The success story of Ola
Taking a cab or hiring cars for cross-city travels have always been a huge issue in Indian society. Stuck in a similar situation, abandoned in the middle of the road by his cab driver, this entrepreneur decided to take matters into his own hands.
Inception:
Homegrown cab aggregator startup Ola Cabs was born when Bhavish Aggarwal found himself in the middle of a trip from Bangalore to Bandipur, having a horrible experience. Bhavish Aggarwal’s entrepreneurial journey started way before he ventured into the cab rental business. Before starting Ola Cabs, he started an online company to sell short-duration tours and holidays. While trying to keep his holiday and tour planning business afloat, Bhavish had to travel from Bangalore to Bandipur, for which he rented out a car, which ended in a very bad experience. The driver stopped the car in the middle of the journey and demanded a renegotiation of what Bhavish was paying. After being refused, he proceeded to abandon him to enroute to his destination. This is when he realized how his plight was probably similar to a lot of customers across the country who were looking for a quality cab service but ended up with a one that stood them up, arrived and dropped them off late, didn’t stick to their promises, and came with drivers that were nightmares behind wheels. For the first time, he saw the amount of potential that an extraordinary cab booking service could have, and hence, he changed his business from his earlier start-up to the one we today know as – OlaCabs. This was in December 2010, where he was joined by his co-founder Ankit Bhati in his start-up journey. His parents didn’t agree with his idea at the beginning, of course, like all Indian Parents won’t. They were thoroughly displeased with his decision to become a ‘travel agent’, but when OlaCabs received its first round of funding from two angel investors, they started to believe in the change he was planning to bring. Instead of buying and renting out their cars, OlaCabs partnered with many Taxi Drivers and added a touch of modern technology to the whole set up, where people could book cars at short notice through their call centers and from their app. The bookings allowed half/full day rental and even outstation taxis. They now have almost 4,000,000 cabs across the country, offering a variety of car options –Mini, Prime, Luxury – which can be paid for through one of the different modes available. Ola Cabs became the collective prodigy of Bhavish Aggarwal and Ankit Bhati, owned by ANI Technologies Pvt., Ltd. After a humble beginning in 2010, Ola became one of the fastest-growing startups in India, beating its global rivals Uber and Meru Cabs. So much so that only after 4 years of being in operation in 2014, the company spread to more than 100 cities pocketing a network of more than 200,000 cars. Clocking more than 150,000 bookings per day, Ola held over 60% of the market share in India by 2014. What started as a cross-city cab aggregator company soon launched mini cabs for city travel in Bangalore and Delhi NCR. With a base price of Rs.150 for the first six kilometers and an introductory price of Rs. 12 per kilometer, Ola became the cheapest AC cab service in India. To date, the company claims to have a user base of 200 million globally and a network of over 2.5 million driver-partners across 250 cities.
Challenges:
Like every other newborn startup, Ola’s founders too had to face a lot of difficulties and challenges. They had to work long hours and sometimes Ankit had to code for 48 hours straight while Bhavish had to ride the cab himself and complete the cab booking. Another problem which they faced was networking connectivity issues. Back in 2010, internet connectivity in India was not very good. The majority of the population did not have access to the internet and those who had used 2G connections. So they had to develop an app that could be easily used on the 2G network. But this did not diminish their passion. They worked day and night and people slowly and overtime started to like their services. Ola has covered an interesting journey from being nothing to being a company that provides a livelihood to thousands of people. Today, Ola has become a part of people’s everyday life in many cities. Since its inception, OlaCabs has raised funds from SoftBank Corp, and other investors during two rounds of VC funding. They also recently came up with the plan of ‘charging lesser than an average autorickshaw’ by offering cabs at ridiculously cheap prices of Rs.10/km. OlaCabs has now ventured into collaborating with autos, with the launch of OlaAuto. You can now find an auto on demand, using their app.
SWOT Analysis:
Strengths
· Grabbed the First mover advantage as a taxi aggregator in India
· Acquired Taxi for Sure which made it No. 1 in India
· High awareness among the public due to aggressive TV, online, and print media marketing techniques.
· Huge customer base & due to network effect it is increasing
· Rapidly expanding and online application
· Multiple rounds of venture capital investments have made the brand financially strong
Weaknesses
· Drivers are the face of the company and hence their misbehavior directly affects its brand image
· Monetization is very difficult as the demand is huge, the amount of cash burning is huge
Opportunities
· Potential is high as Unorganized market is huge (~90%)
· Increasing internet penetration &Smartphone users
· Rising disposable income of the people
· Huge demands as the customers look for more and more convenience in terms of hassle-free drive and no tension of finding parking.
· Acquisition of smaller players in the market.
Threats
· New competitors entering the market.
