categories

HOT TOPICS

Subscribe to our Feed

Indian Cab Aggregator Ola Cabs’ Ride Getting Bumpy

Posted on Tuesday, Aug 8th 2017

According to a report from the Internet and Mobile Association of India and market research firm IMRB International, overall Internet penetration in India is currently around 31% with 60% penetration in Urban India. The number of Internet users in India was expected to reach 450-465 million by June 2017, up 4%-8% from 432 million in December 2016. Another report by research firm Counterpoint estimated that India’s smartphone user base grew 18% to over 300 million in December 2016. Increasing Internet and smartphone penetration are fuelling the growth story of Indian Billion Dollar Unicorns like Ola Cabs.

Ola Cabs’ Offerings

ANI Technologies, which operates as Ola Cabs, was founded in 2011 by CEO Bhavish Aggarwal and CTO Ankit Bhati in Mumbai. It is now based in Bangalore. Its cab services can be booked through the Ola mobile app. The services range from affordable Ola Micro that charges Rs 6 ($0.09) per Km to superior Ola Lux that charges Rs 25 ($0.4) per Km. Since 2015, it has also expanded its offerings to outstation rides, bikes, three wheeler auto-rickshaws, and shuttle buses. It has over 650,000 driver partners and its service covers over 600,000 vehicles in 110 cities. It has over 6,000 employees.

The company claims to book an average of more than 150,000 rides per day. It is estimated to have recorded about 6 million weekly rides on average between September and December 2016 across all its offerings. Part of the demand for its services could have been driven by the demonetization of the Rs 500 and Rs 1000 banknotes. Consumers can opt to pay for rides with credit/debit cards or with Ola Money.

Ola Cabs acquired a couple of companies in 2015. It acquired Bangalore-based taxi service TaxiForSure for about $200 million in March 2015. To strengthen its shuttle bus service, Ola acquired Geotagg, a trip-planning applications company, for an undisclosed sum in November 2015.

In November 2016, the company launched Ola Play wherein the car is fitted with entertainment options and users can listen to their favorite music or watch HD episodes of favorite TV shows. In cities that are crippled with traffic that stretches the average ride time to over 45 minutes, the company sees it as a critical move to win over customers.

Ola Cabs has also expanded its offerings to the enterprise sector with Ola corporate. It lets employees book a cab for business travel and have it expensed directly to the company account. It is also looking at introducing electric cars.

Ola Cabs’ Financials

Ola Cabs makes money by charging a commission of 20% on every booking. Its revenue was Rs 758.23 crore ($118 million) in FY 2016, compared with Rs103.8 crore ($16 million) in 2015. Losses nearly tripled to Rs 2,313.7 crore ($359.5 million) in 2016 from Rs796 crore ($123.7 million) a year ago. Employee costs increased more than five times to Rs 379 crore ($59 million) while advertising and sales promotion costs increased four times to Rs385.5 crore ($60 million). The increasing losses are attributed to advertising, initial driver incentives, strikes in major cities and customer discounts.

Ola Cabs has been venture funded with $1.72 billion in 11 rounds from investors including Tekne Capital Management, DST Global, SoftBank Capital, Sequoia Capital, Steadview Capital, Tiger Global Management, Baillie Gifford, ABG Capital, Accel Partners, Anupam Mittal, Didi Chuxing, Falcon Capital, GIC, Kunal Bahl, Matrix Partners, and Mauritius Investments. Its last round of funding was held in June 2017 when it raised $50 million at a valuation of an estimated $3.65 billion. An earlier round for $500 million held in November 2015 had valued it at $4.5 billion. Since the company is far from profitable, it would need to raise more money to stay afloat, and I guess we can expect further down rounds in the not too distant future.

Ola Cabs holds about 65% of the Indian taxi aggregation market and Uber India holds the rest. However, there are several problems facing both the companies. To curb losses, Uber India and Ola Cabs slashed driver incentives by 30%-40% in early 2017, which led to a strike by the drivers in Delhi and Karnataka. In May 2017, India’s largest public sector bank SBI suspended car loans for Ola and Uber taxis due to increasing defaults by the drivers. In July 2017, the Delhi government was reportedly considering banning ride-sharing services like Ola Share and UberPOOL and putting a cap on the size of the taxi fleet.

Both Ola Cabs and Uber India now have to worry about government-backed cab aggregators. In July, Government of India announced its plans to launch a ride-hailing app that will offer rides on two-wheeler taxis and electric cars. Earlier in the month, HDK Cabs, which is backed by former Karnataka Chief Minister H.D. Kumaraswamy, announced plans to launch operations in Bengaluru.

Personally, these government-backed services don’t worry me. What worries me much more is the sector’s inability to deliver healthy unit economics. Losses are running like blood gushing through the veins of hormone-raged adolescents. When does it stop?

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar UnicornsThe term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Hacker News
() Comments

Featured Videos