Uber raised $1.2 billion in funding in June, so you might justifiably ask why it is reportedly closing in on $1 billion more less than six months later. The answer may just be an aggressive international expansion in Asia, with a particular focus on India.
The U.S. company was a relatively late arrival in India, but it has quickly scaled to cover 11 cities and make India its second largest market. Initially lagging behind a handful of local firms, Uber is making its large pile of funding count with a series of eye-catching (and cash-burning) promotions, the latest of which is free rides for anyone in the country between Wednesday and Sunday.
Uber said it will give all customers who link their account with its new wallet payments system five free rides, to the value of up to 300 INR per trip ($4.90 — a good sum in India). That is valid across all three services that it offers in India and in each of the 11 cities it serves.
The promotion is the latest in a series of major moves in India, following the launch of the Uber wallet, and Uber Go, the company’s cheapest service yet which is positioned to compete with India’s iconic auto rickshaw fleets. We’ve heard rumors there may be yet more aggressive competitive moves up its sleeve.
Absorbing Losses
With the free promotion and Uber Go in particular, the U.S. company is taking the lead in a major price war that is sweeping India’s nascent taxi app market.
A recent story from Indian news website Live Mint suggested that Uber and close rival Ola are absorbing more than 50 percent losses on certain journeys to build their brand among consumers. In addition, drivers claimed that, beyond a standard bonus for taking a certain number of trips per day, Uber rewards them with cash just for keeping its app open all day.
That’s a pretty clear indication of the level of competition, which Uber has taken up a notch with this ‘free week’ offer.
Last week, I said Uber is clearly hemorrhaging cash in emerging markets, and India is the clearest example of that.
Yet, despite the vast investments it has made, it remains unclear whether Uber’s efforts are building its brand as the top choice in India, or whether it is simply helping the taxi app industry itself gain greater visibility and awareness among consumers.
It’s too early to know for sure, but Uber certainly has the resources to run parts of its business at a loss for sustained periods. And India — with a billion-plus population, a freer climate of business than China, and an impending smartphone revolution — is unsurprisingly at the top of the U.S. company’s growth list.
Those two factors combined are bad news for its rivals in India.
Pressure On Smaller Players
Ola, which recently raised a $210 million round led by SoftBank Ventures, may have the cash piles to compete on relative terms, but Uber’s aggressive pricing push could crush lesser competitors like Meru Cabs and TaxiForSure, both of which use different business/ownership models to Uber.
Uber’s long-term plans are widely thought to include supplying additional services via its global logistics network. That’s something that’s always caused me to believe that much of its international operations can run at a loss because simply offering a global network is an asset Uber can leverage.
That may not be the case in India, where Uber is seemingly working to entrench itself in a position to dominate India’s taxi space, and perhaps other areas, in the future. Uber does have some localization issues to handle — India is extremely price sensitive and many consumers still prefer to book over the phone, for example — but money talks.
We contacted Uber with a series of questions about its business and revenues in India, but did not hear back from the company at the time of writing.