Why Did Ola Stop Running Its Wheels In Foreign Lands And Turn The Gear To Domestic Markets?

Ola Cabs, the famous ride-hailing startup, is closing its ambitious worldwide business six years after its powerful start. The company operated in 40 cities across the United Kingdom, Australia, and New Zealand. According to sources, the company plans to close these operations and lay off staff in these regions within a week or so. The company started the process last week.

The ride-hailing business has begun sending out notifications to users about its impending closure, with operations in Australia slated to halt from April 12. The Australian media has previously reported on the closure of the company’s services in their country. The Australian Financial Review highlighted an email sent to the ride-hailing company’s drivers instructing them to remove all relevant labels and stop accepting bookings under its permits from April 12.

Meanwhile, the company has mentioned its decision to focus on electric mobility in the home market as one of the reasons for its exit from international markets. The ride-hailing company is fast expanding, and they remain profitable and segment leaders in India. The future of mobility is electric – not just for personal mobility, but also for the ride-hailing industry, and there is enormous promise for growth in India, the ride-hailing business said in a statement.

However, the exit of Ola from international markets is not a piece of fresh news; the same was anticipated a way back when it announced the plans to run its wheels in foreign lands.

After more than a year of struggling to establish a presence in international waters, the company shifted its focus to India, where it offers electric vehicles, two-wheelers, and self-driving cars in addition to its traditional ride-hailing service.

It was anticipated earlier by the experts that Ola’s international push may or may not be an appreciated move, specifically at times when the ride-hailing business has had a lot on its plate, including fighting off Japanese conglomerate SoftBank to retain control of the company, reducing attrition, slowing growth in daily rides, pivoting food delivery plans through Foodpanda, driver backlash, and chopping and changing its electric mobility plans. This was anticipated because of openly known problem of Ola founder Mr Aggarwal; his attitude of venturing into many buisness at once and them closing them when it fails.

An article from Business Standard in 2019 mentioned that the ride-hailing business may be prepared to suspend its overseas market expansion, according to two people familiar with the company’s operations. The two also stated that the company is delaying investment in its present overseas markets, the United Kingdom and Australia.

Ola planned to expand to the Netherlands, Kenya, Dubai, Israel, and Brazil. It was close to opening its Dubai operations, with executives visiting the city many times to speak with government authorities. In 2019, it was said that this action might still happen, but things are moving slowly there, stated one of the two people.   

Ola’s international development plans have been put into question as the company seeked to conclude a $2 billion financing round. It should be emphasised that SoftBank could have easily invested this amount in the company and was apparently willing to do so, but Ola co-founder and CEO Bhavish Aggarwal was willing to raise a smaller round from numerous investors rather than allowing SoftBank to increase its position and take over control of the company.

Aggarwal’s concerns stem from SoftBank’s efforts to discover mergers among its portfolio companies, including Ola’s rival Uber. SoftBank witnessed a failed combination of Snapdeal and Flipkart (Snapdeal is still recovering from the crash), and then Walmart acquired Flipkart, delivering significant profits to SoftBank from its investment, while Flipkart’s founders left the firm. By doing this, the ride-hailing business hoped to lower SoftBank from its current 26% ownership position to 23.3%.

Furthermore, worldwide expansion comes with a significant cost. It was reported that the company has already invested $60 million in its international activities after its launch. Furthermore, it was projected that international operations would account for more than one-third of Ola’s consolidated revenue by the conclusion of the fiscal year 2019.

What slew of challenges acted as nails and punctured Ola’s wheels in foreign lands?

Ola’s efforts to grow into developing international markets raised interesting strategic challenges. According to a former top executive, ride-hailing business activities in advanced regions such as the United Kingdom and Australia have decreased over time. It was terribly impacted during the pandemic and has never recovered since, he said.

Along with the all-out confrontation with taxi services around the world and a love-hate relationship with local authorities, TNC (Transportation network companies) businesses (Didi, Uber, Lyft, Grab, Ola, et al.) have been busy competing for market share. The emerging territorial order is mostly monopolistic (Didi in China, Grab in Southeast Asia) or a fiercely contested duopoly (Lyft & Uber in the United States, Uber & Ola in India). The projected outcome of this slugfest for many businesses is the prospect of long-term market dominance.

