OLA is one of the most revolutionary companies in the Indian Business Ecosystem.
But ever since the pandemic has been waning, OLA’s business has been going downhill.
Over 30–35,000 cars have gone out of business, the surge price is beginning to pain the customers, and both drivers and employees have been leaving.
Above all, even after 11 years into the business, OLA cabs is still far from being profitable.
So the question is,
How did this revolutionary company get into such deep trouble in spite of the pandemic declining?
Let’s understand the challenges faced by the company and the future of cab rides in India!
To do so, we need to understand the basic business strategy of OLA.
Companies like OLA, Zomato and Swiggy become valuable because of the Network Effect, and their growth in the market can be understood with a 4-Phase Framework.
Phase #1: Cash Drain
This is when a company spends a ton of money to acquire the stakeholders.
In the case of OLA, they gave us steep discounts and ultra cheap rides to tempt us to download the app.
The drivers were paid 70-80k a month, and given very lucrative incentives.
Both the customers and drivers were satisfied.
Phase #2: Trust Building
When blue collar workers making 30k a month saw OLA drivers making 80k a month, people in the lower economic strata started leaving their job, applying for loans and buying cars just to become an OLA driver.
On the customer’s end, they got habituated with using OLA and Uber due to their convenience.
As more customers and drivers started using OLA, the company started growing massively.
But at the same time they were incurring hundreds of crores in losses!
Phase #3: Dependency
For drivers, once you buy a car on EMI, you are stuck in the cab business for 5 years until you pay off your loan.
At the customer’s end, some bought an OLA pass, used OLA share and made OLA an important part of our lifestyle.
This is when many conventional cab services went out of business, as the Indian market started pivoting towards OLA!
Phase #4: Control
After creating a powerful irreversible eco-system of both drivers and customers, Ola started to decrease its incentives to the drivers and started imposing surge pricing for customers.
This is where the real struggle started, in 2018–19.
If you were an Ola driver, and your income jumped from 20–30k per month to 50–60k per month in 2 years, what would you do?
You would buy better groceries for your house, send your children to a better school or start an SIP.
Overall, you will upgrade your lifestyle.
That is exactly what Ola drivers did.
But then control phase came in; their incentives started decreasing, petrol prices started increasing and the number of drivers increased;
Their income gradually decreased from 70,000 to barely 30,000 per month.
Massive driver protests popped up from different parts of India against the cab companies.
…….Then the pandemic hit.
This is when 3 things happened:
1) Many drivers lost all their savings in the 2 years of the pandemic and went to their villages to find work.
1000s of cars began to be seized by the banks due to default payments.
Close to 30,000–35,000 cabs were seized by the banks due to default payments!
2) After these cabs were seized, the drivers who couldn’t get a loan went to a car lender.
A car lender who may own 5 cars, lends the car to other drivers, and then splits the profit 60–40 between himself and the owner.
3) People who saw this happening with their friends and family began fearing the cab business.
As a result, even post the pandemic, the number of OLA drivers dropped drastically!
The drivers who are done with their EMI payments are now becoming Delivery boys for Dunzo, Zepto and Swiggy!
They may make the same amount; 30–35k but they don’t have to worry about the annual Rs 40,000 for RTO passing, and Rs 6k of bimonthly maintenance.
Secondly, if you are a Dunzo delivery boy and don’t work, either the EMI for the bike will be too less or if you own the bike, you don’t have to pay anything to anyone!
Also, if you want to switch to a job at a call centre, you can easily do so. But a cab driver is stuck with the job for 5 years because of the loan.
Now the question is,
How are Dunzo and quick-commerce delivery boys making so much money if even those companies are incurring losses?
While OLA is now in the 4th phase of its operation; Control phase, Dunzo and Insta Mart are in the Cash Drain phase; they are incurring losses just to give incentives to their delivery boys.
So the lucrative market just shifted from cabs to quick commerce!
This is why OLA and Uber are facing an alarming shortage of Cabs.
The trouble does not stop here.
When the driver shortage happened, 2 more things happened:
1) The drivers became very very choosy.
Eg. I live near an IT park where cabs are available from 9–7pm. I return home from the office at 10pm when the IT park is inactive. So drivers cancel at least 30 rides a month just because of my location!
Instead of spending half an hour every day booking cabs, premium customers, especially the women, usually just get a private driver at a salary of 18k a month.
2) After the prices started to shoot up, private drivers, carpooling and self-owned cars became more value-adding than Ola.
Let’s do the math.
A – If you already own a car, then a mere 18k private driver fees and 5k of gas is enough to rid yourself of cabs.
B – A workforce of drivers who are driving the car of a car lender get 18,000 by working for 12–14hrs a day. But by driving a private car, they get paid the same salary but don’t have to work those hours.
Many drivers over age 50 prefer to drive private cars with lesser salary rather than taking the risk of loan by buying a car for OLA!
C – Because of the surge price and pricing of OLA, even the math for regular customers doesn’t add up.
Take my case.
I am the ideal customer of OLA who travels 12km back and forth from the office everyday for 30 days a month.
Last month, my OLA bill shot up to Rs 25,000.
Instead, I could get an i10 on a 15,000/ month EMI and pay another 5,000 for gas and save more money.
D – We also have carpooling apps like Quick rides which are connecting office goers with each other.
This saves fuel money, and gives the value add of networking.
Therefore, the demand-supply mismatch and the surge price is kicking out many ideal and valuable customers from OLA.
With even the company incurring heavy losses, practically none of the stakeholders are winning the game.
This is the story of OLA’s struggle in India.
Pointers we need to look at as students of Business:
1/ The real competition for OLA, as far as I can see, is not Uber, but Private Driver-service companies that are offering stable jobs to drivers, and convenience to customers.
2/ The 45+ driver segment who don’t want to venture into loans are a big big threat to OLA.
Their value add is way more than an OLA cab both in terms of economics and convenience.
The only way I think it would make sense to have these services is when the irregular, low-ticket customers are more in number and in terms of value of transaction than the regular office-going premium customers.
Low ticket customers will obviously go where discounts take them, and won’t have the highest purchase power. So this seems skeptical.
3/ Lastly, the cost-benefit ratio for the regular customers is one of the most important aspects that OLA and Uber need to consider.
In a country like India where labour costs are low, the cost-benefit ratio is going to be very very difficult to achieve.
So, as students of Business, do keep an eye out and see what OLA and Uber do to break through these barriers in the market!