Ride hailing companies Ola and Uber have introduced a new subscription-based model for auto drivers in India, according to a report by The Economic Times. The two companies are ditching the traditional commission system in favour of the subscription plans.
Under the new model, Ola and Uber, instead of taking a cut from each ride, will charge drivers a fixed daily or weekly fee to access their platforms and connect with passengers. They position the model as a software-as-a-service (SaaS) product provided to driver partners.
Ola has initiated the rollout of the latest model in key markets including Delhi-NCR, Mumbai, Bengaluru, and Hyderabad. Uber, on the other hand, has launched it in six cities, starting with Chennai, Kochi, and Visakhapatnam.
Why the change and its impact?
The report pointed out that one key motivations behind this shift is the potential to bypass the 5% goods and services tax (GST) applicable to auto-rickshaw rides facilitated by these platforms. By charging a subscription fee instead of a commission on each transaction, Ola and Uber may find themselves in a more advantageous tax position.
This on the other hand also leads to increased competition, which is another major driver. Smaller players using the subscription model gain a cost advantage by potentially bypassing the GST. This pressure is pushing established giants like Ola and Uber to adapt.
While, the move offers benefits such as incentivizing the drivers stay logged in and working more, it also poses challenges, including the loss of pricing control for the platforms. However, the subscription model could benefit the companies by attracting new drivers. For smaller companies, it is a way to quickly build a driver base.
In the fiscal year 2023, ANI Technologies, parent company of Ola, reported a narrowed net loss to Rs 772.25 crore in the fiscal 2023. This is down from the consolidated loss of Rs 1,522.33 crore in the previous financial year 2022. Uber also reached a major milestone and reported its first annual operating profit since transitioning to a limited company. The cab giant reported a sharp profit $1.1 billion in 2023, after years of operating at loss, and a visible contrast when compared to the $1.8 billion loss reported in the previous year.
