The startup world had found in Uber its enfant terrible long before one of its drivers allegedly raped a female passenger in Delhi. Unfair competitive practices, pushing the limits of the law, overcharging passengers—the complaints have piled up with staggering frequency against the five-and-a-half year-old company that claims to “make cities more accessible”. The Netherlands, Thailand, Spain, and France have already banned it or have threatened to do so. Last month, its home city of San Francisco too reportedly decided to sue it “for giving consumers a false sense of security when deciding whether to get into a stranger’s car”.

What happened in Delhi around the same time confirmed those fears. In the much-publicised aftermath, the government blacklisted Uber (along with homegrown aggregators Ola and TaxiForSure) in the National Capital Region, even mulling a ban across India for faulty licensing and inadequate driver verification. (Days before we went to press, Uber claimed to have started a more stringent verification process, and the ban on Ola was temporarily lifted pending a court hearing.) Weeks later, as a ghastly cafe siege raged on in Sydney, Uber’s algorithm jacked up the fares out of the affected area, reversing later in the face of global outrage.

Uber’s response to such crises can be as grating: Senior vice president Emil Michael considered spending “a million dollars” to go after journalists who criticise it. The company’s statement after the Delhi incident also drew flak for being insensitive. Its attitude made The Guardian wonder if “Uber [is] the worst company in Silicon Valley”.

Santosh Desai, Social commentator and CEO, Futurebrands
Santosh Desai, Social commentator and CEO, Futurebrands

Yet, last year, Uber, now plying in 53 countries, raised
$1.2 billion (Rs 7,600 crore) at a valuation of over $41 billion—more than double the $19 billion WhatsApp wrung out of Facebook amid global media frenzy. It is the world’s second-most valuable tech startup, trailing Chinese smartphone-cum-electronics company Xiaomi by some $4 billion, and $30 billion ahead of Airbnb. In India, Ola and TaxiForSure raised $277 million and $44 million, respectively, en route to winning a bunch of awards and hordes of fans. The latter vociferously dissed the ban, and could well be the reason the government rethinks its current adversarial stance.

In the excitable world of tech startups, dizzying valuations and crazy fans mean little by themselves. (While Uber’s revenues are speculated to be over $2 billion, Ola and TaxiForSure have reported widening losses and small revenues of Rs 51 crore and Rs 4 crore, respectively.) Real invincibility lies in something more old-fashioned: serving a basic human need in the most disruptive and durable manner possible, if you will. Uber’s ilk believes it has cracked that, never mind the current turbulence.

Uber’s management wasn’t available to talk. But Aprameya Radhakrishna and Raghunandan G., the thirtysomething co-founders of TaxiForSure, confirm that they are training their guns on something way bigger than being just another overblown startup. “We want to make sure no one has to buy cars anymore,” they tell me with a nonchalance that could easily pass off as cockiness if it weren’t earnest. “We are here to make car ownership redundant,” they repeat, in case I had doubts. They find support in Bhavish Aggarwal, co-founder and CEO of rival Olacabs. “I take cabs everywhere. I don’t own a car and don’t intend to buy one either,” Aggarwal told the audience at the popular TechSparks entrepreneurship summit in Bangalore a couple of months ago.

Rehan Yar Khan, founder of Orios Venture Partners, an investor in Ola, says that’s a perfectly plausible lifestyle. When taxis “begin to reach the customer’s doorstep in five minutes, there will be no reason to buy cars … just like in New York,” he recently told The Hindu Business Line. (Despite the rivalry, aggregators say manufacturers are happy to work with them because cabs are replaced every three or four years while private cars are generally held on to for more than double that period. We reached out to several car companies, but they refused to comment.)

KHAN WAS LIKELY referring to the private car’s depleting stock among American youth. According to The Atlantic, Americans aged between 21 and 34 bought just 27% of all new vehicles sold in 2010, down from a peak of 38% in 1985. For a country whose growth after the Second World War was in many ways epitomised by the motorcar, that’s dramatic.

The media in India isn’t into such analysis yet, given that these are early days and there’s hardly any data. However, there has been an explosion of stories demystifying the services—from the way they manage large fleets without actually owning any of the vehicles, to the facelift they have given to the profession of driving, thereby attracting greed and crime.

As with the U.S. though, the real story is a growing disenchantment with the car as a symbol: Radhakrishna, Raghunandan, and Aggarwal are typical middle-class lads, for whom buying a car ought to have been the ultimate statement of having arrived in life. In truth, they lead a growing tribe for whom cars are no match to the latest gadgets or exotic holidays in brag value. (I am one of them.) In fact, as many as six out of 10 Indians would rather share a car than own one, per Capgemini. Only the Chinese are more receptive to sharing.

