Last week, Ola raised $100MM from Flipkart co-founder Sachin Bansal as part of its $1Bn raise for expanding into new verticals and geographies.
The last few months have seen high activity from Ola with an expansion viewpoint. Ola rolled out Ola Money postpaid this week. It is engaging with Myra medicines to buy it out and enter e-pharmacies. The company invested $100MM in scooter-sharing startup Vogo. The international business expanded to England.
What is Ola evolving to and more importantly, where did it all start? As we would all guess, the story starts with a small “pivot”.
Ola’s founder Bhavish Aggarwal ran a holiday and tour planning startup called Olatrip, after working for a couple of years at Microsoft. Finding himself stranded with a cab driver on a trip from Bangalore, Mr. Aggarwal decided to pivot his company to a ride-hailing service, which he believed was a big pain point.
Olatrip’s “trip” was substituted with “cabs”, and Olacabs was born in Mumbai in late 2010.
A cab ride has three key dimensions, time, cost and the ride experience. Before ride-hailing services, none of these was predictable. The pain point that Ola was solving for was the difficulty to hire a cab in a predictable manner, and set to do so with technology.
Early adopters of both Ola would remember how Ola would show all its cabs on a map and most would book the cab with a phone call. The fact that phone calls to book a cab seem ancient are a reminder of how a ubiquitous way of doing things can change in just 5 years.
It is intriguing to see Mr. Aggarwal showcasing Olacab’s “small” goal of providing “every Mumbaikar with a cab”, which may have seemed unreachable in 2011. Within a year of their $5MM Series A in 2012, though, Olacabs had already set its sights on the $6Bn ride-hailing market.
This rapidly expansive ambition would become a hallmark of the company, which would put it at war with its looming competitor.
Uber entered India in 2013, adopting the luxury cab strategy that it started off in the US. Ola by then was already doing ~10,000 rides per day, was priced lower than Uber (but higher than today), and had over 5000 cabs. With a “healthy” competition of 10 cab aggregators, Uber would be just another entrant.
But the market, by virtue of how it is structured, would leave only two standing.
Ride-hailing platforms match demand (customers) with supply (cabs) and take a fee for doing this. By getting a customer from one place to another predictably, and helping a cab driver utilize the cab better, the matchmaker solves for both demand and supply.
What this market evolves into is the classic definition of network effects.
If customers see more cabs, they are more likely to use the platform. As there are more customers, cab drivers are more likely to be on the platform. This virtuous cycle of supply and demand driving each other up would attract everyone to the biggest “platforms”. The winner(s) would take all, and it was not a question of if, but who.
Meru, TaxiForSure and other cab services would soon find themselves spectators in the Ola-Uber war-dance. Ola raised another $40MM in early 2014, having doubled its cab supply. Uber, according to Mr. Aggarwal, would be too premium for India (tellingly, the story also mentions “no plans of global expansion” for Ola).
Within 4 months, Softbank would come calling with a giant $200MM investment, and become a key figure in Ola’s growth story. Ola was growing more than 100% annually and became a unicorn in the process. With Ola Mini and Prime already launched to tap a wider Indian segment, Uber would soon follow up with UberGo and truly throw its hat into the ring.
The game was on, but not before putting Uber through a ringer.
All ride-sharing services, due to Uber, were banned in Delhi at the end of 2014, sparking a debate on their legality. Under pressure, TaxiForSure was acquired by Ola in 2015, in no small reason due to regulation and Ola’s expansive capital chest. Ola raised $400MM and had expanded to 100 cities while growing 10x on its driver network to 100K in a single year.
Uber would respond with a suit on Ola while pushing its number of cabs to 150K and expanding aggressively. Unperturbed by a global anti-Uber group, Uber would run neck to neck with Ola. As the market would scale from 1MM rides/day in 2015, to 2MM in 2016 and 3MM in 2017, Uber would continue to claw market share from Ola.
Ola was even written off by some commentators in 2016, after Uber sold its Chinese business to Ola’s investor and “group-mate” Didi Chuxing. Along the way, the company had failed experiments with bike taxis, grocery delivery, Ola fleet, shuttle services, TaxiForSure. Things seemed to have hit a nadir by 2017 when Ola was marked-down by Softbank, in a down-round.
The company also got into a very public dispute with Softbank, where Ola created board structures and rights to limit Softbank’s control. Sachin Bansal’s recent board appointment to Ola, after his ouster post-Walmart, is a big stakeholder to keep “Softbank at bay”.
Things would soon begin look up, as the company would show its ambition and resilience while combating a generally slowing cab market.
As the ride-hailing market grew to 3.5MM in 2018, Ola would command 56% of the market, with greater depth and reach than Uber. The company’s expansion would be driven by the slowdown in India’s market. It expanded into Australia and New Zealand. The acquisition of FoodPanda would be an interesting addition to Ola’s evolution. Ola Money would pick up rapidly, and so would Ola Auto. Ola’s classic ambition expansion had now converted it into something bigger than “just” a ride-hailing service.
Ola had now become a full-fledged platform to get you “anything, anywhere” (like Uber)
Scooters? Check. Medicines? Check. Food? Check. Autos? Check. Cabs? Check. In terms of cab-economics, which are a beaten to death analysis, adding these additional services expand customer lifetime value. Ola has acquired customers (through an acquisition cost) due to its cab service and is now increasing how much an average customer spends on the platform.
If you thought the $6Bn ride-hailing ($1.5Bn in fees) market was big, how big would this new market be?
The food delivery market is rapidly growing beyond $1Bn, e-pharmacies at $3Bn, and scooters and autos adding another $1Bn. In the search of empire-building growth, Ola is simultaneously pushing on two ends of the Ansoff matrix. At one end, it is taking new products in the domestic market (autos, food, scooters), while it is taking the core product to new markets (New Zealand, Australia).
In a few segments (e.g. autos) Ola outdid Uber, and in a few markets (e.g. tier 2 in India) Ola executed better. Big, robust companies are born out of riding through difficult times, and Ola had both regulation and competition stacked up against it. Despite increasing losses, but faster-increasing revenue, I believe Ola has scaled to truly be a global company.
Ola could be looking to build an empire much larger than just providing every Mumbaikar with a cab.