Namma Yatri

I keep reading a lot of bad takes about Namma Yatri on Twatter.

‘Namma Yatri is a prime example of the success of ONDC.’ It has nothing to do with ONDC.

A new product that hits sustainable PMF does one of the few things:

• A completely new, hard to copy product. Assuming most features are more or less the same, the key product differentiator may be how you do matching and pricing (optimised allocation and pricing vs haggling, sequential bids vs blast to multiple drivers), the ability to raise price or haggle lower than optimal pricing to allow drivers who want more trips to self-select and take more trips.

• Unlock a distribution model: You can argue that ONDC is this: a new business model, but I think that for the end user or driver, they hardly know or care about ONDC. If Namma scales in the future, it would do so by reaching out to both customers and drivers using the same existing channels that Ola and Uber uses.

• A new business model: A marketplace can be highly managed, light or somewhere in between. Think Zepto vs Dunzo. Dunzo just connect drivers with end users. They do not know the inventory of the shops. If you order from Magnolia. A driver would to Magnolia. They would see if the item is available. If it is, they would ask for payment and when you pay, they would deliver the item. Reliability is medium. You might not get a driver. Fill rate will not be high. The shop might not have the item in stock. On the other hand you have Zepto with their own fleet (drivers + vehicles). Their own dark shops. They can manage and use their drivers well. They will always have high reliability and fill rate. But they will have higher opex. The more you try to “manage” a marketplace, the higher the opex. And the higher the margins you need to be sustainable. This is why people complain about the price of groceries on Zepto. Coming back to Namma. Lets talk about the industry Namma operates in. In ridehailing you can have a lightweight model too. Indriver is lightweight. They are a Russian company. They have low opex. They don’t spend a lot on demand or supply incentives. Their model is simple. Let drivers and riders haggle (negotiate a price). There is no fancy ML model to optimise pricing or allocation. Both happen organically. They blast out customer requests to available drivers. Multiple bids go back and forth between customers and drivers. And at the right price with the most optimal eta, the negotiation ends. This is good for areas where there is low supply and demand. You, as a ridehailing operator, don’t have to worry about driver utilisation. Most of your drivers are not full-time drivers. You can’t do much about demand/driver churn. But it is finally a choice. Drivers in small towns like Kanpur mostly use Indriver for long distance trips when they know that the cut for Uber and Ola will be much higher in terms of absolute amount. Drivers don’t mind waiting on Indriver. They are super selective. And since there is not a lot of carrot (driver incentives) and stick (sanctions), they can be so. Uber, on the other hand, becamse a behemoth by simpliflying the ridehailing experience. They started on the premise that haggling is not the right way. With the simple tap of a button you get the right driver at the right price. On Indriver it is upto the supply and demand to find the right match. And do the matching and price discovery. So of course their margins can be lower than Uber. There are players like Tada and Maxim in Southeast Asia who have also grown by charging lower commissions. If your take rate is say 10% versus 25%, then you have to make several trade-offs. You can’t have high opex. Your margin does not support that. You can’t have a lot of people on the ground. Your customer support and security features aren’t going to be on par with the bigger players like Uber. You’re not going to have demand-side and supply-side subsidies. So you can’t have a very efficient marketplace. Demand will be unpredictable. You won’t have a lot of levers to have a high booking completion rate as well as driver utilisation. Pickup ETA will be unpredictable. You can’t have subsidies to get more driver supply at off-peak times. But because your comission is lower, supply might switch and therefore demand might follow. These smaller players won’t be as reliable as other big players. But riders are also okay waiting longer because the fares are cheaper. The big players like Uber put a lot of effort into driver positioning. Make sure that driver utilisation is high. Else drivers will churn. They need to retain their customers too. They keep incentivising their drivers to ensure high availability. Most customers and drivers who choose lesser-known challenger apps vs Uber are OK with the trade-offs when it comes to ETA vs. price. Also price versus customer support and security. It is a good model for a new entrant. But if the region already has dominant players who have more control over the marketplace and can spend on both demand and supply initiatives, focus on positioning and driver availability, then these players will mostly cap out at 20% market share (completed orders) but with lower commissions and hence lower revenue. If Indriver, Maxim, Tada are at one end of the spectrum when it comes to lightweight marketplaces, who is at the other end? The answer is Didi. Atleast when it comes to control over the supply side. Didi, after a lot of government regulation due to past safety issues, ended up focusing on managed fleets. They own their own fleet + partner with other fleet companies. And a significant number of orders are fulfilled by their fleet versus independent contractors. So they have high reliability, higher safety (arguably), proper SOPs around driver behaviour, as well as vehicle quality. If you draw a slider (my favourite product framework, by the way), you have Didi at one end and Indriver at the other end. Maxim and Tada are closer towards the Indriver side. Ola, Uber and other prominent ride-hailing companies are at the other end, closer to Didi. Now lets talk about another player: Bolt. Bolt has 3 models: slightly high opex and onground in their major markets, a centrally coordinated model where they run a country from a nearby one, and a third where they just open the marketplace but don’t care about booking completion rate (if they want to test the waters). Namma was closer to the smaller players on the slider until they raised their last big round. But they got to a decent scale. It is mostly because of how other players have acted in the Indian market. Uber, after Dara came in, decided to focus only on big markets where they can be number 1 or 2. As Dara himself said, Indian customers don’t pay much, but they have higher standards. And they’re a public company, so they can’t lower their commission structure. It is between 20-30% per trip. Ola? Let’s just say Ola is Ola. It is also planning to go public. So they have to focus on top line revenue. Ola payment is delayed, especially for online payments, whereas for Namma people mostly use UPI and settle instantly. And the money comes to the driver. They don’t need to wait like in Ola. Hence a lot of drivers do not accept rides unless payment is in cash. Namma had a good start like all the other challengers I mentioned above. They focused on a low, fixed commission structure. I know they say they have subscription pricing, but from what I have learnt from talking to drivers, they take a flat fee per ride. And since Ola and Uber were reluctant to lower their margins, a lot of drivers switched to Namma and Rapido. Rapido has also crossed 2 million daily rides by the way. They don’t have fancy allocation models. Their pricing is simple. People can boost their request by paying a tip. With less focus from Uber in India and Ola being Ola (see how many times I have said Ola is Ola), Namma has a chance to gain market share. Rapido has also moved to a 0 commission/subscription model. Uber is also learning by the way. Now they have classic ride-hailing, haggling, as well as a subscription model for drivers. They will try different models in different regions depending on their business goals. But Namma is a good example of classic counterpositioning. Namma started by focusing on one side of the market (drivers) and a driver-friendly business model. And eventually riders followed. I assume they don’t penalise drivers and are as focused on SLAs as Uber/Ola would be. Juspay built Namma to grow their payments business. Since Indian ride-hailing is at a very different stage, with different demographics, price sensitivity and lack of focus by the biggest players, they could even grow more than the smaller players in other markets. With Namma there is also the angle that Shopify took: powering the rebels. Amazon (highly managed marketplace with high margins) vs. Shopify (arming the rebels with flat pricing). Uber (highly managed marketplace with high margins) vs Namma (subscription pricing). So this new funding will definitely help them grow COs, but just by operating in India with the current commission structure, will they give a VC-funded result? Only time will tell.