The traditional solution—carpooling—never really worked because the individual’s movement was tethered to a group’s. Several startups offering organised carpools have had to switch to the B2B model. But the on-demand model of cab aggregators makes them attractive to the solo traveller.

Aprameya Radhakrishna and Raghunandan, co-founders, Taxiforsure
Aprameya Radhakrishna and Raghunandan, co-founders, Taxiforsure

Cabs also make for smart economics. The cost of hiring one for up to 50 km—standard commute distance in any major Indian city—is much lower than using your own car (see graphic, based on samples from Mumbai). They also bypass parking, a costly adventure in most Indian cities. In Delhi, the cost of parking at a mall on a weekend visit can top Rs 200. Buying parking in apartment complexes is in some cases more expensive than buying a car itself. Finally, cabs offer unmatched flexibility. You could hire, say, a small one for the weekly supermarket dash, and splurge on a sedan on a date.

It could of course remain a pipe dream, and not just because of predatory drivers. An equally big challenge comes from India’s sordid public transportation record. In 2013, leading Indian metros—Mumbai, Kolkata, New Delhi, Hyderabad, and Bangalore—were rated “below average” in a 66-country survey on urban mobility by consultancy Arthur D. Little, indicating an unhealthy dependence on private vehicles compared to chart-toppers Hong Kong, Amsterdam, and Singapore.

History notwithstanding, Santosh Desai, social commentator and CEO of Futurebrands, believes something has been set in motion that will subvert the primacy of private cars. “There is a new language of freedom that the mobile phone has brought into our culture,” he says when I ask him whether the rise of the cabs could be a mere extension of the current mania for apps. “The car was the most potent sign of freedom in the 20th century, but in the new world, it is a burden,” he adds.

THE ENGINE OF THIS “NEW WORLD” is the Internet-enabled sharing economy. The phenomenon popped up in post-recession U.S., as people tried to make the most of their resources. (For instance, when the owner of a house with an extra bedroom connects with a traveller via Airbnb, he makes some additional income as rent while the traveller saves on potentially larger hotel bills.) Such transactions were estimated to be worth $3.5 billion last year and are expected to touch $110 billion in the next few years. The success of cab aggregators—where car owners make extra money by renting out their vehicles, while passengers are spared the recurring costs of ownership—owes much to the same ecosystem.

There are broader ethnographic factors at work. The Atlantic, for instance, talks about the re-urbanisation afoot in the U.S. More and more Americans are choosing to live closer to city centres or hubs of economic activity rather than in the suburbs, reducing the dependence on private vehicles.

Now, there are few countries that will be urbanised at the same rate as India over the next couple of decades. McKinsey predicts that while it took nearly 40 years (from 1971 to 2008) for India’s urban population to rise by nearly 230 million, it will take only half that time to add the next 250 million. But because of the haphazard nature of urbanisation in India, congestion and travel time are only expected to increase. “Cities in India are growing towards peripheral areas,” says Aromar Revi, director at the Bangalore-based Indian Institute of Human Settlements (IIHS). “Because of the lack of mixed-use real estate developments, people end up travelling longer.”

That has made developing integrated public transportation a key challenge for successive governments. At present, the metro rail is seeing a lot of action, with 13 projects in various stages of readiness and at least 15 more being mooted. Buses are another priority, having received Rs 14,883 crore in the last Budget. These are central to the current government’s focus on urban infrastructure—evidenced by a freshly minted Rs 50,000 crore corpus aimed at lending credibility to its ‘Make in India’ pitch.

Expansion in private transportation on the other hand has shrunk, and is increasingly concentrated in the two-wheeler space. Sales of passenger cars and commercial vehicles reportedly fell 0.8% and 6.5% y-o-y, respectively, between January and October 2014, while those of two-wheelers grew 12.9%. While high interest rates have kept the demand for cars in check, in the long term, as more women start working, the appeal of two-wheelers will rise. Which means cars will cede more space on the road. “If they price themselves right, [cab aggregators] may be able to convert a part of the market that currently chooses to drive, considering congestion will remain bad,” says Revi of IIHS.

THE NEW BREED of cabs is the first scalable public transport solution to come through entrepreneurship rather than government planning. The private-equity dollars pouring in has helped them focus on passenger acquisition, without being bogged down by profitability concerns. At the moment, the bigger fight is to acquire drivers, with aggregators competing for every last hand. “We want everyone with cars to come to us and earn some money,” say the TaxiForSure co-founders.