· Uber has a deep pocket and hence can burn cash heavily
· Presence of many national players in the market
· Future is unclear due to lack of government regulations in developing countries
Ever since Ola and Uber came into action in India, they have been in a head on competition. Since their emergence, both of the companies have been closely tracking their competitor's strategies.
One key strategy of Uber regarding charging for fake bookings delayed cancellation has levied against Ola in India. Now comes the deep pocketed backers that Ola has been able to excel in. A lot of A-list investors such as Softbank, Tiger Global, DST Global and many others fund Ola. In fact, Didi Kuaidi of China which happens to be the world's largest app based cab provider, ahead of even Uber in the Chinese market, happens to be a backer of Ola. Both Ola & Uber have been constantly offering cleaner, reliable and cheaper services than traditional taxis.
The Indian market provides a huge opportunity for online cab aggregators with estimates suggesting growth levels of 30%-50% month-on-month. This has led to an intense competition to win in the market and billions of dollars of investments in this space. The two major competitors in this space are the $100Bn valued and global firm Uber and the $5Bn India based Ola Cabs. The results to date are quite surprising – Ola Cabs, which built its business model on Uber’s success in the US, is significantly ahead of Uber in India with estimates suggesting an almost 80% market share to Ola. How could an India based start-up beat a giant like Uber which has expressed a strong intent to win the Indian market? What lessons can be learnt from the Ola success for other players planning a similar strategy? Is this initial success of Ola Cabs sustainable in the long term?
The success of the cab aggregator business model, like any other two-sided market place offering, depends on the ability to scale both the users of the service and providers of the service. There are strong indirect networks effects in the model where the higher users on the platform lead to higher drivers coming onto the platform as they can get more rides which in-turn drives a higher number of users who can now access the cab service in a more convenient and faster way.
Ola Cabs has been extremely aggressive in capturing both sides of this market. They priced their offering at a very attractive price (at the levels of auto rikshaws – a 3-wheeler typically used for local commute in India). In parallel, they started to incentivize drivers heavily to ensure they do not leave the platform in the initial periods when not sufficient users were on the platform.
Ola Cabs has been very successful in creating value through their business model. The users were able to get a much better and convenient mode of transport for an attractive price. The drivers were earnings higher than they normally do due to Ola’s high incentives. Where Ola differentiated themselves to create value was through the customization of the business model for the Indian customer:
i. Ola used smaller hatchbacks for their attractive price which was an instant hit with customers. This also helped them to bring a lot of drivers onto the platform as such hatchbacks were a much larger portion of the Indian Market. Uber on the other hand announced their entry by providing premium cars to attract consumers at a higher price which was not as successful.
ii. Ola created value to customers who did not use / were not comfortable with sharing credit card details by having a pay-with-cash model which significantly expanded the user base and allowed them to create value for a larger customer base
iii. Similarly, Ola understood the relatively low smart phone penetration in India and had an option of booking cabs through their call-center – another area where Uber still lags
iv. For drivers, Ola was the first to come up with apps based on local languages for the drivers who were not educated in English and could not use the traditional English app of Uber
Price wars:
Both the companies have unfolded concrete price war which caused a windfall for consumers and upped the stakes for investors. In November 2015 , Ola raised $500 million more in response to Uber's highhanded presence and hence launched a new category called Micro in March 2016 which was even cheaper than UberGO; priced at Rs6 per km. Soon, Ola claimed micro as a category to be bigger than Uber's entire Indian business as a response to Alexander's boast. According to multiple industry executives, Ola's claims on Micro are unsubstantiated but the category has transformed the company's fortunes, at least for now. As reported in Mint on 15 June 2016 Though Ola has reversed much of its last year's market share loss to Uber, but this reversal of fortune for Ola has come at a cost. While Ola opened up a big gap against its rival and has jumped since the launch of Micro, the company has also faced cash burns.
In an attempt to match Uber's spending power, Ola has already raised about $1.2 billion from investors so far but needs to gear up to give actual competition to Uber's spending power. Uber has already raised $3.5 billion from Saudi Arabia’s Public Investment Fund and is likely to raise another $2 billion in the leveraged loan, as reported by The Wall Street Journal.
Conclusion:
India’s major attractiveness lies in its market size and increased purchasing power resulting in uplifting lifestyles. On the other hand, Indian consumers are smart, very demanding, and highly price-sensitive with no brand loyalty; managing such a market is not an easy task. Companies need to constantly be on their toes and keep designing new packages and offers to allure the customers for long which at times result in a lot of cash burn. Therefore, it would not be that easy for both the companies Ola and Uber to operate in such an
environment. They have to optimize their costs at all levels; need to be more customer-centric & target oriented; highly innovative; resistant to pressure from the regulatory authorities and above all keep delighting their customers as the customer is the king.
Sources:
1. https://www.iosrjournals.org/iosr-jbm/papers/Conf.17001-2017/Volume-1/11.%2073-78.pdf
3. https://www.verzeo.in/startup-ola