How Rapido is Beating OLA and UBER?

Introduction

Hi everybody, if you want to beat a billion-dollar company then this blog is for you because the story that I’m about to tell you today is the story of one of the smartest startups in the country. The story that I’m about to tell you today is the story of a small company called Rapido that managed to break into the powerful duopoly market of OLA and Uber. And while its dozen bike taxi companies emerged and perished. While even OLA and Uber backed on after failing in this segment Rapido today stands as a dominating force in the same segment. This segment that I’m talking about is the bike taxi segment, and today Rapido is doing so well that they do 4 rides a day have over 60,000 active riders and have an app download from 25 million customers. The question is how did Rapido manage to break into the big league of OLA and Uber? While all other bike taxi companies failed. What was their strategy? That enabled them to crack this non-existent market of India, and most importantly as students of business what are the business lessons that we need to learn from the rapid rise of Rapido?

This is a story that dates way back to 2015. during this time OLA and Uber had already established themselves. The JIO wave had almost arrived and every other company was jumping into the cab market of India. This is when the Rapido founders identified three important gaps in the market.

3 Important Gaps in the Market

1. Lack of a Ride Sharing Service in the Low-Ticket Segment

So, while OLA and Uber were great for cab services. The normal cost of the ride ranges between 200 to 400 rupees and the only ride-sharing service below this range were rickshaws. If you look at the per capita income of India it’s just 91,481 rupees a year which is 7623 rupees a month. So obviously only a minority of the Indian population could afford cab rides at 200 to 400 rupees. Even before the pandemic broke out if you look at the growth of OLA and Uber in India the growth slowed down drastically to just 4.5% and the rides per day peaked at 3.65 million rides. This clearly stated that there was and still is a huge demand for the 200 and below ticket size segment. The second gap that they identified was the

2. Huge Market of Two Wheelers in India

The huge market of two-wheelers in India which were very underutilized according to the insights. From an early investor at Rapido, there are 220 million bike owners in India and 20% of them are either unemployed part-time workers or students. The average bike utilization in a day is just about 18% more importantly the rear seats of 80% of the bikes on roads are vacant and lastly

3. public transportation in India is very slow and does not cover the most important locations as extensively or frequently as needed.

With the misery of traffic whether that is OLA, Uber, buses, or rickshaws. You will end up wasting a lot of your time and sometimes even hours. When it comes to two-wheelers, we all know how we are experts in using our two-wheelers to navigate through both traffic and traffic rules. This is where ladies and gentlemen Rapido came in. Now if you remember from our OLA case study the business strategy of these types of companies is quite simple

The first phase that these companies roll out is the cash drain phase wherein a company spends a ton of money to acquire the stakeholders for both demand and supply. In the case of OLA, they give us the customers insane discounts and ultra-cheap rides to download the app and on the other side, the drivers were given very lucrative incentives because of which both the customers and drivers were super happy. In these ways, we got cheap rides at our doorstep and the drivers made 50,000 to 60,000 rupees per month driving OLA cabs.

And then in the second and the third phase while the incentives of the cab drivers went down the cost of the customers started increasing but in this process, these companies incurred hundreds of crores of losses every single quarter.

OLA Driver’s Vehicle Trap

This is where the biggest problem in this model comes in whereby the drivers fully commit to OLA during the cash drain phase, they take up a loan for buying new vehicles, and for the next five years, they are tied with the vehicle and OLA for their primary source of income. It’s quite understandable because if you’re a blue-collar worker who’s making 20 000 rupees a month when you see your driver friends make 60,000 to 80,000 rupees a month it’s big enough an incentive to motivate you to leave your job take a loan and become an OLA driver.

But the catch over here is that with time these incentives started feeding away but the driver’s liabilities of the car which are loans and maintenance stayed. While an OLA driver’s revenue steadily dropped from 80,000 to 70,000 to 60,000. They still had to pay 15 000 rupees in installments for the car loans they still have to incur the RTO passing cost. Which costs around 40 000 rupees a year and then they have to pay around 6000 rupees for bi-monthly maintenance and eventually they end up making only 30 to 35,000 rupees in profits per month. This brought three major problems to the market

Three Major Problems of OLA and UBER

1. High Cash Drain
2. Decreasing the income of the Driver
3. Pandemic

Solution by Rapido

This is where Rapido very conveniently sailed over these pains and avoided these problems altogether. Why? Because they did not drain their cash into convincing the people to buy a bike and become a full-time driver at all. Instead, they tapped into the existing inefficiency with the already-bought two-wheelers in the market. And more importantly, Rapido acted as a secondary source of income for these drivers instead of the primary source of income. So, as I said before there are 220 million bike owners in India and 20% of them are either unemployed or part-time workers or students.

