February 3, 4, 5 & 6

#TalkOfTheTown

SHRI RAM CASE COMPETITION

Preliminary Round – 1

Contact: Pratyush +91 98184 34260 | Rahul +91 88842 98988

 Instructions

• This document consists of one case study, followed by 3 questions and exhibits.

• Teams can use real-world data to back up their analysis, provided that such data is sourced
(Wikipedia not allowed). Please mention and explain assumptions wherever required.

• Teams will be judged on the basis of innovation, logical reasoning, analytical skills and feasibility
of solutions.

• Teams must send their solutions to bc.2018shriramcase@gmail.com by 1 PM, 18th January,

2018. Entries received after this deadline will not be accepted.

• All solutions must be in PDF format.

• The solution document and the subject of the mail must be in the following format: ‘Shri Ram
Case_Team Name’ (For example: Shri Ram Case_Business Conclave). The body of the mail must
include the team name, the names of all team members and their contact details (phone numbers
and email addresses).

• There is no word limit for the solutions. Solutions must be in Calibri, size 12.

• The shortlisted teams would be sent an email, and subsequently a list of such participants will be
put up on the Facebook Event page.

• The decision of the organisers shall be final and binding on all participants.

Happy solving!
 HAIL THE TAXI

The Platform Dilemma

The world has dramatically changed in the past two decades. We’ve seen several disruptive start-
ups shatter the dominance of existing behemoths in certain industries. Supported by the raise of
broadband internet, mobile, cloud and other emerging technologies, new industries have been
created to cater to the aspirational demands of digitally connected young users. New business
models conceived, and new businesses floated by school dropouts took only a few months to
grow to a global scale, as opposed to the decades it took for traditional businesses. Companies
like eBay, Uber, Airbnb have conceived and successfully implemented a new type of business
model called a Platform model.

A platform is a business model that uses technology to create value by connecting two or more
interdependent groups, usually consumers and producers, without necessarily owning any assets
of its own. The single most prominent example of the platform model is Airbnb which connects
people who have space to spare with those who are looking for a place to stay.

A typical platform has the following 2 properties:

1. Value creation by matchmaking between producers and consumers

2. Scaling rapidly through use of technology and non-ownership of physical assets

To dominate a market through a platform business model, you need to leverage what is called a
network effect. The network effect is a phenomenon where an increase in the number of
participants improves the value of a good or service.

For example, to professionally connect with people and be found by prospective employers, it is
logical for you to join LinkedIn than any other professional networking site. This is because
prospective employers are attracted to the platform that has more talented employees. By joining
the existing pool of talented professionals in LinkedIn, you’re improving the possibility of attracting
prospective employers to find your profile.

Market entry into a platform business is a lot harder than a traditional business which has only
one set of customers because of the inherent complexities of the model, including the presence of
network effects.

To begin with, platforms need to solve a chicken-or-egg problem that normal businesses don’t
suffer from. Just as you can’t have chickens without eggs, but you need chickens to get eggs, a
multi-sided platform can’t attract passengers without drivers, but no passenger who is in a hurry to
go somewhere would use an app that has no available drivers.

Thus, the biggest challenge for any platform which uses the network effect is to get enough users
in the beginning. This minimum number of participants required for network effects to set in is
called critical mass.

Taxi Industry Overview

Among all the platform businesses, the rise of the ride-hailing applications has been the most
striking and sudden. They are the most popular and heavily debated businesses in today’s world,
given the revolutionary impact they have had on the taxi industry.

In the beginning, taxis that carried passengers were either cruising or present at taxi stands.
People had to walk to the road in hope of finding a taxi. Even if they found one, it wasn’t
guaranteed that the driver would agree to take them to their destination. This was especially true
at night and there were no checks to avoid such a situation. Passenger safety was another major
concern as there was no institutional accountability. Prices were another source of conflict
between riders and drivers as they were not standardised and because drivers had the monopoly
to demand what they wished.

Although it was easier to get a taxi from a public place such as an airport, it meant that the market
for taxis was thick - had a lot of participants (drivers and passengers) - only in specific pockets of a
city.

