Daybreak - India's newest unicorn, Rapido, is betting on a subscription model

Episode Date: September 8, 2024

Three days ago, Rapido, the bike taxi company, became India’s latest unicorn after it raised $200 million at a valuation of over $1 billion. The funding round which was led by WestBridge Capital also saw new investors put in their money into the company. In an interview to the ET, CEO Aravind Sanka said that the funds will be used to expand Rapido's newly launched four-wheeler taxi service, which competes with Ola and Uber.  But here’s the thing. Ever since it started, Rapido has consciously stayed away from venturing into the cab business. Until last year was happy to stay in the bike taxi lane and beat Ola and Uber there even though that it managed to do it, often, at the expense of customer safety. Now it has forayed into cab-hailing but it is trying a different route. Instead of commissions, its driver partners pay it a subscription fee. Tune in.If you've been wondering what The Ken is all about and why our subscribers love us, here is your chance to find out. Check out our special 30-day trial curated just for you.To apply for the latest job openings in The Ken's podcast team, click here.

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Just log on to the-hyphenken.com slash trial. And now on to the episode. Go Rapido, the bike taxi company became India's latest unicorn after it raised $2 million at a valuation of over $1 billion. The funding round, which was led by Westbridge Capital, also saw new investors put their money into the company. In an interview to the Economic Times, CEO Irvin Sankar said that the funds would be used to expand Rapido's newly launched four-wheeler taxi service which competes with

Ola and Uber. But here's the thing. Ever since Rapido started, it has consciously stayed away from venturing into the cab business. It was happy to stay in the bike taxi lane and beat Ola and Uber there, even though it managed to do it at the expense of customer safety. More on that later. Someone close to the developments also told Economic Times that Westbridge cutting a $120 million check to Rapido indicates that the growth and expansion will not be mindless and that there is a sustainable plan in place. So, Rapido finally launching its cab hailing service around the end of last year kind of makes sense now. But before it actually launched it, it ran a pilot project in Hyderabad and ended up with almost a 25% share of the city's cab hailing market.

Now, you might want to know what is so unique about that. How was it even successful in Hyderabad when cab drivers in general are not that happy with apps like Ola and Uber over the kind of commissions they are paying? You see, Rapido is trying a different route. Instead of commissions, it wants its driver partners to pay a separate. subscription fee. Right now, Rappado only charges a subscription fee. Pavan Guntipali, the co-founder of Rappado who spoke to the KEN, told us that they want to be perceived as the most affordable app that provides convenience and a great experience. The idea is to disrupt the market by making

it a more economic deal for cab drivers whose earnings from the likes of Ola and Uber have been on a free fall since the last couple of years. But, to disruption comes at a cost, and some compromises have to be made. I'm sure you know about how Rapido has already been in the news multiple times for its safety issues in the bike taxi services segment. Just two weeks ago, there was another incident where a user posted a video of a Rapido driver watching YouTube while driving the bike. So, are these issues going to carry over to the cab hailing business of Rapido?

Welcome to Daybreak. The business podcast from the Ken. I'm your host, Nick Dhar Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rahal Philpipos and I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 9th of September. Listen to daybreak regularly, you'll remember that we've spoken about Rappado's lack of concern for the safety of its customers.

In case you missed it, I'll add the link to the show notes of this episode. So, to give you the gist of it, RAPIDO wanted to beat OLA and Uber in the bike taxi space and in order to do it, it made the process of onboarding drivers easy. A bit too easy. A driver had told us how making a RAPido captain bike ID is just a two-minute process. No wait time for documents to be verified. All they need is three documents to start working as a bike taxi captain with Rappado. A driving license, a vehicle registration certificate and another.

