Uber has been having a rough time in India, but how bad is it?
Economics of the Uber Drivers:
- Drivers are intelligent. They are aware of the economics and the politics of auto drivers
- They are honest and call each trip a duty. However, they are prone to “abusing the system” which I will get to later.
- The current economic situation is not normal and they are scared of things changing
- Most of them are on other networks like Ola and TaxiForSure, there is no loyalty to Uber other than the money
- They will tell you they’re being mercenary. They know that if you pay X, they get 3X and Uber pays for the rest.
Economics of the Uber Business:
Uber is often preffered because it is cashless through PayTM or credit card. Ola’s cashless system uses Ola Money, which is a waste of time because you can’t use it anywhere else. Drivers might even cancel your trip if you say you’re using it. PayTM offers cash backs on purchases that you can use towards Uber.
Uber says that it has the lowest fare in Bangalore at Rs. 7 per km, but they actually charge Rs. 13.5 per kilometer.
So, should you just get a car instead? The annual costs of having a car are much smaller now. If your car gives you 12 kms to a liter of petrol at Rs. 1 per kilometer, you are still paying only Rs. 5.5 per km for petrol and maybe Rs. 1 for parking. There is also the convenience of owning a car – getting groceries from hypermarkets that won’t deliver and driving your kids to school.
There is another reason why a car is better. Uber cars are not always available when you need them. Wait times are over 10 minutes most of the time unless you are in a very popular area. There are also a lot of surge prices, which Uber is known for.
So let’s go back to the driver. For 12 rides a day, he gets Rs. 1200, plus a Rs. 100 per ride incentive, plus Rs. 100 per ride as fare which equals almost Rs. 1800. Then he pays Uber 25%. That comes out to Rs. 3500 per day. However, most drivers claim to make about Rs. 2,000 per day so that’s around Rs. 45,000 per month. After the EMI, fuel costs and service, he is left with Rs. 20,000.
Economics of Uber’s Marketing Expense:
- Uber only gets what you pay, which is about Rs. 150 per ride.
- After my calculations, Uber still have Rs. 1,200 per day of net losses
- For 12,000 drivers, that’s Rs. 15 million per day or $250,000.
- That’s a los of $7.5 million per month in Bangalore alone.
In my opinion, Uber needs to reduce incentives and increase charges. They need to increase them by at least 2.5 times just to break even. Will the Indian market pay that much?
Advisor Abbate 