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Two By Two Fri, 02 May 25 |
An abridged, narrative version of the latest episode of Two by Two, The Ken’s premium weekly business podcast. |
Who will be the next Blusmart?. There is a Blusmart-shaped hole to be filled in the cab-hailing business
| 5 min read |
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India’s ride-hailing market, once a comfortable duopoly, has seen a slew of challengers emerge over the last decade. Now, there are nearly half a dozen big players and many more smaller operations.
Everyone’s positioning is just a little bit different, but the big promise remains the same: clean, reliable, affordable rides.
To Indian commuters’ endless disappointment, however, few have managed to deliver all three, all the time.
But that was Blusmart’s whole schtick. And it promised to do all that in an environmentally friendly way with its 8,000-strong fleet of electric cars.
Well, the ride-hailing platform is now in the news for a whole different thing—an operations shutdown and co-founders who are accused of misusing company funds. The Ken has already written about the tangled relationship between Blusmart and the founders’ other publicly listed company Gensol Engineering before, so we won’t delve too deeply into that.
Instead, in this week’s episode of the Two of Two podcast, hosts Praveen Gopal Krishnan and Rohin Dharmakumar asked a different question: who will fill the gap that Blusmart has left behind?
To help us answer it, we had two wonderful guests on the show. Vikas Bardia, co-founder and CEO of Bengaluru-based startup Shoffr, and Arpit Agarwal, investment partner at Blume Ventures. Of course, before we got to the big question, there was a lot of ground covered—from how best to finance ride-hailing operations to why most companies in the segment struggle to succeed at scale.
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Debt financing all the way
Debt financing is usually the way to go for any company with high capital expenditure. And this is especially true for fleet operators like Blusmart.
Purchasing too many cars with money you raised isn’t that great in the long run, noted our guests.
Vikas: It’s just not a good usage of capital.
Rohin: You’ll just be acquiring assets.
Arpit: You will be diluting yourself too much.
Their point is: if you spend all the money you raised from investors on just buying vehicles, how will you run day-to-day operations? And if these are EVs, you also have no sense of their secondary market value—which in any case is a question for many years later, after you’re done sweating the assets to their maximum.
The fact is, a debt financer is not going to put pressure on you to grow rapidly, unlike some VCs.
Vikas: Debt investors, at the end of the day, are just like a bank. They care about getting the EMIs.
They don’t care whether we are growing 5X, 10X—which, in a way, is great.
Because as long as I’m paying their EMIs, they get to see that track record, then that confidence builds more, and then they lend you more.
Of course, this is only an issue if you want to control every part of the experience. Most Uber rides and Namma Yatri trips are completed by drivers who own the vehicles themselves, but the trade off is that this sometimes comes at the cost of cleanliness and the comfort of your customer.
Operator, not marketplace
Vikas: When we [Shoffr] entered the space, I knew that inherently, this is not your typical VC playbook. You have to think of building it differently.
The distinction between being an operator and marketplace can end up dictating your journey in the sector. You can only scale rapidly by onboarding third parties, such as tying up with multiple fleet operators and driver partners. And that means you become a marketplace, an entity connecting vehicle owners and customers.
But marketplaces also need a cut for maintaining all the infrastructure. So after the initial days of burning money to acquire and retain users, you have to start charging more. And that is where most struggle to break through.
Rohin: This looks like a common-sense business. From the smallest—just one to two cabs—to 20 cabs, to 50 cabs, cars on rent, etc., all these make money…
But the biggest, most successful businesses in the world, like Uber or Ola. They don’t.
It just seems to belie logic. If the smallest can make money… I mean, how does the curve get inverted? The larger you get, the more successful you get.
Arpit: One cab operator makes money. A 20-cab operator makes money. A 100-cab operator makes money. A 1,000-cab operator makes money. So basically, the cab business can make money.
The challenge is when you run a business that follows the principles of software, marketplaces, and network effects to a large extent.
You need the network effects to get to a particular level, which is called density. And when you get to a certain density, you start to turn profitable. VC funding allows you to attempt something like this. If there were no VC funding, there would be no Uber.
It only happened because you attempted it. Because VC funding allowed you to do this and sustain losses for a while, till you could turn profitable. Without VC funding, it wouldn’t be a large company called Uber.
Hence, your argument is right: a small company makes money.
Why can’t a large company make money? A large company, if you operate with the way Vikas is operating at 500, at 1,000, even 50,000, he’ll continue to make money.
Because that’s the mindset you’re allowing.
You’re saying, I’m an operator.
Uber is saying, I’m a marketplace.
Very different ways of looking at it.
Back in October last year, we released an episode titled How will Ola and Uber avoid ‘death by a thousand cuts’?—a broader discussion on how insurgents stepped in and took away the thunder from the incumbents. One of our guests in that episode, Nilesh Sangoi, made an interesting point about profitability in the cab-hailing business. The marketplaces can’t fulfill their tall promises of clean, reliable, affordable rides at scale because they are not responsible for maintaining the cars on their platform. So maybe not going big isn’t such a bad idea after all.
As for the answer to the question—“Who will fill the gap left by Blusmart?”—you will have to listen to this week’s episode.
Write to us with your thoughts and suggestions at [email protected].
I’ll see you next Friday!
Regards,
Hari Krishna
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Hari works as a producer and researcher on Two by Two and First Principles. He’s from a “little village in Kerala where nothing much happens”, enjoys reading books (although he loves buying them even more), and appreciates films—be it on Netflix or Criterion.
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