How would you characterize the relationship between Ola and its drivers? Include (a) drivers who ?work directly for the company and earn a monthl

Ola: A Ride-Hailing Service Providing a Business Platform for Riders and Drivers

One of the impacts of globalization and digitization has been the rapid pace of urbanization. It is expected that by 2030, 60% of the global population will be living in cities (United Nations, 2014). One key issue with rapid growth is the challenge to mobility of urban populations. Developing countries like India have more issues with people mobility compared to developed countries in the West such as the United States and the UK due to lower penetration of public/shared transport services. The advent of digital technologies has opened up opportunities for entrepreneurial innovation around platform-based organizations.

The Ola business model is platform-based. The company has created a technology platform (Android application) which offers mobility services to the users by connecting mobility service providers and riders. Platform-based organizations have flourished since the advent of smartphones and Android applications. Their business model, generally speaking, is to create a technology platform with brand visibility among service providers and users and then connect both, charging a commission for this facility. Platform-based organizations have come into existence across various sectors including education, healthcare, and ecommerce. The platform offers an advantage to both service providers and users. The service providers get high visibility and access to a wide range of potential customers. Similarly, the users can view the multiple service providers available to them, assess quality-based ratings given by other users, and compare the cost and quality of services from the comfort of their home. Thus the platform-based organizations offer users both convenience and transparency.

How Ola Drivers Are Paid

As part of its strategy of ensuring fleet footprint across the markets/cities where it operates, Ola identifies its driver partners, including bikers, auto rickshaw drivers, and cab drivers. The higher the number of driver partners, the better the market penetration for Ola. The company has varied employment arrangement with drivers based on the vehicles they operate. In the case of bikes and auto rickshaws, it has only one type of engagement. The vehicles are owned and operated by the drivers-cum-owners. Ola directs the requests from riders to the drivers and charges commission for facilitating the business to them. In this way the drivers function as gig workers.

In the case of cars, however, Ola has two different types of engagement. The first model is commission based and is very similar to the bike riders and auto rickshaws. The cars are owned and operated by drivers. Ola facilitates connection between the riders and drivers and charges commission. In the second model, the vehicles are owned and operated by Ola and the drivers work with Ola either as full-time employees or as gig workers based on the company’s needs. The regular employees have their compensation bundled into both fixed and variable pay. The variable pay is structured by performance incentives linked to two key parameters: number of kilometers clocked by the driver versus the target; and billing income generated versus the target. The gig drivers do not get fixed compensation but purely performance incentives linked to the distance in kilometers covered and billing income generated. The incentive is staggered—that is, the more the driver clocks, the greater the performance incentive payment.

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Before on-boarding the driver-partners, Ola carries out a rigorous check of their credentials (address verification and criminal history), as well as validating their licenses and the ownership details of the cars, to ensure safe rides to its customers, who trust the Ola brand. The users are offered a variety of mobility options through an Android/IoS app (described in the Product and Service Innovation section below). Ola takes bookings from the customers/travelers through the Ola app and directs them to the drivers, based on their GPS location, to ensure quick service turnaround time (TAT) for the customer.

Ola takes a commission on the bookings carried out through its app. The following components are factored into the final bill of the consumer:

• Base fare—charged at flat rate. • Distance fare—computed according to the distance traveled by the consumer. It varies across cities. • Ride time fare—calculated based on the time taken for the ride. • Peak pricing—based on the demand for the cabs. • Service tax at applicable rate (currently 5.6%). • Swacch Bharat tax levied by the government towards maintaining clean India (currently 0.2%). • Toll collection charges—if the passenger were to cross the toll gate as part of the journey.

Several strategies and initiatives of Ola have been helping it improve its top and bottom line. The financial performance for FY 2019 was better compared to FY 2018. The operational revenue increased from INR 1,847.50 crores to INR 2,543 crores, while the extent of losses reduced from INR 2,842.30 crores to INR 2,593 crores. The total expenditure also went up from INR 5,066 crores to INR 5,385 crores. On the contrary, the driver-related expenses reduced from INR 2,393 crores to INR 1,750 crores (Tyagi, 2019). From a logical perspective, the driver expenses should have gone up in proportion to the revenue. This indicates that Ola ended up paying less to the drivers, while it earned more in revenues.

