Business is the art of tilting people’s interest in your favour. The process involves a bit of deception as you have to lure customers through different means. But at the end of the day, customers shouldn’t feel that they were deceived, the end result was positive for them. This is fundamental to any business. Ola did try to follow the same, but the customers’ dissatisfaction shows that it did not actually respect its unsaid obligations.
The aforementioned human angle reflects in 3 key financial metrics such as cash flow, income statement and balance sheet. Ola could not properly consolidate all 3 of them. Cash flow, which is money flowing in and out of the company was inconsistent. Similarly, income statements do not reflect a good strategy. To its credit, Company did try to diversify by expanding itself in Food and financial services, but Cabs remained a numero uno source of income, effectively hampering the diversification attempts. Finally, Company’s balance sheet is unhealthy, to say the least. It has suffered thousands of crores of loss and without any promises of any kind of profit. As a result, it has only itself to blame for looming bankruptcy. Let’s understand what went wrong for the Ola.
The beginning
It won’t be wrong to call Ola a pioneer of ride-sharing in India. By the end of the first decade of millennia, Indians were fed up with unnecessary tantrums from auto and cab drivers. They used to charge unnecessary high fares and even then, the final destination used to depend on their whims and fancies. Customers often used to complain about them being left a few kilometres away from their final destination. Additionally, the opaqueness of drivers’ identities was another security concern for the people. Various criminals used to drive autos and cabs, apparently on the insistence of their families to take up a “respectable job”.
One of the issues listed above was faced by Bhavish Aggarwal, a graduate of IIT Bombay. A driver booked by him decided to abandon the ride after Bhavesh did not accept his demand for a higher fare midway through his journey. By then Bhavish used to provide holidays and other kinds of trips through his site called Olatrips.com. After facing this problem, he changed its business model to cab booking.
Initial investments
The idea was brilliant, simply because the problems were too many and Bhavish was about to solve them with a single move. But, the investment environment in the country was extremely low. Scams after scams during the UPA era had dented investors’ confidence in the economy. It was next to impossible to get investment for a new business model (Ola) .But, local entrepreneurs understood the pain of their fellows.
A few months later, Snapdeal founder Kunal Bahl along with Anupam Mittal and Rehan yar Khan became angle investors in the company. They invested $330k in the idea. A process had kicked it. Ola started to add drivers to its tally. Ola spent this amount on giving discounts to the customers. The discounted price used to cost sometimes even 10 per cent of what average offline cab and auto drivers charged. Additionally, it also gave insane incentives to the drivers signing up for it. The customer, as well as the driver base, started to expand.
The flurry of investments and increased user base
Within one year of getting its angle investor, Ola did so well that Tiger Global Management, an American investment giant was prompted to pour $5 million into the Ola company in the Series A round of investment. Ola got a further boost and now, its driver base was not limited to erstwhile auto drivers of the pre-online era. Drivers were now making anywhere between 70k to 1lakh rupees per month. Now, the average blue-collar worker of a multinational corporation who entered these companies at Junior Rank was impressed by this earning. And why not, if the results of a degree costing 10 lakhs is a 20k job, anyone would choose to ride a cab with 4 times monthly return.
MBAs started to ditch jobs and were now found operating these cabs. Those who did not use to ride it during their off-hours from their soul-sucking jobs. It is here that multinational giant Uber sniffed an opportunity. Uber decided to increase the intensity of the online cab market by launching its services in India in August 2013. Now, Ola had fierce competition. Uber being large on bank balance also posed an existential crisis for Ola. Uber could splurge money and remain loss-making for many years in order to gain traction in the market.
Aggressive funding helped offset losses
As a result of the competition, Ola got aggressive and the window for its successive funding rounds now started to shorten. 3 months after the launch of Uber in India, Ola landed up to $20 million in Series B funding. 8 months later, it attracted $41 million in the Series C round. Other than Tiger Global, Ola now owed huge returns on investment (ROI) to Matrix Partners and Sequoia Capital as well.
All these investment helped Ola to offset crores of losses in its bid to establish a market base for itself. But, Uber was not ready to give up. The pricing war had started. Both companies were in neck and neck competition with each other. Both consumers and drivers were at the better end of the war while Ola and Uber were suffering financial jolts. The profits for consumers got so intense that now people started to buy multiple cars and hire drivers on a fixed salary. Even after paying those salaries and EMIs for the vehicles, owners used to make a lot of profit.
On the other hand, Ola needed more capital to consolidate itself in the Indian market. In the next round of funding, Ola received $210 million. In terms of investments, 2017 was the best year of the company as it was backed by additional investments from private equity and secondary markets. In October 2017, Tencent Holdings and SoftBank group trusted Ola with a $1.1 billion investment.
Ola failed in generating return on investment
By the end of 2017, Ola had started to believe that it had developed an irreversible ecosystem. It was confident that the drivers will not be flocking to other services. Similarly, through its initiatives such Ola Share, it seemed to have zeroed down on the customer pulling tactic.
Now, Ola started to think of paying back its investors. It started to surcharge its customers and introduced flexible pricing. During peak hours, Ola used to charge much more than offline autos. Initially, customers thought of them as a one-off phenomenon and brushed the higher prices aside. But, once it became a regular affair, people started to realise the fault in the algorithm. After getting a hold of their daily travel routine, Ola used to charge more to its customers. As a result, the customers started to lose interest and a lot of them started to buy their own vehicles.
Even on the driver’s front, Ola started to lose big. It drastically reduced the incentives given to the drivers. A lot of these drivers were driving their own vehicles, bought on EMIs. Additional spending on maintenance and RTO was another big burden. The reduced incentive proved to be dampner for them. To add insult to injury, fuel prices started to go up putting a further dent in drivers’ pockets.
Both riders, as well as drivers, started to ditch Ola
Drivers were stuck and so they started protesting against the Company’s policies. But, what could Ola do? It had to pay investors. The company continued with its unfair pricing to customers and reduced incentives to drivers. As a result, both started to ditch Ola. Those drivers who did not ditch and kept going in spite of loss-making were in for more shocks. Soon, on the account of not being able to pay EMIs, banks started to seize vehicles. SBI even suspended car loans to Ola-Uber drivers.
And then came the pandemic. Drivers who had saved huge during the last 5-6 years were forced to use their savings. The transportation sector took a hit as people just stopped travelling. A major chunk of these drivers went back to their village, selling their personally bought vehicles at throwaway prices. Those who were working for someone were in a bit advantageous position as they could get another job. Increased thrust on MGNREGA spending by the Modi government during Covid worked as an incentive for salaried drivers to return to villages until things normalise.
Can’t sustain loss for long
In 2020, Ola’s loss amounted to Rs 2,208 crore. Though it was nearly 300 crores less than the last year, Ola’s revenue, an indication of how much it is popular among the masses was registering a decline. In Financial Year, 2021, Ola’ revenues dropped to Rs 983.2 crore, a huge 63 percent decline compared to FY20. It reflected in overall loss as well. By the end of the financial year, Company’s cumulative loss was Rs 17,453 crore.
It seems tough for Ola to get out of the mess. Its products like Electric vehicles are bringing further shame for it. The company had to transfer its resources from Used car and Quick Commerce business to EV in order to maintain a possibility of resurrecting it. Even then it is tough to pick it up. EV market in India is not going to be saturated in favour of any one company. PLI Scheme will benefit any company which provides cost-effective and efficient solution to the problem.
Companies have entrusted Ola with $5 billion through 29 rounds of funding. Possible, it will rope in more investors in the future. Even if at this juncture Ola starts to follow basics, the chances of its revival are handy.
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