or Pancard and a selfie of the writer. That is it, nothing else. Unfortunately, RAPido is carrying out its new cab business in the same manner. My colleague Shashito Kudhuri spoke to Tanvir Pasha, the president of Ola Uber Drivers and Owners Association of Karnataka, and here is what Pasha told him. And I'm quoting, Rapido is onboarding all the cars and cab drivers

who are coming to its platform without conducting proper verification. checks." End quote. And he wasn't the only one who said this to us. There were multiple people from the industry, including executives from rival cab aggregators, large fleet operators, and cab unions who confirmed the same to us. Even Guntu Palli admitted that while Rapido conducts background verifications through external agencies, it does not follow industry standards or benchmarks in terms of driver authenticity. Not just that. The Kent has also learned that Rapido claims to not fall under the purview of the regional transport officer RTO in the state that it operates in.

In other words, it is not licensed. So how come it is not bothering with getting a license? Rapido claims that it is not working as a cab aggregator and that it is only a software provider. And that is because it has nothing to do with the fair collection process. customers are paying drivers directly and then Rappato is asking the drivers to pay a subscription fee. And this isn't all. There is also no limit to how old a cab can be on Rappado.

Uber, for example, does not allow cars that are more than six years old on its platform. When the Ken asked Guntupali about this, he declined to comment. The thing is, not only will using older cars in its fleet add to pollution, it will also affect service standards that have been set by, the likes of Ola and Uber. But why is Rapidu completely disregarding such basic stuff? Because the idea is that Rapidu's chances of gaining a firm foothold in the cab hailing industry would improve with increased driver participation. And this in turn will lead to a rise in the market size in general. According to Guntherali, there are 2 to 2.2 million drivers in

India who can potentially enter the cab segment using their own vehicles. And even though the potential earnings from subscriptions are lower than the commission model that Ola and Uber are using, RAPido expects a higher volume of drivers on its platform to help offset any losses. The co-founder said it to us himself, and I'm quoting, The more we scale the service, the more people subscribe to Rappado and it will only be profitable. end quote. But here's the important question. Is the subscription model going to work in the ride hailing business? Stay tuned to find out. We have an exciting announcement. If you are a regular

listener, you would know that the Ken's podcast have hit many milestones this year. From daybreak crossing 1 million downloads to the launch of our first ever premium podcast two by two. We want to keep this momentum going. And for that, we are looking for talent. people to join our team. We're looking for a podcast producer to help us produce great narrative driven shows at the intersection of journalism and business. And we're also looking for an audio journalist who has covered one or more business sectors, ideally careers, education, tech or start-ups for at least two years. If you fit the bill or know anyone who does, please check out the link in the show notes. And now back to the episode.

Remember Namayatri, the auto-risha aggregator app that was built by the payments firm, just pay. It also tried to use the subscription model to win the Bangalore market. But now, the auto-ricksha driver's union, which was its main backer in the early days, has cut off from it. A report said that it was mainly because of differences over fare and a say in decision-making. An executive from a rival firm helped us understand the problem with the subscription model in the ride-hailing business. They said, and I'm quoting, though Ola and Uber charge commission, they provide incentives to drivers.

Rapidu cannot do that making driver retention tough. If you don't have control over cab supply and pricing mechanisms, how will you provide incentives? End quote. Plus, Rapidu only allows its customers to pay cab drivers with cash.

So even though Rapidu is betting big on helping drivers make as much money as they would with Ola and Uber, or even more perhaps, there is still the issue of paying for overheads such as salaries and also that margins are too thin. Even Guntu Pali agreed that there is limited scope for giving incentives in the subscription model as your margins are razor thin and you get a limited amount of value from one driver. But he also pointed out that in the commission model, companies shell out incentives and

discounts which bring down the earnings per ride from 30 to under 20%. So, he told the Ken that Rapido plans to stick to the subscription model because he thinks it will bring a higher volume of drivers. And while this may work for it in the next few years, if it doesn't get into trouble over licensing, the concern over customer safety still remains. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news.

platform. What you're listening to is just a small sample of our subscriber-undi offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snikda Sharma and edited by Rajiv CN.