Thursday, April 9, 2015

Ola, Money and the Business Model

Ola and start-ups similar to that, attracted (and continues to attract) big ticket investments from foreign and domestic investment vehicles. Backed by IT infrastructure and GPS, Ola is riding on traveller’s need for economical, reliable, comfortable and safe travelling options. One of the big factors working on their favour is the absent state machinery (read traffic police and other related departments). After all who don’t want to escape from auto drivers’ hands, most of whom won’t ply by meters and says the first imaginary number coming to their mind as fare?

However, after seeing global funds’ hunger for picking up these stocks I am a bit confused. Do these companies business model really have such sky high valuations or are we going to see a 2000’s type IT boom and bust cycle?

My worries are,

1. The amount of money they burn each month. After all, the company is paying the difference to the driver (User is paying some 10 INR/km, which is lower than the amount Ola pays to the driver)
2. Driver don’t need to feel any loyalty towards Ola. If Uber or Maxicab is offering higher discounts, they can simply switch to the other one.
3. User also may not feel any loyalty towards Ola. They can also make a switch to other one, if it offers a better deal. This trend is already there, while buying electronic equipment, recharging mobile, buying books etc.
4. Unlike Flipkart or Amazon, which are also building up infrastructure, physical infrastructure is absent in Ola’s case.
5. It is still not clear how long it will take to witness a consolidation in market.

Even though this article is talking about Ola, it is not limited to Ola but applicable for all those service companies who offer services but don’t have any control over underlying assets/infrastructure.

I hope that all those companies do have a great business model and become profitable very soon.


No comments:

Post a Comment