Ola has been diversifying its revenue sources over the years. During FY 2019, the highest share of revenue came from commission income and convenience fees (INR 18,888.13 crores), followed by lease income (INR 484 crores). The other sources of revenue are marketing and royalties (INR 85 crores), income from data charges (INR 58.57 crores), and subscription income (INR 27.20 crores) (Tyagi, 2019). Ola has an opportunity to scale up its revenues from lease income. Typically, drivers pay higher interest to lending agencies (e.g., banks, non-banking financial companies (NBFC)) if they negotiate individually. Ola, on the contrary, can lend to the drivers from its own funds or through tie-ups with financial institutions. This kind of arrangement offers multiple benefits for Ola: first, Ola receives lease income from the drivers, in addition to commission income; second, it binds the drivers to Ola and discourages them from migrating or operating in parallel for a competitor such as Uber. This ensures a dedicated fleet for Ola in the marketplace. Performance Incentives and Driver Unrest

From the outset, Ola understood that its competitive advantage lay in gathering as many drivers and cabs as possible into its fold. This strategy would help it to have a footprint across the markets. The key in cab hailing services business from a customer perspective is to have access to cabs at a place and time of their convenience. As a result, Ola paid heavy commissions to its drivers initially. The original set of drivers reportedly earned as much as INR 1 lakh per month. This created a positive buzz in the market (among cab drivers and others as well), leading to increased interest in being a business partner with Ola. Several drivers (and those from other professions) took up the lease lending facility offered by Ola and signed up as driver partners.

After a decade in existence, Ola has come under pressure to show a profit from the investors, who have invested USD 3.5 billion so far. The venture capitalists have benefitted in terms of appreciation of their investments (current valuation of Ola stands at USD 6 billion) but are keen that the company turns around its financial performance to register operational profits. The losses for FY 2019, though less severe than in the

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previous year, have been a matter of concern and focus both for Ola and its investors. The lion’s share of losses accrued from transportation (INR 1,623.7 crores), followed by food (INR 709.3 crores), leasing (INR 206 crores), and wallet (INR 13.76 crores) (Tyagi, 2019).

The losses in transportation can be attributed to the fact that Ola was spending more on the transportation business than it earned due to higher operating expenditure. Part of the reason includes the high commission it was paying to the drivers in its bid to attract and retain them. The business strategy adopted by Ola to penetrate and strengthen its position in the market has now become a millstone around its neck, forcing it to review its arrangements with drivers. Alongside that review has come a larger-scale review of the company’s entire business strategy (Bhalerao, 2021). From this several insights have emerged, including the following:

• The core competence of Ola lies in managing a platform that offers mobility services and not financial business. This is demonstrated by the fact it was incurring losses in leasing operations. It would be better for Ola to move out of vehicle leasing and have a partnership with a financial institution such as a bank or NBFC.

• Ola launched its Wallet service with the idea of funding part of its working capital with the wallet money that customers pay in advance without any interest. Given the fact it has incurred losses in this area and also that India already has a number of payment applications (e.g., Google Pay, PayTM), it does not make sense for Ola to continue the service.

• Ola ventured into the food business by acquiring Food Panda, a startup with cloud kitchens. The idea was that mobility and food delivery businesses can be synchronized. The losses during FY 2019 forced the management to revise its strategy and as a result, Ola has scaled down its food delivery operations since March 2019, laid off the manpower working in the area, and explored the possibility of selling its ownership of the cloud kitchen to either Zomato or Swiggy.

After establishing itself in the market and capturing the market share, the next major focus for Ola was to improve the bottom line (profitability). Ola has started lowering the commissions payable to drivers and, like its close competitor Uber, has progressively reduced the incentives over the last few years. Incentives as a proportion of total ride value have come down from initial highs of 62% to 17% by 2017. This has created a lot of anxiety among the drivers, as they could hardly make both ends meet in their lives. With earnings as low as INR 30,000, they found it difficult to manage the equated monthly instalment (EMI) payments towards the vehicle, repairs, and maintenance costs.

According to Tanveer Pasha, president of Ola, TaxiForSure and Uber Drivers and Owners Association, “When Uber and Ola came to India first, they assured drivers something like Rs 100,000–150,000 per month. But now, drivers are earning just Rs 20,000 every month, of which Rs 5,000–10,000 goes for EMI.” The earnings of both online and offline drivers have come down significantly. The online drivers get their riders through the Android app of Ola, while offline drivers get their riders through the Ola helpline. In a country like India where Internet connectivity and bandwidths have issues, users can book a cab using their phone by calling the helpline number.

