From Dara Khosrowshahi’s email to Uber employees announcing Uber-Grab deal:
It is fair to ask whether consolidation is now the strategy of the day, given this is the third deal of its kind, from China to Russia and now Southeast Asia. The answer is no.
One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors. This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t.
By core markets, I assume he meant US, Europe and, our subject matter, India. Or did he? There have been constant rumors of a consolidation in the Indian market as well. Much to the tunes of China, Russia, and Southeast Asia. The rumors are partly true. At least the fact that the deal was on the table at some point in time. The deal looks simple on the surface. Uber willing to give up a market to its bigger rival in exchange for a stake in the latter. But it’s not as simple as it looks. Yes, Ola has more market share than Uber in India. But that’s about it. Rest of the story is different from China, Russia, and Southeast Asia.
Let’s start with China. Uber was competing against two companies which later merged into one. While that’s not so bad. The fact that both merging companies were local and Chinese government wanted the resulting entity to win is. It was going to be an uphill battle with no end in sight. The equity shares Uber managed to squeeze in was actually a win for the company. In Russia and Southeast Asia, while markets were relatively open from a regulatory perspective, the number of local competitors were too many. Especially in Southeast Asia where the situation was further complicated by the fact that Uber was competing against local players in each country. Plus a player who was competing in all markets much like Uber itself i.e. Grab.
No matter what Uber could have done, it’s unlikely they would have got 27.5% (percentage number of Uber’s shares in Grab) market share of the region. Even if they had the required spending would have been too much. Like Dara said you can only fight so many battles at one time.
The situation in India is different. There is only competitor i.e. Ola. India is not like China. And despite the fact that Ola has a bigger share of the market, Uber’s share is actually substantial. The numbers are often convoluted but it’s most likely that Uber had 30-35% and Ola has 40-45%. The difference is trivial especially considering that Uber operates in 30 cities and Ola in 110. Plus, unlike Southeast Asia, India is one country. A country with 1.3B people no less. The market is just too big for Uber to give up anytime soon. Especially considering how well positioned they are.
With that said I don’t think the deal is completely off the table. For one, there is Soft Bank. The investor holds majority shares in both companies and will be aggressively pushing for the consolidation. What’s stopping the deal is actually the controlling share. Who is going to stay and who will leave. Soft Bank is definitely pushing Uber to leave but it’s not going to be easy. A growing Indian market can be a huge talking point for the impending Uber IPO next year.
Ola acquires Ridlr
So the race is on. Who is going to get big enough sooner to convince Soft Bank to force the other out? Ola acquiring Ridlr is in line with that strategy. Ridlr is what Travly was before they turned into ride sharing albeit the company has significant growth to prove. But how does it make sense for Ola? Ola’s CEO has below to say about that:
Public transportation serves millions of Indians every day, and powering these needs with real-time information, mobile ticketing, cashless payments, and reliable services is bound to impact their end experience. The challenge really is to make the entire ecosystem inclusive and robust for all. Ridlr, in a short span has made huge strides in this space.
The underlying story, however, is that it’s a posturing statement to Uber. Showing who has the investor’s (read SoftBank’s) confidence. And that’s not a bad strategy at all.