Daybreak - Will the subscription model help Rapido grow its new cab business?

Episode Date: January 5, 2024

Ever since it started, Rapido, the bike taxi company 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 that it managed to do it at the expense of customer safety.Now, though, eight years later, Rapido has finally launched its own cab hailing service. Over the last six months or so, it ran a pilot project in Hyderabad and ended up with almost a 25% share of the city’s cab hailing market so last month, it decided to launch in two more cities, New Delhi and Bangalore.What makes it different from Ola and Uber is that instead of commissions, it wants its driver partners to pay a subscription. Right now, Rapido only charges a subscription fee in Hyderabad, and drivers in the other two cities can use the platform for free for another few months. The idea is to disrupt the market by making it a more economic deal for cab drivers whose earnings from Ola and Uber have been on a free fall since the last few years.But disruption comes at a cost.Tune inAlso listen to: Is Rapido trading passenger safety for growth?Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Once it started, Rapido, the bike taxi company 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 instead, even though that it managed to do at the cost of customer safety. Now though, eight years later, Rappado has finally launched its own cab hailing service.

Over the last six months or so, it ran a pilot project in Hyderabad and ended up with almost a 25% share of the city's cab hailing market. So last month, it decided to launch in two more cities, New Delhi and Bangalore. Now, you might want to know what is unique about Rapido, what makes it different from Ola and Uber. And also, how is it successful in Hyderabad when cab drivers in general are miffed with apps like Ola and Ober over the commissions that they have to pay them? You see, Rapido is trying a different route.

Instead of commissions, it wants its driver partners to pay a subscription fee. Right now, Rapido only charges a subscription fee in Hyderabad and the driver's, in the other two cities can use the platform for free for the next couple of months. Pavan Guntupali, 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 more economical for cab drivers whose earnings from Ola and Uber have been on a free fall in the last couple of years. But disruption comes at a cost.

Some compromises have to be made. And that is why Rapido has already been in the news for its safety issues in the bike taxi services. Is that going to carry over in its new cab hailing business? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Dha Sharma, and I don't chase the new cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Friday, the 5th of January.

Listen to daybreak regularly, you'll remember that we've spoken about Rappido'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 Rapido. A driving license, a vehicle registration certificate

and an Adhdar or Pancard and a selfie of the rider. That is it, nothing else. Unfortunately, RAPido is carrying out its new cab business in the same manner. My colleague Shashita Kundo Chouduri 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 Gunto 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 Ken has also learned that Rapido claims to not fall under the 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 RAPIDO 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 Rapido. Uber, for example, does not allow cars that are more than six years old on its platform. When the Ken asked Guntu Pali

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 Rapido completely disregarding such basic stuff. Because the idea is that rapido'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 Guantapali, 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 Rapido and it will only be profitable. End quote. But here's the important question. Is the subscription model going to work? work in the ride-hailing business? Stay tuned to find out. Remember Namayar-3, the auto-risha

aggregator app that was built by the payments firm JustPay? 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, So Rappado's 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, news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.