The ongoing strike in Mumbai by taxi drivers and auto rickshaws, protesting against taxi and rickshaw booking apps like Ola and Uber, is only a part of the broader trend of a push-back from incumbent offline businesses against potential digital disruption. We’re seeing this manifest itself in multiple industry segments, whether it is about online versus offline retail, telecom and ISPs versus Internet companies (read this and this), and now taxi and auto rickshaw services versus taxi booking apps like Ola and Uber.
Many of the traditional businesses have been built with large barriers to entry, higher cost structures, and high regulatory compliance costs. Online businesses, which are disrupting these, benefit from:
– Greater economies of scale, which allows them to operate with lower margins per transaction
– Better and newer technology, which allows them to lower costs of transaction
– Ease of use, which helps them attract consumers
– The facilitation of competition (and lowering of prices) through greater participation of smaller players.
It’s fairly evident that consumers are increasingly becoming comfortable with online alternatives, even through many of these are imperfect substitutes for their offline counterparts, or merely aggregators of fragmented offline businesses. With time, we’ll see the following types of complaints or moves from traditional businesses:
1. Seeking regulation of online businesses: we’ve seen this from telecom operators, when asking for “same service same rules” from Internet companies, even though online messaging and calling aren’t exact substitutes for their telecom counterparts. Regulation is sought on the following grounds:
a. Impact on employment: The submission from the Confederation of All India Traders (CAIT) to the Department of Industrial Policy and Promotion states that allowing FDI in B2C ecommerce will “allow large inventory-based players to set up online stores which could potentially impact the Indian SME & Self organized retail sector, which generates employment for 40% of India’s population.”
b. Taking revenue away from traditional/local businesses: the CAIT, in its submission to the DIPP, says “companies who will try to enter Indian market in both format and secondly with the e-commerce route the same retail giants can reach to far flung areas of India, despite having no local investment made by these companies in such areas. But with the penetration of deep e-commerce they are sure to wipe out local mom and pop shop.”
KK Tiwari of the Swabhiman (taxi) union in mumbai is quoted in the Times of India as saying: “Kaali-peeli drivers are incurring huge losses due to the presence of taxi aggregators. Commuters opt for Ola and Uber for long-distance routes (for example, Colaba to Borivli), while the black-and-yellow taxis get customers only for shorter journeys.”
Vodafone, not exactly a local business, but an incumbent, in its submission to the TRAI, asking for licensing said that online calling and messaging: “has led to a significant decline in revenue for telecoms operators, who are, at the same time, pouring increasing investment in networks and acquisition of spectrum, payment of licence fees, spectrum usage charges, etc to meet escalating demand.”
c. Quality concerns: The CAIT, in its submission to the DIPP, says: “Opening FDI in B2C e-commerce for all products including food products,without adequate quality restrictions, could see low quality items flooding the market. ”
Idea Cellular raised the issue of lower quality of service of online calling and messaging: “Some of the services being provided by OTT players are a perfect substitute of PSTN/Internet Telephony services, but with lower QoS standards than offered by Licensed Telecom Service Providers (TSPs) in India and violate the basic principle of ‘SAME SERVICE SAME RULES.”
d. Security concerns: Reliance Communications, in its submission to the TRAI says regarding online calling and messaging that there is a need for regulation so that “Security concerns, maintaining data records, logs etc. and ensuring security, safety and privacy of the consumer data as well as their compliance can be addressed by mandating (a) OSP registration of OTT service providers, (b) institutionalizing internet content regulation, (c) local hosting of their infrastructure and (d) mandating their peering with the local TSPs.”
Vodafone’s submission to the TRAI, says: “Our submission is that the Authority may first look at which obligations should be extended to all internet services – these could be obligations around transparency, privacy, security and consumer protection, to encourage growth, create a resilient and safe internet and build consumer confidence and trust.”
e. Demanding a “Level playing field”: The Retailers Association of India filed a court case against the Central government, demanding a level playing field, saying that ecommerce companies (which are platforms and not retailers) are getting FDI, but traditional retailers cannot. More on that here.
Bharti Airtel, in its submission to the TRAI asking for licensing of Internet services, said “It is critical that the playing field be leveled and those providing the same services be governed by the same set of rules. In short, the OTT Communication Service Providers should be governed by the same set of rules as are applied on TSPs.”
