When to Invest in the India Tech Scene

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I’ve been watching the India startup scene and I think that there are a few observations to be made. The consolidation in SE Asia has just begun due to the high burnout rates and not delivering the valuations that the startups need. First, Lazada was bailed out by Alibaba, which is a very smart move by Alibaba as they get control of the SE Asia e-commerce market and a big platform on which to expand. Temasek, which owns large stakes in Alibaba and Lazada, helped broker the deal, which is exactly the type of consolidation we were expecting in the region.

The same will now happen in India. Admittedly, I’ve not been especially keen on India tech scene because it is the first big wave of home grown on-demand & delivery tech in India following the models established in the US.

This first, new wave that is occurring is where companies learn to scale, and the infrastructure in India matures to cope with an on-demand, delivery economy. Silicon Valley companies are really 4th generation companies, taking advantage of 30 to 40 years of scaling experience and talent. India is just starting off on that curve, migrating from a tech economy which was largely about building things for others, to now building for themselves. Early investors did incredibly well in India; they were bought out by later stage players like Tiger and Sequoia coming into the country. Watch though, these later stage investments will not do as well. Flipkart and others are already seeing difficulties.

However, this doesn’t mean Flipkart goes away. It is very possible that Flipkart is the Alibaba of India, or that may be yet to come. It just means that consolidation will continue to happen, in which later stage investors will lose out on the positions they took in the last 2 years.

But, the India startup scene will bounce back very strongly once consolidation happens. The next wave of bright new ideas and startups will happen – hopefully ones that go beyond the e-commerce and marketplace sectors.

I would wait to invest in India until the next round of seed companies in India start raising in late 2016, or even more likely in 2017 with smarter teams, lower costs and more experience about what works. Plus, taking advantage of the infrastructure helped build the first wave. What do you think is needed to make a successful second wave?

Are you watching any startups in India currently? Let us know what you think about investing in India startups below.

Free Basics, Net Neutrality & Economic Discrimination

Free Basics – formerly, Internet.org is Facebook’s initiative to provide free, but limited Internet to the developing world. Last week, the Times of India reported that India’s telecom body asked Facebook’s partner, the wireless carrier Reliance, to cease the service while it determines whether operators should be able to price their services based on content.

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Mark Zuckerberg emerged from his paternity leave to pen an op-ed article in the English-language daily. Basically, he can’t believe that India isn’t grateful for it. I, myself am still deciding whose side I am now, but let’s take a look at his response to figure it out.

The first time I breezed through his article, I could pick up on the annoyance. On the second read, I realized how Zuckerberg sees India, where about a billion people are not connected to the Internet, as backwards for even questioning Facebook’s charitable endeavor.

“Who could possibly be against this?” he asks passive-aggressively. “Surprisingly, over the last year there’s been a big debate about this in India.”

Even though net neutrality is an issue in the United States as well, Zuckerberg makes it more of a first-world problem, such that it doesn’t apply to India because limited service is better than no service. Net neutrality activists are arguing that Facebook and its telecom partners are gatekeepers, deciding which websites can be accessed for free. While Facebook could add more telecom partners to open up the number of sites and services Free Basics users could use for free, it only has one partner in India.

Zuckerberg does acknowledge that Free Basics does not provide people with access to the full web, but sees it as a step in the right direction. He claims that half of the people that come online for the first time by using Free Basics, buy full internet access within 30 days.

He even tells the story of a farmer named Ganesh, who uses the free Internet service to check weather updates and commodity prices. He asked, “How does Ganesh being able to better tend his crops hurt the internet?”

Something that Zuckerberg failed to address is that zero-rated services like Free Basics amount to economic discrimination – poor Internet for poor people. In the Times of India in October, net-neutrality advocacy group Savetheinternet.in quoted Tim Berners-Lee, father of the internet, as saying: Economic discrimination is just as harmful as technical discrimination, so [internet service providers] will still be able to pick winners and losers online.” Facebook’s walled garden could very well determine the sites and services that will succeed in India.

What do you think?

 

What is Uber Doing in India?

Uber has been having a rough time in India, but how bad is it?

Economics of the Uber Drivers:

  • Drivers are intelligent. They are aware of the economics and the politics of auto drivers
  • They are honest and call each trip a duty. However, they are prone to “abusing the system” which I will get to later.
  • The current economic situation is not normal and they are scared of things changing
  • Most of them are on other networks like Ola and TaxiForSure, there is no loyalty to Uber other than the money
  • They will tell you they’re being mercenary. They know that if you pay X, they get 3X and Uber pays for the rest.Uber-Pune-Car-Fleet

Economics of the Uber Business:

Uber is often preffered because it is cashless through PayTM or credit card. Ola’s cashless system uses Ola Money, which is a waste of time because you can’t use it anywhere else. Drivers might even cancel your trip if you say you’re using it. PayTM offers cash backs on purchases that you can use towards Uber.

Uber says that it has the lowest fare in Bangalore at Rs. 7 per km, but they actually charge Rs. 13.5 per kilometer.

