it should translate into 3 rides for the cabbie - and everybody is happy !
Drink, but take a Cab !
One very important phenomenon of the Uber/Ola revolution has been a drastic reduction in the drink and drive accidents in the past few years in Bangalore - more and more people are opting to be driven home drunk than take the risk themselves - it was simply not worth it - better still, most people stopped visiting pubs in their own vehicles if they planned to drink (double happiness for Uber/Ola). While the Bangalore Traffic Police has also been very strict with the drunken-driving cases, I believe it's the cab-aggregators which are the root-cause of this effect.
Keeping Everyone Happy
The latest and probably one of the best moves by Uber/Ola is the introduction of the cab-pooling concept in India - and again this is something which is very different in India when compared to other parts of the world - safety is of primary importance (cost comes later) especially after Uber's Delhi incident - and they've managed to crack open the supply side of things simply by considering every share as a different ride to the cabbie. So if he takes 3 customers in a single pool, it's counted as 3 rides !
Incentivising cab-pooling this way has a positive effect on everyone -
- Bangalore city - by reducing the traffic
- Customer - more cabs are available in pool-mode
- Cabbie - way more rides by doing cab-pooling
- Uber - higher total cost of the same ride although each customer pays lesser than what he/she would have paid had they travelled alone.
Again, all controlled by the incentive model. Pretty sure the demand is catching up equally.
This battle of incentives has just begun and the future is exciting - what more can the Ubers and Olas do just by playing with the incentive model ? What do you guys think ? Do you own a car ? rather do you still want to own a car ?
Artcile reproduced from following link:
Artcile reproduced from following link:
https://www.linkedin.com/pulse/economics-uber-ride-india-vaidyanathan-s