Ola’s launch into Australia and the United Kingdom was part of a larger strategy to compete with Uber in develop nations where the latter had an obvious advantage. The ride-hailing business made waves in the Australian cab business in early 2018, starting in six cities and adding 40,000 drivers in a matter of months. It then entered the United Kingdom and planned on beginning operations in London when Uber was banned there. Ola Cabs prioritised the UK market, particularly London, both for the value of optics and for business reasons.

Another reason for the international expansion was the opportunity to profit in higher-value currencies such as the pound and the Australian dollar. This, the logic went, would help to boost the company’s gross booking value and commission revenue. 

However, the route was not this easy!

A failed venture.

Ola started with high-profile hires. In 2018, Simon Smith, a former eBay country head, came to lead the Australian business. Ben Legg, who was previously the COO of Google Europe, has taken over as head of UK operations. The ride-hailing business assembled a team of 200 workers for foreign operations. However, within a year, the company experienced issues such as leadership exit and uncertainty about its future direction. Chandra Nath, whom the ride-hailing business had hired from Silicon Valley to lead the international operations, left before the firm had finished a year of international expansion.

Other exits followed. Legg left after less than two years, while Smith, who succeeded Nath as head of international operations, stayed for slightly more than two years. Before leaving, Legg experimented with a variety of projects, including introducing Bajaj and Piaggio autorickshaws to UK cities.

Ola made a big statement with its London launch in February 2020, led by then-COO Arun Srinivas. Covid struck out its intentions, and Srinivas left a few months later. Finally, its papers show that the UK operation never expanded and ended up as a very small business with minimal sales and a loss of GBP4.8 million in FY23. The ride-hailing business in the UK employs 23 people, according to its records.

Shutting down these markets might save ride-hailing businesses up to $15 million per year. In recent years, Ola has stopped hiring high-profile locals to run operations in advanced regions. According to one of the sources, a tiny crew at Bangalore headquarters managed operations remotely. In mid-2020, Ola engaged Marc Rozendal, CEO of Cab Guru, a small cab-hailing competitor in the United Kingdom, to manage its operations in the country. Rozendal continues, according to his LinkedIn profile.

Moreover, as AI enters every domain, how can the ride-hailing business be spared from its claws? This marks the arrival of the enemy.

Something will change radically in the TNC industry over the next decade (2020-2030). That brings us to the introduction of robo-taxis. The monopoly/duopoly would have to reorganise and reorder to accommodate these changes and the reality of a new lower-cost business strategy. 

An expert from LinkedIn wrote an article in 2018 about some figures that revolve around Ola and its probable actions. According to 2018 data, the cost per kilometre for a conventional taxi in developed markets is approximately USD 2.8 per kilometre. The driver bears 88% of these costs. No surprise there! According to the same analysis, the cost of an autonomous taxi would be approximately USD 0.4 per kilometre, which is 85% lower. This drop is primarily due to the absence of driver costs. Other factors, such as cleaning, keep the costs from reducing by the full 88%. Imagine how successful ride-hailing firms could be with such cheap expenses. 

Let’s return to Ola and its home market in India. In India, the cost per kilometre is far lower, around USD 0.3 or Rs 20. The percentage of the driver’s compensation is likewise significantly lower, possibly in the range of 30-40%. So, for a ride-hailing company, the economic value of autonomous driving in India is far lower than it would be in developed economies. Furthermore, traffic circumstances in India would impede the early introduction of autonomous vehicles into the urban traffic mix, as well as the threat posed by robo-taxis. Thus, the ride-hailing business may certainly survive and thrive in the domestic market for a few decades.

However, developed markets such as Australia, the United Kingdom, and New Zealand portray a different image. There, robo-taxis are likely to arrive sooner, resulting in a significant shift in the competitive scene. The key to survival beyond the next 5-10 years would be the implementation of autonomous vehicle technologies in fleets. Uber, Didi, and Lyft all have active programmes in that direction, with the goal of keeping a large portion of their intellectual property in-house.

Furthermore, with robo-taxis, the cars would be transferred to the books of TNCs rather than being leased/owned by drivers, necessitating major capital investments. This can be one of the big reasons that Ola claimed they wanted to ride in Domestic markets.

The bottom line.

It seems that Ola may not have the internal and external resources to do the following in quick succession, such as fund the costs of establishing itself in developed markets, work on autonomous vehicle technology in order to stay competitive in future, fund the vehicle purchases on its books for robo-taxis, etc. and that’s why it has returned towards domestic markets. This attempt can be appreciated by the company because it introspected its reach and before it completely melted down, it made an attempt to move in the route of profitability by riding in the domestic market.