So, should you just get a car instead? The annual costs of having a car are much smaller now. If your car gives you 12 kms to a liter of petrol at Rs. 1 per kilometer, you are still paying only Rs. 5.5 per km for petrol and maybe Rs. 1 for parking. There is also the convenience of owning a car – getting groceries from hypermarkets that won’t deliver and driving your kids to school.

There is another reason why a car is better. Uber cars are not always available when you need them. Wait times are over 10 minutes most of the time unless you are in a very popular area. There are also a lot of surge prices, which Uber is known for.

So let’s go back to the driver. For 12 rides a day, he gets Rs. 1200, plus a Rs. 100 per ride incentive, plus Rs. 100 per ride as fare which equals almost Rs. 1800. Then he pays Uber 25%. That comes out to Rs. 3500 per day. However, most drivers claim to make about Rs. 2,000 per day so that’s around Rs. 45,000 per month. After the EMI, fuel costs and service, he is left with Rs. 20,000.

uber-e1409187758464Economics of Uber’s Marketing Expense:

  • Uber only gets what you pay, which is about Rs. 150 per ride.
  • After my calculations, Uber still have Rs. 1,200 per day of net losses
  • For 12,000 drivers, that’s Rs. 15 million per day or $250,000.
  • That’s a los of $7.5 million per month in Bangalore alone.

In my opinion, Uber needs to reduce incentives and increase charges. They need to increase them by at least 2.5 times just to break even. Will the Indian market pay that much?

Want to Enter the Indian Market? Create an App

To me, mobile apps are the best and easiest platforms to create and particularly for a country like India where mobile phones are everywhere with a huge customer base – why wouldn’t this be the perfect opportunity? Let me explain some of my reasons first. I have narrowed it down to 5 simple ways that mobile apps are the way to enter the Indian market and be successful.

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Minimal Cost of Infrastructure

By adopting an app only strategies and making your customers trust in their experience, you have the advantage of getting rid of managing multiple digital properties. You can cut the cost of maintaining, upgrading and optimizing website and mobile channels.

Individual Experience

Interacting with an app is much more personalized with features such as saved preferences and customer’s preferences. You can even get updates according to your best interests. These design thinking apps that add to the user experience are the real game changers.

Learn Your Customers

Indian customers are known for not being very loyal and extremely price sensitive. Thus, with a large competition pool, it is very important to be the first choice of the customers. By using an app only strategy, you can reduce the options to click for customers and you become a choice rather than an option.

Fill the Holes

There is a huge customer base that is accessing your app from offices, homes and restricted network areas. By having the faster, more simple and mobile solution, you help your customers complete the purchase journey whenimagesever they want, from wherever they want. Netflix is understands and is making their move on India, too.

Easy Payment

Building off of making purchases on the go, the actual payment process is such an advancement. By storing credit card information, apps are a major facilitator for smart purchasing. The ‘Buy Now’ button is now imperative for any app.

I did write this thinking about the Indian market, but it should not be limited to just one country. The entire continent of Africa is dotted with areas that are exploding in business. With this, phones and service are becoming more available for everyone. With this, these same five principles can serve for this entire customer base as well. Apps are fast and simple, all you need is the right idea and an understanding of your customers to be able to affectively market and advertise.

How To Connect More Users

Even though mobile phones are almost global, only about 12 percent of people in emerging economies have data connection. What is even more surprising is that 4.3 billion people still do not have access to the Internet.

These unconnected people are living in countries that have underdeveloped economies with digital infrastructure that is lacking as well. However, there is huge growth potential if there could only be connectivity. I believe that with the right ICT and strong policies that are in support of innovation and fair competition, these countries can connect their people to the rest of the word and narrow the digital divide.

download (2)Most importantly, a broadband infrastructure with wider coverage and faster speeds must be developed. These countries need to see that broadband is the critical foundation of national infrastructure that will only increase economic growth and raise the standard of living.

One way that the infrastructure could be built is by Public-Private Partnerships (PPPs). Malaysia has already done this – regulators created a framework that ensured competition with equal access. The result? The cost of digital entry for citizens was decreased, fostering innovation and competition among service providers – very successful, in my opinion.

While these networks are being launched, telecom operators need to keep costs low. They could do this by sharing optical fiber and infrastructure with power and utility companies. When you take a look at the deployment cost, burying the fiber optic cables and conduits underground is usually 40 percent, but can be up to 70 percent of the total cost. These high costs make the Internet access more expensive to its end users.

There should also be new mechanisms for allocating radio spectrum that can increase supply while also reducing the cost. This is actually a very important issue because most of these countries will have to increase their available spectrum (the basis for high-speed mobile broadband) from 50 to 100 percent over the next five years.

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Something else that would help are the development of more applications to aid their lifestyle. Apps are what drive the demand for connectivity and create new business models. M-KOPA for example, allows Kenyan households with no electricity to purchase their very own solar power system and make daily micro-payments. If the government can create a level playing field that lets entrepreneurs to devise new solutions without having to worry about monopolistic competitors or too much regulation, there could be great benefits to local users.

It will take governments, operators, technology providers and application developers, but we can connect everyone in the world and we will.