Ola finds small cities profitable despite low penetration, expansion planned

Cab aggregators such as Ola and its American rival Uber are fighting a marketshare battle, burning millions of dollars, to shift the taxi business into their fold. However, the numbers show that a lot is yet to be done.

“The potential (in small cities) is huge and we are trying to find out ways to penetrate deeper into these geographies,” said Pranay Jivrajka, chief operating officer of Ola.

Ola is fighting a market share battle against its American rival Uber (HT Photo)

Cab aggregators such as Ola and its American rival Uber are fighting a marketshare battle, burning millions of dollars, to shift the taxi business into their fold. However, the numbers show that a lot is yet to be done.

RedSeer Consulting, which tracks the consumer internet business, pegged cab aggregators penetration at 30% in large cities. In small cities, its in single digits.

Ola has presence in 102 cities, many of which are tier-II towns. Uber on the other hand is present in only 26 cities.

But Jivrajka is not worried. In fact, large cities continue to drain out Ola’s money -- driver incentives and discounts are cash guzzlers. “Throwing in a lot of money is the only option,” he said.

In smaller cities the situation, especially the economic one, is different.

Drivers, Jivrajka said, are happy with Rs 15,000 to Rs 20,000 of income every month. That’s a fourth of what drivers in large cities want. Also, the realisation rate, which Jivrajka doesn’t disclose is higher, making it easier to break even. “80% of the cities are profitable because there is no uneconomical competition,” he said.

The utilisation of the fleet is less. For example, in Ranchi, where Ola has signed up more than 500 cars, only 25% to 30% of the cars are used every day. Jivrajka said there is “mathematics” behind it based on “demand and supply”.

Small cities also have other problems -- fewer smartphone users, low data spending and lack of internet connection -- all of which are drivers for Ola growth.

Over 80% of Ola’s business comes from large cities, especially the metros. However, Jivrajka feels that the shift will happen soon.

Once that happens, sources said that Ola will expand to more cities. The source added that expansion is in the pipeline as the company doesn’t want to miss an opportunity to grab marketshare.

According to data from Truecaller, 85 million calls were made between Ola Cabs and its users. Uber’s totalled up to 29 million calls.