A less-than-perfect circle

There have also been departures at the very top of the leasing unit. Ola hired ex-SABMiller India MD Shalabh Seth as CEO of its leasing business in January 2017. Seth left Ola within just a year, with no public reason given. Calls and texts to Seth went unanswered. However, the automotive industry source stated that Seth was sold the idea that leasing will be the mainstay of driver-partner supply. When he realized this wasn’t going to happen, he checked out. The same source says that Seth’s predecessor, Rahul Maroli, also struggled with the business. Maroli is now vice-president of Ola’s rental and corporate distribution operations.

Loading money

Despite the struggles, Ola continues to pump money into its cab-leasing unit. Despite car seizures. Despite loan defaults. Ola Fleet Technologies received debt funding to the tune of Rs 1,000 crore ($156 million) from YES Bank in September 2017. In addition, Ola also pumped multiple capital infusions into Ola Fleet. All told, it put 7X more money towards scaling Ola Fleet in 2017 than in 2016. Ola refused to comment on the numbers of leased cabs currently active in its fleet.

While the leasing unit did generate a revenue of Rs 98 crore ($14.3 million) in the year ended March 2017— almost 17X more than what it made a year prior—it made a net loss of Rs 70.91 crore ($10.3 million), 5X worse than the previous year’s.

Perhaps some part of Ola’s willingness to continue backing its cab-leasing model is the fact that it’s seeing improvements in other areas. According to a product manager with Ola, the company’s effective net take rate (ENTR), or earnings after paying incentives and other costs have finally turned positive. Ola currently charges a uniform 25% commission fee per ride. This was achieved through data science-driven pricing.

High incentives were paid

The Ola product manager also confirmed that both Ola and Uber paid high incentives and ran attractive leasing schemes only to create the supply. “Now that we have acquired enough supply, the company doesn’t want to spend extra (costs), they have already had enough costs through incentives and subsidies,” he says.

However, this let’s-see attitude could yet prove to be a problem. While Ola is still tom-tomming the massive supply it has built, this same supply is starting to unravel.

One of the key reasons for both the leasing scheme as well as the incentives was to build loyalty among drivers. However, with the former tanking and the latter either being too hard to achieve or too small to matter, drivers are listing on multiple platforms; migrating freely between them in search of more passengers or better incentives.

An ex-Ola employee, who requested anonymity, said that only 15-20% of Ola’s drivers are exclusive to the platform. The remaining drivers are registered both on both Ola as well as rival services like Uber. This explains why you will sometimes see an Ola logo on your driver’s car even when you hail an Uber. Granting this even more legitimacy is the fact that aggregators can’t legally enforce platform loyalty among drivers, thanks to directives by various state governments.

Short supply, and high demand

And with loyalty in short supply, supply itself is suffering. The company is falling short of servicing at least 10-15% of daily demand, according to a Bengaluru-based consultant aware of Ola’s business operations, who requested not to be named.

The real beneficiaries of drivers becoming increasingly platform-agnostic are smaller players like ride-hailing company Meru and self-drive car rental startup Zoomcar. Meru, a company many believed was verging on obsolescence, has seen renewed interest both from individual drivers as well as fleet operators.

According to Meru CEO Nilesh Sangoi, Ola and Uber’s operators keep approaching Meru both for business-to-customer (regular ride-hailing) as well as business-to-business service. According to the ex-fleet operator mentioned earlier, many Ola and Uber fleet operators have begun listing their cabs on Zoomcar over the weekend to earn additional revenue.