Such a system allowed a scope for improvement because there was lot of untapped and even
unknown demand that existed in other areas. Moreover, this model didn’t favour the drivers either.
They had to constantly be on the lookout for potential passengers either by scouring the streets or
by staying put at a taxi stand. This usually involved a lot of travel, and thus fuel costs, and many
hours of waiting.

Taking advantage of the shortcomings of this model, some organisations began to offer the
service of providing a taxi for hire on call. The fare fixed by them depended on the number of
kilometres travelled and the number of hours. The fare was charged on a slab basis and was
rigidly enforced (For example, Rs 400 for 4 hours or 40km. If the passenger required it for longer
time or a greater distance, he/she needed to pay a fixed amount for each extra hour/ km)

This proved to be very inflexible for passengers who intended to travel short distances and hence
limited the potential number of rides. Even if the customer wanted to travel just 5 km, he/ she had
to opt for the lowest costing plan. This plan was usually the 4hr/40km one which cost Rs. 400,
even if the distance was a lot below 40km. Thus, this paved the way for radio taxis.
Radio taxi is a taxi that operates through radio signals. When a customer calls up the helpline
number of the radio taxi, the operator communicates with chauffeur (driver) via radio signals to
locate the nearest taxi. The taxi reaches the customer as required at the specific place and time.

Both call and radio taxis relied on an asset heavy model. The companies offering such services
owned most of the vehicles and employed all the drivers. This meant they were not agile and thus
they perished after the introduction of the platform model.

Platforms upended traditional taxis drivers and travel service companies that owned a fleet of
vehicles. Technological advancement ushered in a host of taxi hailing apps/aggregators.

Taxi aggregators provide the service of creating a market or matching demand with supply.

Thus, they are not required to own cars as opposed to a traditional taxi service. They collaborate
with independent drivers who have their own cars instead. This asset light model allows them to
scale up quickly as they don’t need to purchase cars to expand their offerings.

The industry is perceived to be “Winner takes all”. A winner-takes-all market is a market in which the
best performers can capture a very large share of the rewards, and the remaining competitors are
left with very little.

Thus, each firm in the industry aims to capture the market. One way to do this is to offer a better
service than its competitors. This takes the form of shorter waiting times, lower fares and greater
accessibility throughout the day and especially during peak hours. To achieve this, it must partner
with more drivers to increase the supply.

But building customer loyalty is not easy for any company in this industry. When faced with a
choice between apps, most customers tend to choose whatever is cheaper. In a scenario where
cost minimisation is a priority, each firm’s competition is not restricted to other taxi aggregators
and it also includes other modes of transport. Thus, to sustain its market share and growth rate,
each firm relies a lot on subsidising travel for the passengers.

Current Competitive Scenario

Currently, there are 2 major players in this industry in India - Uber and Ola. Uber is a pioneer in the
ride-hailing technology and is a global player, operating in over 600 cities worldwide. Founded in
2009, it has grown to become the most valuable start-up in the world with a valuation of $70bn.
Uber began operations in India in late 2013. Ola is India’s answer to the growing popularity of Uber.
It has the highest market share in this industry in India and operates in over 100 cities. On the
other hand, Uber is present in just 29 Indian cities. Both their product offerings are similar
(hatchbacks, sedans, SUVs…)
The industry has witnessed some intense competition between the two giants in India with
frequent and prolonged price wars, Ola battling to maintain its market share and Uber to make a
significant dent to it. This took the form of promotions and discounts to passengers and increased
incentives to drivers from both companies. There was even a time when it was much cheaper to
travel using one of the two than by an auto because of the promotions and also stories of drivers
earning over Rs. 80000 per month. Over time, Uber has managed to erode and eat into Ola’s
market share through its unwavering focus. Despite this, Ola still has the lead in market share but
not by much. Right now, the prices have stabilised as compared to the past and sustained
consumer demand has ensured that the companies can increase their prices without it having an
affecting on market share.

