Why Ola-backed Vogo believes short-term rentals can change India’s bike usage habit
Anand Ayyadurai, Co-founder of bike-rental startup Vogo, wants to break up the love affair between Indians and their two-wheelers. For a company that has just 4,000 bikes on the road serving up 30 lakh rides per year across three cities, that’s a tall order, especially given how bikes, mopeds, and scooters fill every nook and cranny on Indian roads (and pavements too).
Indians bought a whopping two crore new two-wheelers in 2018 alone. Despite this staggering number leaning towards owning two-wheelers, Vogo, founded in 2016 by Anand, Padmanabhan Balakrishnan, and Sanchit Mittal, has every intention of changing the dynamic in favour of rentals.
Why Vogo thinks it can replace two-wheeler ownership
Vogo is a dockless bike rental service, which means you can pick up a scooter from anywhere and drop it off once you’ve reached your destination. These scooters have internet of things (IoT)-enabled sensors that allow customers to access the bikes without a key or any human intervention, just through an app. Users are charged Rs 5 per km for upto 12 hours.
“In India, two-wheelers are a natural choice for most consumers. We wanted more people to use the same vehicle,” Anand explains. In theory, this would reduce the number of bikes on the roads and in parking lots.
He adds, “We also want to discourage users from keeping the bike, because if they do, it doesn’t allow more users to use the vehicle.”
Statistics indicate the need for exploring rental for two-wheelers in India. Tarun Davda, Managing Director at Matrix Partners India, an investor in Vogo, explains that privately owned two-wheelers in India are idle for 80 percent of the time. This means that they serve a specific need at a specific time.
Then there’s the cost factor. Indians, Tarun points out, spend twice as much as people in other large markets on personal transport because public transport does not provide comprehensive coverage, nor is it easily accessible. This is a big reason why Indians depend on personal vehicles, and two-wheelers are the cheapest, most effective solution for commuting.
Assuming a ticket size of $1 per trip for trips made using private transport, scooter-sharing is a $2 billion annual opportunity in India – and rapidly growing, Tarun says.
“Vogo is re-imagining scooter ownership and making it an on-demand solution. From a customer perspective, this offers the advantages of being quicker, significantly cheaper, and more convenient than other modes of transport, without the hassle of having to own an asset,” he adds.
While Vogo has competition in the likes of Bounce, ONN Bikes, and even Rapido, Tarun points out that the company has grown over 20x in scale in the last nine months alone. With zero wait time, Vogo offers a quick and affordable option to Indian consumers for their daily commute.
Experimentation, the way to go
Vogo started off using a docked model – a user had to come to the centre to pick up a bike and then drop it off at the same place or another centre. Scaling such a model meant investing in real estate to set up more centres, hire more employees, and deploy more infrastructure.
“Along the way we realised that a large opportunity lay in allowing people to pick up the vehicles and then drop them off anywhere. We realised this wasn’t creating scale nor were users using the bikes for short rides. The usage was mostly during weekends and for a period of more than 24 hours, but they didn’t give us the scale we needed,” says Anand.
What they needed to scale was for the bikes to be used for shorter time periods – less than 12 hours, which would allow the bike to be used by more people.
Tech to the rescue
That’s when they developed a locking mechanism that did not require a physical key – an IoT-based sensor and dockless keypad. In fact, the tech team is the largest one at the startup, having grown from five to 60. It is tasked with the responsibility of making the device work in a more efficient manner, and a key focus area for this team is vehicle safety.
“We have built additional features like anti-theft of vehicle parts like the mirror and petrol. We have been able to thwart the theft of petrol completely. Our patent-pending technology allows us to track distance traveled, hours of usage, and determine petrol consumption,” says Anand, adding that they have developed a technology that can even track the bikes despite low network connectivity.
The business model and how EV can make it better
While there is huge scope for bike-sharing, it is a tough business where the unit economics are currently broken. Anand believes this can be overcome: “The business actually is fairly simple and the unit economics is easy to crack, especially if you shift to an electric vehicle (EV) structure.”
The bike sharing business, he says, is all about the asset, just the way food delivery is about logistics. “The idea is to maximise the usage of that asset, while maintaining its quality and bringing in high supply,” he adds.
According to Anand, petrol costs work out to Rs 1.75 to Rs 2 per km, and maintenance another Rs 1.5 per km. This is besides the cost of the asset and add-ons, which is another Rs 1.5 per km. This comes to a little more than Rs 4 per km. So, a charge that’s higher than Rs 4 per km means that you generate a profit. Vogo charges Rs 5 per km.
“That we already are doing, and have operationally broken even in some areas,” says Anand. This cost can be reduced further if the fleet switches to EVs. Electricity as fuel brings down the cost to Rs 0.5 per km, which means the rental price for the customer can be brought down to Rs 3. The maintenance cost of EVs is also lower, which provides headroom to generate a profit.
Vogo is already experimenting with over 200 electric bikes in the Bengaluru suburb of HSR Layout. It currently charges Rs 3 per km.
Vogo’s electric scooters work on swappable batteries. The company is working with over eight vendors to increase the supply of bikes, and has big plans to scale up the fleet over the next three years.
This is where VC funding and the backing from Ola come into play. Vogo has raised $100 million led by Ola. The strategic investment was made to help boost Vogo’s supply, by investing in 100,000 scooters.
Further, the fund-raise also allowed Vogo’s offerings to be available on the Ola app. It has also raised close to Rs 63.15 crore (around $8.8 million) from Matrix Partners India, Stellaris Venture Partners, and Kalaari Capital, as well as the family office of Hero MotoCorp’s Pawan Munjal.
“We believe the company with the most vehicles will have a competitive advantage. And that is what our focus is on: to get over 100,000 vehicles on the road by the end of this year,” Anand says.