 |
Growth Strategies of Ola: To Diversify or Not
EXCERPTS
TAXI SECTOR IN INDIA
The taxi sector in India was largely unorganized with individual drivers owning their cabs or small operators owning a fleet of cars. Cab owners ran the cabs after getting the requisite approvals from the authorities. A few tour planning companies owned a fleet of cars which they rented out to tourists and business users. The lack of an organized service meant that Customers often faced a lot of difficulty. By the early 2000s, some companies started operations in the organized taxi sector. In 2001, two startups, Mega Cabs and Fast Track Taxi, started their operations on a limited scale. By the year 2006, the organized taxi sector started gaining momentum with the entry of some new companies into the market like Meru Cabs, Easy Cabs, and Savaari. During the first phase of the evolution of the organized taxi market in India, the companies owned a fleet of cars and hired drivers as full-time employees. Owning the cars resulted in high capital costs to the companies in the form of investment in cars and maintenance expenditure... |
|
INITIAL EXPANSION
After its initial success in the Indian market, Ola started receiving funding from investors. In April 2011, it raised US$ 330,000 in its initial round of funding from a group of angel investors . This was followed by big ticket funding of US$ 5 million from Tiger Global Management. It used the initial funding to expand its services to more cities across the country. Ola received more funding in subsequent rounds of funding (Refer to Exhibit- I for the funding rounds of Ola)...
DIVERSIFICATION FOR GROWTH
In the year 2014, Ola had a market share of 60 percent in the Indian market (Refer to Exhibit- III for market share of different online cab operators). By early 2015, it had a revenue run rate of US$ 450-500 million per quarter. The company expected to increase its gross revenues to US$ 1 billion by the second quarter of 2015. However, Ola was still not making any profits. For the fiscal year 2012-2013, it reported a loss of INR 228 million which increased to INR 342.2 million for the fiscal year 2013-2014. Ola wanted to use the new funding it received from investors to expand into smaller cities and fuel its growth...
OUTLOOK
Major taxi aggregators like Uber had the goal of ending car ownership by making it expensive to buy and maintain a car than using their services. As very few people owned cars in India when compared with the western markets, Ola could easily make it redundant for its Indian customers to buy their own cars. The success of taxi aggregating services in India and other countries was already threatening to disrupt other sectors of the economy like automobiles. Commenting on the threat posed by taxi aggregators like Ola on the sales volumes of automobile companies, Anand Mahindra, chairman of the Mahindra Group , said, “The age of access being offered by taxi hailing apps like Uber and Ola is the biggest potential threat to auto industry. Since these apps operators have made transportation a commodity, (auto) sales could be hit and volumes get impacted.”...
EXHIBITS
Exhibit I: Funding Rounds for Ola
Exhibit II: Screenshot of Ola App for Mobile Devices
Exhibit III: Market Share of Different Online Cab Operators (figures in percentage)
Exhibit IV: List of Services Offered by Uber