The average monthly income of online drivers has reduced from 2017 to 2019 (USD 400 in 2017, USD 350 in 2018, USD 300 in 2019). On the contrary, the earnings of offline drivers remained steady in the range of USD 240–260. Part of the reason can be attributed to the fact that riders who book their rides using the Android app tend to shift their loyalties for reasons such as not getting a ride in promised timelines or longer wait periods, while users who do not have access to information on wait periods etc. tend to be more satisfied and loyal.

The Drivers and Owners Association has accused Ola of unfair trade practice by altering the terms of contract leveraging to increase its commission from an initial 5–10%, subsequently to 15%, and currently in the range of 20–25%. In addition to reduced income, driving for 12–14 hours continuously has taken a toll on drivers’ health, due to pollution, heat, irregular food consumption timings, and lack of sleep. Some have complained

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of only getting 2–3 hours’ sleep. This has taken the sheen off the profession of being a driver with Ola and other cab hailing services.

Total monthly earnings for driver = INR 620 * 30 = INR 18,600 Monthly maintenance of vehicle = INR 1,000 Monthly EMI payable to Ola = INR 5,000 Net earnings per month = Total monthly earnings – (Monthly vehicle maintenance + Monthly EMI) – INR 18,600 – (INR 1,000 + INR 5,000) = INR 18,600 – INR 6,000 = INR 13,600

An average Indian driver’s family comprises two adults and two children; it is implied that the driver has to take care of living expenses like house rent, food, education, and health needs of his family on a meagre income of INR 13,600 per month. This has led to major discontent among the drivers across the cities, as many are unable to make a basic living wage driving for Ola.

To improve its operational efficiency and profitability, Ola has started to increase its own fleet of vehicles and to employ drivers on monthly wages. The gig drivers have accused Ola of giving preference to its own vehicles in allocating the bookings. This has reduced the overall number of bookings shared by Ola and has impacted drivers’ earnings and incentives, further compounding the problem.

The drivers have gone on strike across major cities including Delhi, Mumbai, and Bengaluru. There have been reported incidents of vehicle damage for drivers who plied their trade in defiance of the strike call given by the Drivers and Owners Association. However, the strikes have not been successful. Several drivers have either logged out of cab hailing services altogether or are planning to leave the Ola network.

As a consequence, Ola has suffered heavily across all cities for want of a sufficient number of vehicles to meet customer demands. In cities like Mumbai, it has suffered even more. Frequent arguments can be witnessed at places like Mumbai airport, as customers are promised a pick-up at the arrival counter in 10 minutes, but the cab arrives only after 45 minutes.

There are reports that the government is contemplating limiting the percentage of commission charged by cab-hailing platform companies to a maximum of 10% and allowing drivers to take 90% of the earnings. This move, if implemented, may seriously impact the earnings and financial viability of Ola as well as other similar businesses.

Impact and Insights

The combination of factors such as lower incentives to drivers and inability to service customer demand for vehicles h.as resulted in a loss of consumer confidence in Ola. Consumers have stopped looking for cab- hailing services and have reverted to other forms of mobility such as self-pooling of vehicles or selfdriving. This has impacted the demand, which in turn has resulted in lower revenues. According to the Indian Automobile Industry, overall sales to driver-partners have only numbered 20,000 vehicles in 2017, representing a 35% drop in sales volume as compared to the previous year, and just one-fifth of the sales volume of 100,000 in 2016. This is bound to impact the operational effectiveness of Ola in terms of both top and bottom line.

This raises a couple of questions, such as whether Ola tried to do too much too soon, and how its downturn will impact the fledgling cab-hailing industry in India. This has an impact on the overall Indian economy, as a large section of the population reverting to personal transport results in greater pollution, rise in carbon gas emissions, higher fuel import bill for the nation, and increased incidence of stress-induced lifestyle diseases (e.g., diabetes, hypertension).

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Discussion Questions

1. How would you characterize the relationship between Ola and its drivers? Include (a) drivers who work directly for the company and earn a monthly wage, (b) gig drivers, (c) business owners who themselves own/manage their own fleet and employ drivers, and (d) offline drivers.

2. Why is it important for Ola to take care of the interests of its drivers and fleet owners? 3. What are the challenges faced by organizations in structuring compensation and benefits for their

drivers? 4. What is some possible ways Ola might change its profit-generating strategy and take better care of

its drivers?