Urban commute: Hail the (shared) ride

KNM Rao’s Quick Ride is today a network of 4 lakh vehicles that clock more than 60,000 daily rides
Image: Nishant Ratnakar for Forbes India

It wasn’t exactly the start he had bargained for, especially when his life’s savings were at stake. But KNM Rao, founder of carpooling startup Quick Ride, wasn’t losing sleep over the numbers—42 rides in the first month of operations in October 2015 and another six months to 1,000 monthly rides.

 At the back of his mind, Rao knew he had to fight a battle on many fronts and some skirmishes could be more bruising than others. “Carpooling doesn’t take a lot of money, but a lot of perseverance,” he says.

The 44-year-old speaks from experience. Rao got a taste of biases and prejudices against carpooling early, while parleying with corporates and tech parks to hold awareness campaigns on their premises. “Initially the companies were either reluctant, because they felt there were risks associated, especially around safety, or they took a lot of time for approval. Then, it took time for people to believe that this will work. Most people were waiting for somebody else to try it first,” he recalls.

This was a fight that he felt could be won. Perceptions change over time if consumers see value, believes Rao. By that yardstick, the business of carpooling, which promised inexpensive rides, less pollution and traffic congestion, seemed to have merit.

But there was another battle to be fought, one with the ride-hailing juggernaut of Ola and Uber, especially their crown jewel, ride-sharing.

Circa 2015, Ola and Uber were locked in a turf war for market share. Commuters forked out as little as ₹5 per km while cab drivers were showered with lucrative incentives to come on board.

Besides, both Ola and Uber were big proponents of ride-sharing. Commuters had to make a choice: Either share a cab affiliated to a reputable brand at throwaway prices or hop on to a stranger’s car for as much the cost or possibly, a tad cheaper. More often than not, they chose the former. For instance, when Quick Ride’s monthly rides in 2015 hovered in the thousands, Ola and Uber together clocked about a million daily rides. “It was tough because our brand was new,” says Rao.

It wasn’t just Quick Ride that was feeling the heat. In India, Meru Cabs and Ibibo shuttered their carpooling services as Ola and Uber surged. RidingO was bought by car rental firm Carzonrent and eventually shut. Globally, Lyft shut down its carpooling service in the San Francisco Bay Area within six months of launch. So did Rocket Internet-backed Tripda. In Singapore, SwiftBack was sold to Grab.

In India, it appeared that investors were reluctant to back a potential competitor to the ride-hailing juggernaut. According to Tracxn, a startup tracker, about 100 carpooling startups that sprang up in India between 2015 and 2018 had cumulatively raised about $3 million.

“The presence of big peers is definitely a factor that has influenced a lot of investors,” says Rijul Jain, investor at Astarc Ventures.

Cut to 2019, Rao has a different story to tell. Today, Quick Ride is a network of 4 lakh vehicles, evenly split between two- and four-wheelers that clock more than 60,000 daily rides. Earlier this year, the firm raised at least ₹100 crore from Naspers, Sequoia Capital and Venture Highway.

What changed in the past four years? One, people are less sceptical about travelling with strangers. Second, Ola and Uber have undergone a course correction. Breakneck growth aided by subsidised rides came at a cost. At Ola, losses jumped from ₹3,148 crore in FY16 to ₹4,898 crore the next fiscal. At Uber, annual losses globally stood at $2.8 billion in 2016 and $4.5 billion the year after.

The tap was turned off around 2017. Rides became expensive while lucrative incentives for drivers vanished. Such steps helped in arresting expenses—Ola, for instance, lost ₹2842 crore in FY18—but, it came at a cost. The supply of new cabs was hit and growth slowed. According to industry estimates, Ola and Uber together clocked about 2 million daily rides in 2016, about 3 million in 2017 and about 3.5 million the year after. Currently, they are estimated to clock about 4 million daily rides.

“Given that Uber is going for an IPO, it isn’t burning oodles of capital. India, for Uber, is a good-to-have market. As long as it doesn’t lose market share and burn pots of money, it is fine,” says Shivakumar Ramaswami, co-founder and director at IndigoEdge, an investment bank. “If Uber doesn’t do that, neither will Ola. Again, Ola is fighting on multiple planks, global expansion, food, etc.”

Carpooling startups, which were restricted to the fringes a few years ago, are heaving a sigh of relief. The evolving landscape has also enthused German carpooling startup Wunder Mobility to set up operations in India. Quick Ride, however, is the best-funded startup in the segment while the likes of Orahi, Pooltoo and sRides have raised a few hundred thousand dollars each.

“The reason Sequoia India invested in Quick Ride is that the company has consistently grown. We actually saw market share shift from other ride-sharing apps to Quick Ride in many cases,” says Sailesh Lakhani, managing director at Sequoia Capital India Advisors.

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(Left to right) Rapido founders Aravind Sanka, Pavan Guntupalli and Rishikesh SR. Rapido clocks 2 million monthly rides
Image: Selvaprakash Lakshmanan for Forbes India


It isn’t just carpooling that seems to be back in the fray. Bike taxi and scooter and bicycle rental startups, which could potentially chip away at Ola and Uber’s ride-sharing or autorickshaw services, or create a new use case with short commutes to the tune of a few kilometres, are also in vogue.

“One commonality is smartphone penetration. Until Jio happened, consumers at the lower income segment didn’t have access to inexpensive data. Now, a large number of people have access to data and there are lower-priced products to suit their needs,” says Lakhani of Sequoia Capital India Advisors.

Surprisingly, to investors, the ride-hailing juggernaut isn’t as daunting anymore. According to industry executives, the likes of Rapido, Vogo, Bounce, Yulu and Mobycy among others have either recently raised capital or are on the verge of cumulatively raising at least $120 million in fresh funds.

