SoftBank adds new twist to Ola-Uber rivalry

Before the trickle of dollars into India’s ride-hailing market could turn into a raging rapid, Japanese investment giant SoftBank could bring an end to the war between Uber and its local counterpart, Ola. With an additional $1 billion commitment to Ola and a plan to lead a $20-billion investment in Uber, SoftBank could force consolidation in the country’s transportation market.

SoftBank, the largest backer of Ola, in its quest to become the dominant power in ride-hailing market globally, has approached Uber to participate in a massive $20 billion funding round. The key reason for the investment stated by founder Masayoshi Son was to gain entry into the world’s largest market, the US.

“We are interested in discussing with Uber, we are also interested in discussing with Lyft (another ride-hailing service), we have not decided which way,” Son had told investors in August. Since then, SoftBank has moved forward in its discussions with Uber and, according to global news reports, is close to making a deal.

A by-product of the deal could be the merger of Uber’s India unit and Ola, as SoftBank wouldn’t want to fund both sides of a multi-billion dollar war for supremacy in India. Uber, which has been likened to Amazon in India’s ride-hailing space, could lose its teeth even before it gets a chance to challenge its local counterpart.

On Wednesday, Ola announced that it had raised $1.1 billion in fresh funding from Tencent and SoftBank. The company said it is in talks with others to raise an additional $1 billion to bring the total capital raised in the round to $2 billion.

Business Standard had earlier reported that SoftBank has committed to invest additional capital in Ola if it was able to hit set performance targets. One of the biggest demands from the Japanese investor is for Ola to build its play in the electric mobility space, for which the company is planning to expand its experiment in Nagpur to other cities across the country.

A monopoly in the making

While SoftBank has not put forth conditions calling for a truce in India as part of its investment in Uber’s global operations, experts and industry watchers say the move is inevitable. The resultant will be a monopoly controlled by SoftBank in India’s online taxi- hailing space, with such a big presence that it could deter any new entrant.

The consolidation of Didi Chuxing, the leading ride-hailing service in China, and Uber’s China unit comes to mind when thinking of the merger of Uber and Ola in India. SoftBank, a backer of Didi, is said to have been among the parties that brokered the deal, in effect giving Uber a chunk of the action in China’s massive ride-hailing market through a 30 per cent stake in the combined entity but with no operational control.

“SoftBank’s investment in Uber should not be seen as a way to curb competition in India and Southeast Asia. As an investor it is looking to hedge its bets and this has happened in several industries, not just-ride hailing. A byproduct of the deal might be a merger of the two entities in India, but that won’t happen in the short term,” said an Ola executive who did not want to be named.

The new battle

If competing against each other for market share isn’t an option, the new war between Ola and Uber could be to decide which firm absorbs the other. While Ola has already received a clear mandate from SoftBank on where it needs to improve its performance, Uber will likely try to make a case for itself with its tech expertise.

Currently, most industry watchers and insiders in both companies tell Business Standard that SoftBank would favour Ola over Uber in India. Backing local firms to battle against global rivals has been Son’s mantra, with a leading example being SoftBank’s investment in Alibaba in the early 2000s when global players such as Amazon were vying to enter the China market.

They say it is the same reason that Son betted on Snapdeal and then Flipkart to try and beat Amazon in the ecommerce space.

Both Uber and Ola claim they are market leaders, but independent analysts say that Ola currently leads with 60 per cent market share, while Uber controls the remainder. There are a few smaller players in the market, but their share is insignificant.

Both Ola and Uber chose not to comment for this story.

Early Consolidation

However, industry watchers say consolidation in India’s ride-hailing space is coming much earlier than previously expected. While Uber entered the Chinese and Indian markets at the same time, given the size of the Chinese market, the company burnt far more money there than it did in India. The US firm was burning $1 billion a year before it sold its operations to Didi.

Investments in India’s ride-hailing space were expected to grow in the coming years, but with consolidation, that pace could slow significantly. Experts point that while burning money to grow has its drawbacks, it does help to quickly create a market where it does not exist.

In China, soon after Didi took over Uber’s local unit, customers complained of fares going up while drivers complained of earnings falling. Being the only player in the market, Didi could set its own terms and began squeezing to improve its earnings, but it could do that because the market was already mature.

For India, which has a ratio of just five cars per thousand people, ride-hailing is seen as a massive opportunity to help the country skip buying cars. Currently, the online ride-hailing market makes up 15 per cent of the overall taxi market in India, with its size estimated at around $2 billion, according to analyst RedSeer Consulting.

However, the government has not yet set regulations for this new sector in stone, potentially creating hiccups for the players in the space in the future.

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