Company Outsider: As BluSmart stalls, the ride-sharing business in India looks even more suspect

Gensol Engineering's collapse under a wave of corporate misgovernance charges has brought to an abrupt halt its subsidiary BluSmart, the once-promising all-electric ride-sharing venture. While the parent company joins the growing roster of startups felled by promoter financial misconduct, BluSmart's shutdown draws attention to the travails of a business that had once promised an urban mobility revolution.

Since its inception in January 2019, BluSmart had built a loyal customer base for its dependable and environment-friendly service. Its demise leaves the field to the two heavyweights, Uber India and Ola along with a whole host of small, local platforms. In most other sectors, BluSmart would have immediately attracted buyers given its niche positioning. That neither Ola nor Uber has made an effort to buy the distressed company is down to the financial woes of its parent company as well as to the grim prospects of the business and the precarious financial health of the incumbents.

Ola’s revenue from its ride-sharing business is on the decline even as it continues to lose market share to the many newcomers. The company’s founder Bhavish Aggarwal read the signs early and scaled down his ambitions, exiting markets like Australia, New Zealand and the UK. Since then, he has shifted his focus and his investments to a completely different business - electric vehicles. With its share price down nearly 42% over the past six months and regulatory issues dogging its EV business, it is unlikely that ride-sharing will get any attention.

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Global leader Uber too faces a series of problems. Regulatory hurdles related to driver classification and labour laws have forced it out of markets like China and Southeast Asia. While profitable, its average debt over the past four years has been $11 billion. Significantly, while its gross bookings are growing, Delivery, a different category and a diversification, contributed almost as much as Mobility (the core ride-sharing business). The company’s latest results release also gives a glimpse of the grim future for its drivers: “Launched autonomous ride-hailing service in Abu Dhabi in partnership with WeRide, marking the first time autonomous vehicles are available on the Uber platform outside of the US. Additionally, began delivering Uber Eats orders in Austin and Dallas via autonomous sidewalk robots in partnership with Avride, and in Osaka in partnership with Cartken. Lastly, formed a joint initiative with NVIDIA to collaborate on new solutions to support the development of AI-powered autonomous driving technology.”

Autonomous cars may be a long way off in India, but Uber’s driverless future bodes ill for an economy in which jobs are scarce. Nearly 12 years after it launched its services in India, Uber is still to report its first net profit despite rising revenue. Lately, it has been forced to slash fares to hang on to its 50% market share in the face of aggressive local competitors. But this leaves much less cash for the company, and in turn, for drivers. Uber lost out to local competitors like Grab in Singapore, DiDi in China and Kakao Taxi in South Korea. In India, despite a weakening competitor like Ola, it hasn’t been able to boost its financials. The road to corporate perdition is littered with examples of duopolies that dragged each other to the bottom.

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The irony is that ride-sharing was supposed to give customers a consolidated and better option to the many local taxi services which dotted Indian cities earlier. Almost 15 years after the arrival of taxi aggregators, we seem to be reverting to that same decentralized model with multiple local players in the mix. In Bengaluru, for instance, there is Namma, Rapido, inDrive, Quick Ride and at least a dozen other such companies. What’s more, alarmed by the failure of Uber and Ola to provide reliable transport options, the government has launched its own ride-hailing program called Sahkar Taxi which home minister Amit Shah said would be “just like Uber and Ola” in its reach and market size but would operate on a commission-free model.

That will further hurt the incumbents already reeling from Rapido and Namma’s zero-commission model which eliminates per-ride commission in favour of a fixed fees.

In the meantime, passenger dissatisfaction with taxi aggregators is growing with complaints of price gouging, poor quality of vehicles, frequent cancellations and generally unreliable service. Drivers too remain unhappy because of low earnings and long hours without much protection.

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All this raises questions about the viability of the business model. As artificial intelligence threatens to upend many mature businesses, the state of India’s cab aggregators offers a cautionary warning to make haste slowly.