Ideology and Inertia of two Indian unicorns
Both SoftBank-backed OYO and Ola have an asset-light business model based on partnership. However, that is not the only similarity between the two. Over the years, both have struggled to balance the desire for top line-growth with the camaraderie with its patrons. Amidst Bhavish Aggarwal raving over Ola’s GMV recovering beyond its pre-Covid levels last year, it encountered sporadic protests across India due to driver discontent over dipping earnings. Ritesh Agarwal’s vision to provide standardized and predictable experience to the budget traveler is captured in the brand promise to provide a clean room of a minimum specified size with AC, WiFi, and free breakfast for roughly INR 1,500 per night. He believes the competitive advantage would be driven by RevPar (Revenue per available room) and not ARR (Average room rent). The challenge faced by both these unicorns is the depleting patron-base with allegations of hidden charges and non-transparency. Question is, how would both the companies tackle the crisis to build a sustainable business model that can satisfy business partners without alienating customers? While OYO has made its pivoting strategy known to stakeholders, Ola is yet to disclose its own.
The Pivot
Ritesh Agarwal insists he wanted to be the principal and not just an OTA for the customers, 90% of whom are repeat or organic. The concept requires taking decisions as a “party”and not just being a facilitator. The other side of the scale are the property owners, who have united to file a case against OYO for levying hidden charges in the name of value-added services, penalties for late check-ins unilaterally and breach of contract when they wanted to end the partnership. The mindset of “Growth at any cost” led to a fracture in the foundation of their business model — partnership and not ownership — with losses mounting along with legal and professional fees. OYO changed its strategy to prioritize quality over speed. It has now focused more on the right hires across the ladder and made its portfolio lean, reducing the share of properties owned and focusing just on its core markets such as India, Malaysia and Indonesia. The OYO application has been re-jigged with newly introduced features based on feedback from patrons. This includes improving transparency in fixed commissions, value-added services and pricing strategy. Patrons will have a say in the pricing and may modify it within a broad range.
Ola’s business model promised the driver-partners monthly earnings in the range of INR 50–90,000. Compare this with an estimate that a sustainable monthly income for a driver is INR 25,000, for which he has to ply 150–170km everyday. High expectations have inevitably resulted in protests, which the company has been attempting to douse with benefits such as in-trip insurance programme. Recently Ola has banked heavily on technology to leverage data for understanding driver behavior pattern for improving productivity. Though there is no directional change of strategy for Ola, industry experts believe evolution of a self-sustainable model can only resolve the problem of discontent on driver earnings. Supply exceeds demand in the metro cities of India, leading to a challenge in maintaining turnover for the drivers. It might make more sense for the long-term, to let drivers make their sustainable share of income before Ola claws in 20–25 percent of the share.
Interpretation of ideology
Ideologies of both OYO and Ola centre around the words “Affordable” and “Standardization”. In a business with a broad customer-base, trust defines success. However, it need not come at the cost of exponential growth. While OYO has clearly defined its pivot strategy to re-gain confidence of property owners, it still has to win over the skepticism and increasing competition. OYO has bet heavy on technology to move the end-to-end experience for patrons on its application. Ola, which serves 2 Million rides a day and has a Million driver partners in its core business, Ola cabs, is yet to come up with a plan. With ride hailing terrain becoming increasingly competitive, it will depend on how Ola dishes out a value proposition attractive yet sustainable in the long-run.