Ola and Uber have also tried to diversify into several product lines, mostly focusing on delivery to
capitalise on their core competency of point to point pick-up & drop service and to form synergies.
Their most recent venture has been in the food delivery space, with Ola acquiring Food Panda India
and Uber launching its food delivery app, Uber Eats.

Tuk Tuk Time

Your client is Tuk Tuk Taxis Pvt. Ltd. They are looking to enter into the ride hailing market. They
believe that this industry has huge potential because of growing demand. They feel that is not
impossible to knock the current market leaders off their perch if they use the right strategy. This is
because the current players face problems on multiple fronts, ranging from a lack of profitability
due to increased promotions, funding crunches, driver behaviour issues etc. Your client has 3
options in mind to enter the market and you need to evaluate these options.

Option 1

New Delhi has its fair share of entrepreneurs who own a fleet of cars (usually the number ranges
from 25 to 100) and employ drivers. They usually offer car rental services and outstation
packages. Due to the low demand for such activities and their insignificant marketing budget, the
utilization of cars is always below capacity. Also, the increasing competition from large, national
players in the car rental industry is proving to be hostile towards such small, regional players.
Aggregating them will go a long way in increasing efficiency of assets and making them more
competitive.

Tuk Tuk will enter the market by collaborating with these dealers to lease their cars. Leasing is an
ideal option to begin with as Tuk Tuk wouldn’t need to spend on the purchase of vehicles. It can
still scale up in the initial stages by finding more dealers and negotiating with them because the
demand due to growth can be met by a few hundred more cars. It enters into a contract for a given
number of years, post which the supply can be entirely by independent drivers, making it agile and
flexible to grow. This gives it control over the cars and drivers. Now that Tuk Tuk supplies its own
drivers, it can focus only on marketing to the passengers.
A platform business in this industry has 2 sets of users, drivers and passengers. Passengers only
wish to use an app that guarantees them a driver. A low waiting time and an inexpensive ride are
key factors which can differentiate one company from another. But a platform business at its
inception cannot guarantee driver availability as drivers too are sceptical about joining it. This
leads to fewer passengers using it and thus the company faces an imminent extinction.

Thus, by adopting this strategy, Tuk Tuk directly acquires drivers with certainty to kick-start
passenger demand. When Tuk Tuk attracts the passengers to the existing model, independent
drivers, who want to engage in interactions with them will follow. Now, Tuk Tuk’s supply isn’t
limited to the cars it has leased but it also includes the cars of the independent drivers that partner
with it (Just like Uber or Ola). Thus, the business can later gradually be converted to an asset light
model (or a platform).

Acting as the first “producer” offers the company many advantages. In addition to kick-starting
the platform, this strategy allows the platform owner to define the kind and quality of cars and
drivers they want to see on the platform. Tuk tuk will only have to market to consumers, and hence
marketing expenditure will be substantially lower due to lack of expenditure needed for drivers.

The biggest challenge in this scenario is to negotiate with the dealers and arrive at agreeable
terms. If you are not prepared to offer them at least as much as they make right now, they will
certainly be disinclined to give up control of their assets for a year or more.

For this purpose, guesstimate the average monthly profits of a single dealer owning 50 cars in a
month in New Delhi and consider non-monetary ways to reach an agreement with them.

Option 2

Start by targeting a tiny market that comprises members who are already engaging in such
interactions. For example, take the case of collaborations between companies and taxi drivers.
Companies have tie ups with few taxi agencies, or maintain a fleet of taxis which are used to pick
and drop employees. This market serves a few drivers and the employees of the company
involved. Starting in a niche segment enables the platform to scale up easily. It is easier to
dominate a small market than a large one. Such markets that connect a small number of drivers
and passengers for specific purposes can be either B2B or B2C and are abundantly present.

In this case, Tuk Tuk collaborates with the demand side, ensuring that there are passengers who
fill the taxis. Drivers don’t need too much convincing when they are assured of that. This turns the
previous option on its head, the demand exists and Tuk Tuk needs to attract the supply. This
allows Tuk Tuk to provide the most characteristic aspect of a large platform - matching demand
with supply - even in its nascent stages of growth. Dividing the whole market (in this case, a city)
into segments based on geography/ purpose of ride/ income level, and targeting one of them is
one way to define this “micro market”.

