Ola. vs. Uber – Welfare state.

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I suspect Ola will need state intervention to survive. 

• Ola looks to have become desperate as it appears to be pursuing a new round of funding at a valuation 40% below where it raised money just one year ago.
• This is just yet another sign of the malaise that has hit the Indian start-up arena as Flipkart has already run into difficulties resulting in lay-offs and management change and funding for Indian start-ups is down 50% compared to the first 3 quarters of 2015.
• This echoes exactly what happened in Silicon Valley during 2015 where much more attention was put on profitability and valuation after a series of so-called unicorns failed to execute on their plans.
• I think there is still plenty of money available for investing in India but it is now much more difficult to get one’s hands on it and founders will end up having to give more of their companies away.
• Furthermore, I think the departure of Nikesh Arora from Softbank has caused it to be far more passive in the region which has also had a knock-on effect on valuations.
• On top of this, Ola’s operational outlook is looking increasingly difficult because it no longer has a significant advantage in the Indian market.
• Car hailing is one of the best examples of a networked economy and just like classifieds it is extremely difficult to make money until one of two criteria are met:
  • First: one must has at least 60% market share or
  • Second: one must have double the market share of the next largest player.
• Earlier this year it was thought that Ola had 80% market share but when one looks at completed rides, it turns out this number is closer to 50%.
• To make matters worse, its chief rival Uber has roughly the same position meaning that two are likely to fight it out until one cracks.
• In the Chinese market it was Uber that cracked as it became clear that it would never be able to compete on a level playing field with Didi Kuadi (see here) but in India things are different.
• The problem that Ola faces is that Uber is much larger and better financed meaning that it will be able to compete aggressively and lose money until Ola goes out of business.
• Consequently, unless the regulatory landscape shifts more in favour of the local player (as in China), it looks like Ola will end up selling itself to Uber.
• Car hailing, like food delivery and all other online market places are winner takes all markets and there are no prizes for second place.
• As I result, I remain concerned with the long-term outlook for Ola and I would be very cautious at putting money in even at $3bn.
• If nothing changes, Ola is likely to end up being worth far less than that.