And this is where Rapido found its workforce. So, you know what? They designed their registration system and marketing such that practically anyone who had some free time could become a part-time Rapido captain and they started making anywhere between 200 to 500 rupees per day depending on their location time and pikers. And by the way, this is not revenue but their actual profits after cutting down on fuel costs. And all these factors together gave Rapido three major superpowers

Super Powers of Rapido

1. First of all, even if the Rapido captain does this full time the risk in comparison to OLA and Uber is extremely low. So, a huge number of captains jumped on board why? because the two-wheelers have very low maintenance costs and very high mileage
2. Secondly for the part-timers like students or the unemployed 200 to 500 rupees in a day is an absolute blessing with such a low barrier to entry.
3. The third benefit was that they did not have to roll out super lavish incentives to keep the workforce happy as a result the burn rate of Rapido during the cash drain phase was still extremely low.

And if you look at their funding history for the first three years until May 2018. They survived on a mere two-million-dollar seed funding. By the way all thanks to our super-efficient two-wheelers. The ticket size for these customers is so low that discounts matter less as compared to OLA and Uber rides.

The question over here is all of this could be done by other bike taxi companies also, right? So why is it that other companies and even giant companies like OLA and Uber couldn’t crack the market and Rapido did?

Why other companies like OLA and UBER Couldn’t crack the market and Rapido Did?

Well, this is where one of the most critical hurdles of the bike taxi market comes in which is regulation. Because in India you cannot have a wide number plate act as a taxi and in the motors act there is no provision for buying taxis. So, regulators did not permit bike taxis in several states and it became all the more complicated. This is one of the reasons why OLA Uber and others initially opted to create new fleets of yellow number plate bike taxis. So, in a way, a single regulation was changing the entire business model of Rapido itself.

But this is where the founder’s Indian jugaad mindset came in there were no Rapido branded t-shirts helmets or bikes and the transport authorities who went after these bike taxis mostly targeted only OLA and Uber because of their visibility. All this while most authorities didn’t even know that Rapido existed. Now obviously this wasn’t a long-term solution.

Bike taxi loophole that is used by Rapido

But here’s where they found a loophole you see the rules did not allow buying taxis but no rule banned vehicle pooling on a cost-sharing basis. So, you know what? Rapido positioned itself as a bike pooling service while operating under this positioning. Rapido and its investors went to the ministry of road transport and highways and pressed for legalizing the use of private bike taxi services, eventually, the committee was convinced and it recommended the states promote bike taxis. Now even though many of the states are still against this concept the regulatory heat has dissipated over the years, and Rapido’s daily rides have kept on increasing, and today it has over 25 million customers has 60,000 riders, and now it aims to serve over 50 million customers by the end of this year.

It does close to 20 million orders per month and there are 5 women riders and nearly 20% women customers today. As of now, bike taxi is its core category but they are also venturing into autos and delivery. This is how Rapido being a small company broke into the duopoly market of OLA and Uber and avoided their mistakes to become a pioneer in the bike taxi segment of India.

Now the question over here is with all the story what are the lessons that we need to learn from the rise of this wonderful efficient company?

Business Lessons from this Case Study (conclusion)

1. Tap the new market even if there are big giants

We need to learn from Rapido that whenever there’s a new market that opens up while big players often try to take giant pies out of the market. They often ignore the breadcrumbs and that could be your business opportunity. For example, while Amazon and Flipkart were fighting for electronics and fashion segments, NYKAA started small with personal care and today it’s a billion-dollar giant, in this case, while OLA and Uber were locking hands in the cab market, Rapido very cleverly tabbed onto the bike taxi segment lesson

2. Try to Minimize the Cash Drain

Every time you’re involved in a cash drain model in India you might entice the consumers to use your product, but when you use cash drain for your workforce it’s more likely to collapse after a certain point because you’re creating unrealistic expectations. so as much as incentives are necessary it’s very important to not create unrealistic expectations. In this case, we saw how Rapido is very careful with cash while OLA and Uber promised the moon to the drivers

3. Prove the Concept and then Scale

I as an entrepreneur love the fact that these Rapido guys first operated under the radar and got proof of concept. Proved it to the investors that this market deserves investment, and then went on to scale their business you know it just speaks volumes about the JUGADU spirit of the entrepreneurs

so now all we need to do is wait and watch how Rapido collaborates with SWIGGY and achieves Profitability.