“Times have changed and most importantly, unlike before, investors are now interested. A commute is a frequent use case. Segments like taxis, food and payments, which are high-frequency use cases and can throw up unicorns, are either crowded or winners have emerged. Some of these startups can potentially become unicorns, hence the euphoria,” says a venture capital executive.

This is in sharp contrast to the heydays of Ola and Uber. Between 2015 and 2018, about 78 bike rental startups cumulatively raised approximately $20 million while about 40 bike taxi ventures managed less than $10 million in venture capital. Casualties included Tazzo, Hey Bob, HeadLYT and Zingo among others.

Rapido, a bike taxi startup, has lived to tell the tale. “Between 2015 and 2017, it was tough to raise capital because ride-sharing then was a capital dumping game. It was difficult to take a bet on us,” says Aravind Sanka, co-founder, Rapido. “Travel in the 5-7 km range is about 75 percent of any city’s commute. The short commute is a big void that can be potentially filled with two-wheelers, which are cheaper and can wade through traffic faster.”

Rapido’s numbers indicate that commuters are warming up to the idea of two-wheelers. The firm, which clocks 2 million monthly rides, has raised $40-50 million from Astarc Ventures, Integrated Capital, AdvantEdge, WestBridge Capital and Nexus Venture Partners.

About 300 metres from Rapido’s office in HSR Layout, Bengaluru’s emerging startup hub, Anand Ayyadurai is building Vogo, a bike rental startup that counts Ola, Kalaari Capital, Stellaris Venture Partners and Matrix Partners as investors. The idea is to set up bike stations across the city. Commuters can pick up a bike from one station and drop it at another close to the destination.

Cross-town rival Bounce, which counts Sequoia Capital and Accel Partners as investors, is on the verge of closing a $70-80 million fund raise from B Capital, Falcon Edge and Maverick among others. Bounce, which clocks 20,000-25,000 daily rides, aims to ace dockless bike rentals, which lets consumers pick up a bike and drop it anywhere.

 There are signs that automobile manufacturers may also throw their hat in the ring, just as they did with ride-hailing companies. For instance, Pawan Munjal of Hero MotoCorp is an investor in Vogo and Rapido, in his personal capacity.

“Entry of strategics won’t be surprising as they hunt for a new home for their vehicles to mitigate risks around slowdown in sales. Such investments also bring potential partnerships around supply, customised vehicles or vehicle financing,” says the venture capital executive quoted earlier.
India isn’t an exception when it comes to the euphoria around alternatives to the ride-hailing juggernaut. Globally, investors are equally stoked, especially with bike commute.

In the US, despite the overbearing presence of Uber and Lyft, bike rental startups Lime and Bird—set up in 2017—have raised $765 million and $415 million respectively. Interestingly, Sequoia and Accel are co-investors in Bird. Similarly, Go-Jek, a Southeast Asian unicorn, seems to have aced bike taxis despite competition from Grab. In China, the likes of Alibaba and Meituan-Dianping have thrown their weight behind Ofo (which has reportedly nosedived because of operational inefficiencies), Hello-bike and Mobike.

The ride hailing juggernaut is not oblivious to such advances. While Uber has been lying low in India in the run-up to its IPO, the company bought scooter rental startup Jump in the US last year. Back home, Ola has picked up a stake in Vogo and is reportedly in talks to invest in carpooling startup sRide. “The likes of Ola and Uber just won’t let such opportunities slip. These are adjacent businesses to their core cab business, but important adjacencies,” says the venture capital executive.

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The new breed of commute startups isn’t immune to challenges either. At times, they appear to be similar to those that have been haunting Ola and Uber.

Co-founder Vivekananda Hallekere’s Bounce offers dockless bike rentals

Image: Courtesy Bounce

Carpooling, for instance, could fall prey to paucity of supply and limited use case. First, the services are largely availed by office-goers. Second, ensuring predictability of supply is a gargantuan task. Availability of cars depends on the whims of car owners who, unlike cab drivers, aren’t looking to earn a livelihood, hence are not obligated to offer rides.

“Predictability and availability is a function of scale,” says Rao of Quick Ride. “As the network grows, such issues will be addressed.”

Bikes rentals aren’t a cakewalk either. Why would commuters rent when they can own at least a resale scooter for as low as ₹15,000?

According to the Society of Indian Automobile Manufacturers, two-wheeler sales in India surged by 46 percent between 2013 and 2018, from 1.38 crore units to 2.01 crore units. However, while the absolute numbers have increased, vehicle ownership as a percentage of overall population isn’t high in India. A January 2019 report by HDFC Bank investment advisory group says about 102 out of 1,000 Indians own two-wheelers, a figure that pales in comparison to Indonesia (281 out of 1,000 people) and Thailand (291).

“If you make it ubiquitous, where there is a scooter available outside your house, you can walk a few paces and use it. It isn’t that you can’t afford something, but why own if you don’t need to own, unless you are attached to the idea of ownership?” says Ayyadurai of Vogo.

But making bikes ubiquitous costs a lot of money. The likes of Vogo and Bounce rely on debt to finance the bikes. The ability to service debt, in turn, depends on optimal use of the bikes, which is again hinged on demand. Besides, a price war similar to the one fought by Ola and Uber cannot be ruled out.

“Initially it will be a price war, but eventually it will be about managing the operations: How bike rentals take care of theft or pilferage, refuelling, rebalancing, etc. Scale will come, but it has to be well-built and not one achieved by just throwing money, else one can’t break into a few million transactions,” says Vinod Murali of Alteria Capital.

The jury is out on whose wheels will come off first. Says Vivekananda Hallekere, co-founder and chief executive at Bounce, “Everyone will try to outlive others. Only time will tell what is right.”