Overseas gambit: Ola has to identify a need gap to attract drivers, clients

As the ride-sharing platform goes beyond India, it has to identify a need gap to attract both drivers and customers

Just over a week ago, online cab aggregator Ola had a soft launch in Perth after announcing plans to go overseas with Australia this year, even as it faces a stiff challenge from Uber back home in India. As part of testing its service, the ride-sharing platform is offering free rides for a start to Perth-based customers, besides gathering feedback from the patrons as well as its driver-partners on improving customer experience and services.

As it eyes markets beyond India, the question is what will it take to ensure a successful foray and what are the challenges that it would need to meet. While Ola declined to comment on its operational strategy in Australia, experts suggest it has to identify the need gaps of its clients to offer better value than the available alternatives.

Sudhir Voleti, assistant professor of marketing at Indian School of Business, says multi-sided platform businesses including ride-sharing ones face a set of fundamental challenges arising from the same structural factors, namely their “matchmaker” business model. Ride-sharing platforms have to match inter-dependent demand between two “sides”—the franchise takers or drivers and their vehicles who sign up on the platform, and the app-using customers.

Such a platform has to therefore overcome the challenge of attracting both sides “simultaneously”. “One can’t focus on one side and then another simply because any one finds no value on the platform in the absence of the other. This ‘parallel-isation’ of efforts to build the platform compared to relatively ‘serialised’ or sequential market-making efforts possible in traditional businesses is relatively more difficult, something important to appreciate when evaluating multi-sided platform businesses,” he adds.

The principal challenge, according to Voleti, is estimating the critical “local” mass of drivers and customers needed in each city in a country that Ola enters. Next, it has to find drivers and customers to sign up in numbers that meet the critical threshold, and finally ensure they engage in transactions in frequency and intensity (or monetary value) enough to make it worthwhile for both sides to remain on the platform.

According to reports, Ola has a network of over one million drivers across 110-odd cities in India, and 125 million users. The company, which began operations in 2011, has faced growing competition from Uber which entered India market in 2013, with both companies said to be neck and neck in terms of market share.

Anil Kumar, CEO, RedSeer Consulting, points out that Australia has been chosen by Ola because unlike India customers are ready to pay much higher. So, the company doesn’t have to burn cash in day-to-day operations. Also, Ola enjoys a brand recall in the Indian market as well as for the diaspora in Australia that it can leverage.
 

When it comes to regulatory environments across nations, the big question according to Voleti is whether the new market has tighter or easier regulations than at home. If they are tighter, the firm has to additionally grapple with legal and, importantly, cultural differences between the organisations at home and in the new market. Australian states have been legally more favourable to ride-sharing services compared to some other nations.

“Ola is taking a good risk in trying its hand at the Australian market. If a firm can survive and thrive in India’s competitive private sector environment without any direct or indirect state support, then it has the DNA of a formidable competitor in other, less price-sensitive markets with better infrastructure,” says Voleti.
 

Former Meru Cabs chief executive officer and industry expert Siddhartha Pahwa argues that an international venture could bring benefit in terms of acquiring a global customer who could opt to use the same platform in different countries, a model Uber has built its business on.

In terms of challenges, given that Australia is a very different market compared to India and taxi being a local business, it isn’t necessary that the insights that Ola has gained in India could be replicated there. Second, the war in India is still not over, and both Uber and Ola are looking to consolidate. Consumer and driver loyalty has not been fully established in India, says Pahwa. In such a scenario, Ola has to be conscious about the possibility of Uber taking a larger pie of the market. Third, he suggests consolidation would happen in the taxi industry. “With SoftBank becoming the largest shareholder in Ola and slowly building its portfolio in Uber, I don’t know how Ola’s expansion overseas plays out strategically from SoftBank’s point of view. So, the investors will drive some of the decisions.”

Pahwa also argues that the penetration as well as frequency and repeat usage in India are significantly lower than what it should be. Therefore, if companies believe the Indian market is saturated and they need to venture abroad they are wrong. “The number of vehicles bought for private use is much higher compared to the number bought for taxi services in India. Therefore, a great growth opportunity lies for companies to change customer behaviour to their advantage in India.”

New Frontier

• A key challenge is to estimate the critical local mass of drivers and customers needed in each city Ola enters
   
• If a market has tighter regulations, it has to additionally grapple with legal and cultural differences
   
• Because of market differences, it isn’t necessary that insights gained in India can be replicated abroad