The company claims that given 93% of the taxi market in India is unorganised, there’s a lot of headroom to bring drivers into the fold. Prospective drivers are often recruited at transport fairs organised by aggregators, banks, and car manufacturers. For those who don’t already own a vehicle, the aggregator issues a letter to the bank confirming their affiliation with it. The bank then gives a loan to the driver against a nominal down payment. They are also given the aggregator’s handset which runs the app that alerts them to passengers nearby, keeps tabs on distances, and calculates fares.

The drivers stand to earn a lot more than from the standard black-and-yellow taxis, thanks to smart application of maps that connect them with fares no matter where they are. This means the number of trips they can make in a day is maximised, and the days of empty return trips are over.

Over the past few months, I met several cabbies who have started earning well north of Rs 40,000 or Rs 50,000 a month from Rs 12,000 or so before. Others like Uber driver Mahipal in Gurgaon have built small fleets and turned entrepreneurs themselves. Many drive for multiple aggregators, depending on how much each sweetens the deal: There’s often the carrot of incentives for plying a certain number of kilometres or trips.

The culture of incentives exposes a glaring vulnerability—that of drivers gaming the system. An Ola cabbie in Bangalore insisted that I book another ride using the app the moment I reached my destination. He reckoned that because his cab was the nearest to me, the system would forward my request to him. He would accept the booking, switch on the meter, and drive someplace near, where he would end the ride and claim a Rs 1,000 bonus for making 10 fares in 10 hours.

When they realise I am a journalist working on this subject, most drivers ask me how the aggregators themselves make any money. It is a valid question. Apart from the driver’s payout, passengers are given subsidies of Rs 175 to Rs 250 per ride, which effectively make some rides cheaper than autorickshaw rides. “We are investing in building behaviour and [owning] the largest platform because this is a winner-takes-all market,” much like e-retail,” says Aggarwal of Ola.

A senior PE executive who requested anonymity because he is not authorised to speak to the media says that the margins in the cab business are relatively higher (10% to 20%) compared to e-retail. So it is easier to justify the spending as customer acquisition costs on the basis of lifetime value. That sentiment is echoed by mobile-payment vendor Paytm’s vice president Amit Lakhotia, who played a crucial role in signing up Paytm as Uber’s mobile-wallet partner in India.

Cross margins with the potential volumes, and there is some indication as to why these companies are valued as high as they are despite the initial losses. According to Siddhartha Pahwa, CEO at Meru Cabs, one of India’s oldest radio taxi operators, fixed costs (fuel, EMI, maintenance) as a percentage of total earnings would come down the more a car is on the road. “In Singapore, each taxi does 25 trips a day. In India we are still talking seven. To up the levels, subsidies to the passengers will have to continue in the near term.” (Reminiscent of how the inventory-led model in e-retail made way for marketplaces, Meru, which started with cars it owned, has since launched Genie, an aggregator.)

ALL THE ACTIVITY will add to naught if cabs flounder at the basics: providing safe and reliable transport. As Sakshi Vij, CEO of rental company Carzonrent, points out, the entry barrier to developing the aggregator technology is pretty low, and ride experience will be the only true differentiator. That means more investments in verifying and educating drivers, and better systems to track cabs: The accused Uber driver in Delhi had managed to get away by simply switching off his handset.

Then there’s the matter of handholding governments and regulators, who have struggled to keep pace with the Internet economy (see ‘Taxing the Digital Economy’ in the May 2014 issue of Fortune India). Aggregators claim that they are merely tech platforms that match demand and supply, and hence shouldn’t be treated like taxi operators, but going by new regulations announced in Delhi (paving the way for the ban to be lifted), that difference is on thin ice. Take for example the instruction to provide dedicated parking space and maintain call centres (which Indian companies have but not Uber), blowing holes in the asset-light model that makes these companies so attractive to investors. A panic button and GPS that can’t be switched off are among the other mandates. (Ola has already announced an extra layer of GPS in its cabs.) “We will continue to work with the government, [and suggest] frameworks at large for the industry,” Anand Subramanian, Ola’s director for marketing communications, recently said. Some aggregators are also in talks with smaller radio-taxi firms to buy their licences.

Suspicious as it is, the establishment is hitching itself to the app bandwagon. Authorities in New York and Chicago are designing their own cab apps. Delhi Integrated Multi-Model Transit System (DIMTS), a transport and infrastructure development company in which the Delhi government is a stakeholder, has also developed one for autorickshaws.

Meanwhile, the mission to empty your garage is under way. “For a long time, I considered buying a second car,” 35-year-old Carson Dalton, Facebook India’s communications head, tells me. “But with private transport on tap, I don’t see the point.”

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