2. Put pressure on service providers and inconveniencing customers: This could involve, in case of online retail, forcing companies to issue warnings to customers to not buy online. I remember a senior manufacturer telling me that 65% of his business comes from offline retail, and while he wants online to grow, he couldn’t, at that point in time, go against the wishes of offline retailers.
In case of taxis, the two strikes in Mumbai are indicative of attempts to force the government into action by inconveniencing customers, holding them hostage.
Airtel tried increasing the cost of internet telephony in December last year, trying to make customers pay more. The telecom operators association has also threatened that data prices will be increased six times if they aren’t allowed to charge more for internet telephony and messaging.
3. Take the legal recourse: The Retailers Association of India has gone to court against the government, regarding FDI in e-commerce. Telecom operators have, for long, threatened that they will have to go to court if Net Neutrality rules are passed, just as telecom operators in the USA did.
Some thoughts on how Internet companies can approach such issues
What we’re dealing with here is a case of entrenched traditional businesses which are being disrupted by businesses that typically offer better consumer solutions, at times by operating in a grey area that regulation doesn’t cover. One way of ensuring that regulators cannot outrightly ban the business, is by creating businesses with mass consumer adoption and, in case of intermediaries, vendor adoption, which is what many businesses have done so far.
In my opinion, we need less of a regulatory burden on businesses and not more. What many traditional businesses argue for (as indicated above) is essentially regulation to bring Internet businesses down to their own level, because security is an easy and convenient issue to flag. We should not regulate for the worst case scenario or for the convenience of regulators over consumers (as someone recently asked to me: do you build roads for the convenience of the cops or the commuters?).
It is important that Internet companies take a broader view when faced with regulatory scrutiny for their sector:
– Work together, not against each other: There is always the temptation for some companies, particularly the large ones, to take down competition by using regulation against others. This change of stance from Flipkart on FDI in ecommerce is a myopic, a regressive and self-serving at the cost of the broader ecommerce space, and against consumer interest. Flipkart signing up with Airtel Zero would have also had a negative impact on ecommerce upstarts, by validating a carriage fee for Indian startups. Lets not forget that it hasn’t followed through on its commitment towards the cause of Net Neutrality in India (its statement here).
We’re also not sure of whether Ola and Uber are working together to address issues that their segment are facing together, or at cross-purposes. Our take is that competition should be on a level playing field, and the best products and services should win: the regulator or the telecom operator should have no say in picking winners.
– Work with offline players: one step that online taxi services like Ola have taken is to allow bookings of kaali-peeli (black and yellow) cabs and auto rickshaws. This way, they ensure that the traditional players actually benefit from online retail. There is precedence here in the way that some of the online classifieds players have approached this: by working with brokers instead of trying to disrupt them.
– Address consumer issues: Uber’s fast becoming a case study for how not to deal with serious customer issues. We’d written earlier (in detail) about the gap between customer expectations of online marketplaces, and how they have a safe harbor, as intermediaries. That gap is going to be addressed by regulation at some point in time, and companies not taking responsibility for issues quickly, and addressing consumer problems on a war-footing, will eventually lead us towards regulation that removes that safe harbor.
– Try and address regulatory issues: The TRAI consultation paper on Net Neutrality highlights several issues of why the regulator thought it’s time to discuss regulation of Internet companies: privacy and data protection, validation of vendors, social engineering (with reference to facebook’s infamous experiment), age validation (where applicable), intellectual property rights violations, among others. Taxation (Google’s issues, for example) and security are two issues that are likely to force data localisation in India.
Other online sectors to keep an eye on
– One space where we haven’t yet seen any activity in India yet, but there is global precedence, is the hotel industry versus AirBnB, and the entire sharing economy space, because that hasn’t had a large impact on traditional Indian businesses yet.
– Digital payments is an area where banks were able to ensure that mobile payment businesses were brought under the ambit of regulation, and had to buy semi closed prepaid licenses to operate.
– Bitcoin is, in a sense, an attempt to break free from that kind of regulation, and the RBI is keeping a watch on it, while China, Iceland, Canada and Russia have made it illegal.
– India has a bizarrely regressive online insurance regulation policy, which has led to lack of innovation and competition in the space.
Disclosure: I’m a volunteer with the Savetheinternet.in coalition which is involved in the fight for Net Neutrality in India, and MediaNama has a strong pro-Net Neutrality stance.