Reliance to take on Uber, Ola by March?

RIL appears to be entering into private taxi service business to compete with Uber and Ola using CNG-fitted cars to keep its costs down

Updated on 6 January 2016 at 6.05pm to include reply from RIL official

Mukesh Ambani-led Reliance Industries Ltd (RIL) is apparently planning to enter into the business of technology-based cab service providers, to compete with Uber and Ola, say cab drivers who have been approached. However, RIL officials said the information is not true.

In an email reply, an official from RIL said, "This wrong and untrue information about Reliance entering Private Taxi Service is not new and has been making rounds of social media for over 18 months."

According to our information, RIL is planning to start its taxi services by March and has already bought about 2,000 cars (Toyota Etios) in Kolkata alone. All these cars will be fitted with 4G connection (RIL Jio) and use compressed natural gas (CNG) from RIL’s own fuel stations for refilling. On an average, the cost for running a diesel car comes to over Rs6 per km. However, with CNG, the cost comes down to below Rs4 per km, offering Reliance a huge competitive advantage, which would help it wean away the owners from Uber and Ola.

The company would use its own fuel stations to supply CNG to its taxi fleet. RIL, over the past few months has been re-opening its fuel stations that were launched with great fanfare in the mid-2000 and then shut down due to adverse fuel pricing regime. In March 2008, RIL shut down all of its 1,432 petrol pumps due to huge losses incurred while trying to match with prices offered by state-owned oil marketing companies. Later, the central government, in October 2014, deregulated diesel pricing, which made RIL to re-open its outlets.

Uber changes business model

If Reliance does enter the business, it will come at an awkward time for Uber and Ola. According to Uber drivers, the company has sharply scaled down its incentives that it was freely offering in the initial months. In fact, Uber has changed its business model, according to informed sources. Earlier it used to offer a fixed amount for the duration the car app was kept on. The fixed amount is almost gone and it is now sharing just the commission with its owners, and that too depending upon when the ride was taken. During the peak hours, the commission for owners may go up to as high as 60%, while during the afternoon, it may be zero. On an average, the commission earned by owners of Uber is about 40% now in some parts. Many owners who do not drive their own cars are finding it unsustainable because they would have to pay the drivers out of this money. Only owner-drivers would continue to do well under the new model.

Private taxi service has created huge employment opportunity for unemployed drivers, who on an average were earning Rs25,000 a month while cab owners were earning up to Rs1 lakh a month. However, with Uber changing the business model, the fun is over.

About four months ago there were quite a few rumours in the social media that RIL’s taxi service is about to be launched soon. However, Reliance has failed to meet deadlines for a number of its services in retailing, finance, Jio telecom services. Whether it can launch a cab service remains to be seen. Also, it is unclear whether RIL has any sustainable competitive advantage against Uber and Ola.