Namma Yatri and the new mobility model in India

What happens when you remove an intermediary platform like Uber and enable direct interactions efficiently? Well, for starters, the cost and margin of the platform can be now sent back to drivers (increased earnings) and/or users (lower prices). For instance, Uber charges a 20% commission on the ride price to the driver (again, Uber has to spend money on tech, and payments, and other services and also get a margin), while Namma Yatri simply charges a daily flat fee of 25 rupees (about 0.3 Euro) to them. This is a very significant difference in cost, and needless to say, drivers love it, as shown by their massive joining Namma Yatri and the public support of the auto-rickshaw drivers union (ARDU).

And that has been, in my opinion, the key to its success. Platforms are often based on fragile equilibria. Users might not see a better solution than to be part of a platform in order to ensure access to the demand (or the supply). But that does not mean that they are happy with the conditions they are subjected to (see Amazon’s third-party sellers or Zomato’s restaurants or Google’s advertisers, amongst many other examples). The more dominant the platform, the more dependency and unhappiness. And if the platform cannot create strong switching or multi-homing costs (that is, if users can freely switch to or alternate competitors without friction), those unhappy users are just one slightly-better alternative away from leaving the platform. So when Namma Yatri came to town and offered drivers the possibility to keep a much larger share of their earnings and still find riders on the other side, the switching was inevitable.

So again, is this the end of Uber and Ola? Not so fast, because Namma Yatri also serves as an example of the obstacles that ONDC and its aggregating interfaces have to overcome.

The first of those obstacles is the lack of control over the marketplace. A key variable for platform models is the level of control over the user interactions. For instance, platforms can filter users’ participation to avoid bad user experiences. Or they can design the matching algorithm in ways that increase the quality of the matches. In essence, they exercise some form of control over supply and demand in order to optimize outcomes. This control comes in handy for Uber or Ola when, for example, there is a surge of demand somewhere. They can apply surge pricing to bring additional drivers in or to drive some users away, restoring supply/demand equilibrium and creating a consistent experience. But Namma Yatri cannot do that, as its matching is done by ONDC. Again, remember that with ONDC you are in a bar looking for a match with just the tiniest help.

The second obstacle is the lack of integrated services in the platform. For a user, there is a level of convenience in using platform services that are necessary when using it. Think about payments, for example. You do not need to pay the Uber driver directly, your reimbursements are done immediately and you can even avail yourself to some credit if necessary. All of that is provided by Uber. On Namma Yatri instead, driver and user settle payments directly through UPI. How big of a pain is that? It depends. There might be services that are very convenient for users and that will not be offered by Namma Yatri. On the other hand, the growth and increasing sophistication of UPI render this difference quite less relevant. In other words, Namma Yatri can build a replica of Uber complementary services by plugging other offers (payments, lending, e-commerce, etc.) from the same ONDC network. Is it as seamless as Uber’s bundle? No, but the difference might not be large enough to matter.

What does all this say about business models, particularly, customer aggregation platforms, built on public digital infrastructure? Well, for starters, digital public infrastructure seems to wipe out profits in whichever businesses it is applied. UPI made it impossible to make money on payments and now ONDC seems to make it impossible to make money on ride-hailing. Why? Because that public digital infrastructure is open and free, thus lowering entry barriers to almost zero. For example, if Google Pay or PhonePe try to charge you for a UPI transaction not only they will run afoul of regulations, but they will open the door to another company immediately setting up shop and offering UPI payments at zero charge, with massive switching of customers to the new company. Therefore, for ride-hailing on ONDC, much like for UPI payments, the customer acquisition is on the public digital platform but the profit is somewhere else. So Namma Yatri will have to eventually build a bundle of services for its users that will include some elements that have an actual profit margin. After all, it is not a coincidence that the company behind Namma Yatri is Juspay, a fintech that is building its own bundle of payments, mobility and more.

And what about Uber and Ola? They will have to evolve too, as the companies using open connecting infrastructure like ONDC will constantly stop them from monetizing their mobility platform. They too will have to build a bundle where the money comes from somewhere else (Ola now sells now electric scooters and Uber has is betting on quick commerce).

Who is the winner on all of this? It seems that the customer is, no? We are getting efficiently-matched cheap rides, zero-cost payments and 10-minute grocery deliveries. Is this too good to be true? A superb article by Praveen Gopal Krishnan at The Ken (subscription required) makes the case that all this zero-profit games created by government-owned public infrastructure ultimately disincentivize companies to innovate and compete, so there is a long-term downside there waiting for us. But that is a big (and super-interesting) topic for another occasion.