Adopting this model ensures that both drivers and passengers come on-board at the same time,
from the beginning without too much being spent on marketing. This simultaneous on-boarding
effect aids in creating a developed network quickly. Along with that, it also ensures a greater level
of customer retention because it caters specifically to the needs of a few.
But finding small markets with enough friction to fight is a tough task. In economic theory a
frictionless market is a financial market without transaction costs. The friction that Uber fixed was
the hassle of hailing a commercial taxi, finding the phone number and calling a taxi company, or
getting to a location where taxis tend to congregate. (really small markets, scaling up the way a
normal platform scales up is not possible)

Tuk Tuk can target any market in which it has some scope to grow. It need not be just the
corporate collaboration, the choice of the market Tuk Tuk should target is left to you.

Which market will you target initially? Guesstimate its size in terms of revenue.

Option 3
Provide incentives to both sets of customers (drivers and passengers) to encourage them to use
your app over your competitors’:

The third option that Tuk Tuk has is to go ahead with the model adopted by all the other major
players in the industry. This involves heavily subsidising passengers to encourage them to choose
Tuk Tuk over its competition. At the same time, it also has to provide performance based
incentives to drivers for the same reason.

The industry is consumer driven in the sense that if there is enough demand, drivers will soon join
to meet it. This is because high demand means lower time spent looking for a passenger and more
trips and earnings per day. Thus, here too the primary focus is on acquiring passengers but drivers
must join simultaneously for which large amounts of incentives are provided to them.

Today’s world is characterised by virtually unlimited products and information about products.
Distraction is the default state of the consumers who are burdened with the simple (since it
happens at the click of a button) yet challenging (because you have to evaluate multiple options)
task of choice. Thus, creating awareness among passengers alone doesn’t drive adoption and
usage.

Thus, it becomes imperative for a platform business to make the best use of incentives as a
marketing tool. Traditionally, the marketing function was divorced from the product. In network
businesses, marketing needs to be baked into the platform.

This strategy eases scaling up as Tuk Tuk doesn’t have any fixed cost that hinders growth. Thus,
an increase in passenger demand always translates to increased growth, there is no supply side
constraint as drivers will hop on in hope of greater income. It also means easier entry and also a
larger market to operate in. The drawback in this case is that the company has little control over
the drivers’ actions and commitment. Many instances of driver misbehaviour have rattled
consumers’ brand loyalty and have instilled fears of lack of safety in their minds.

To be able to successfully implement this strategy, the company needs to have a clear
understanding of the costs that come with it which are linked to the number of rides, to plan for
the future.

To do so, guesstimate the average number of rides per day over the year in New Delhi.
 QUESTIONS:

1. Each of the options presented has its own benefits and disadvantages. With adequate reasoning
and analysis, decide which option would you choose to enter the Indian market. Since the industry is
really volatile, long- term sustainability is of utmost importance. Using a 360-degree perspective,
clearly explain how you have arrived at your decision. You are required to answer a guesstimate
based on your choice of options. Briefly provide a long term strategy (5 years) for the business model
that you have chosen keeping the objectives of profitability and sustainability in mind.

2. As mentioned in the case, existing ride hailing players have diversified into many other areas
creating synergies for the business. This has enabled them to increase their market share and profits.
Consider that you are the market leader, how should you diversify your product offerings to introduce
a new revenue stream? Mention the synergies created with your existing business clearly.

3. The traditional taxi industry has seen a more transformative change than ever in the last 10 years
due to the advent and increased accessibility of new technologies like cloud storage, smartphones and
mobile data.

The popularisation of Artificial Intelligence (AI) could bring with it another gale of creative
destruction. With the automobile industry rapidly changing with the introduction of electric cars and
self-driven cars due to technological advancement, enumerate the threats of AI to your client. How
would you capitalise on these technological changes to cement your position in the Indian market?
Exhibit 1

Exhibit 2

Exhibit 3