So who stands to benefit from an Ola-Uber merger? It is not the customers or the drivers as the monopoly will drain the market off of choices.
Written By Sulekha Nair
Uber Technologies Inc. had to eat crow and almost exit Southeast Asia because of competition from rival Grab, but for a deal that gives the American firm a 27.5 percent stake in the latter. After news of that surrender broke earlier this week, rumours about Uber merging its operations in India with that of its biggest competitor Ola have been doing the rounds.
Sources in the know of the development have reportedly confirmed that senior executives from both firms have met several times over the past several months. The talks indicate that homegrown Ola will take over Uber India. However, the blueprint of a deal is yet to be worked out and could take several months, an unnamed source told the PTI. Japan’s SoftBank is the largest investor in both firms and is facilitating these talks.
Ola shot down claims about talks with Uber, and told the news agency that, “Ola is always actively looking for opportunities to expand its footprint. SoftBank and all other investors are committed to realising this ambition.”
Two analysts Firstpost spoke to were of the opinion that a merger seems unlikely. Two others said it could go through.
Paula Mariwala, Partner, Seedfund and co-founder, Stanford Angels, ruled out the possibility of a merger. She reasoned that both taxi-hailing apps were the fastest growing in the sector that they operate in. “Both face the same issues and have come in the crosshairs of the government.” For instance, they were pulled up for surge-pricing in the NCR during the Delhi government’s implementation of the odd-even car scheme. Mariwala added that there is no need for consolidation, given that there is no other player like Ola and Uber in the Indian ecosystem, referring to their deep pockets.
Another reason cited for a merger not going through is that there is considerable headroom for growth for both players. Kavan Mukhtyar, Partner and Leader – Automotive, PwC India said that when there are leading players in any sector, there isn’t much scope for consolidation. “There is private equity capital that both the players are pursuing and there is expectation of growth.”
Ola has seen an increase in its market share, from 53 percent in July 2017 to 56.2 percent in December 2017, according to market intelligence firm KalaGato. Uber’s market share for the same period slid from 42 percent to 39.6 percent, according to a report in Scroll. But there is still room for growth, especially in Tier 2 and Tier 3 cities, Mukhtyar added.
Ola and Uber have a 95 percent market share in the cab-aggregator space in the subcontinent. In such a scenario, a merger can be explored. Devangshu Dutta, chief executive of management consultancy Third Eyesight said it is logical for companies with a common principal investor to explore collaboration at the very least, if not an outright merger. “This can include sharing of resources and market information such as the spread of demand-and-supply. But, the resultant pricing implications of that may not be positive for consumers. Cartelisation is known to happen in many sectors around the world, and can only be checked when competition is diverse and fragmented, or if there is a strong and well-equipped competitive regulatory authority overseeing the market,” Dutta added.
Given that SoftBank is a key investor in both Ola and Uber, it makes sense to merge and eliminate the level of competition that exists between the two, said Kaushik Madhavan, Director – Automotive & Transportation, MENASA at Frost & Sullivan. Both players have ambitious strategies for organic growth, customer service and footprint. “The biggest question mark is to understand if both players are on the same page when it comes to a merger,” Madhavan added.
But what if a merger does go through? A merger will be subject to regulatory approvals, and in this case it would give the merged entity absolute control of the market, which will not be allowed by the regulator. For starters, consumers will be at a disadvantage owing to a lack of options.
“It is going to be bad for Indian consumers because Uber-Ola will become a monopoly. The Competition Commission of India (CCI) will come into play and may not allow this to take place,” pointed Arvind Singhal of Technopak Advisors. He feels that given the market buzz about a merger, there might be a possibility of integrated back-end operations while the two players run operations under the Ola and Uber brand names. “But that would become a case of monopoly or duo-poly,” pointed out Singhal.
According to media reports, the merger is being driven by SoftBank and is not in the interest of either Ola or Uber. Media reports also indicated that neither Ola nor Uber are keen on a merger. Uber CEO Dara Khosrowshahi has said that the US-headquartered firm will be more focused on organic growth in the markets it operates in. India is already among the top three markets for Uber after the US and Latin America.
So who stands to benefit from an Ola-Uber merger? It is not the customers or the drivers as the monopoly will drain the market off of choices. It appears that the companies themselves are not keen, going by media reports which suggest that only SoftBank is gunning for a merger. So, clearly the ball lies in SoftBank’s court.