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Mobisy: The algorithmic jugaad company that refuses to die

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But Bhise and his self-professed geek co-founders couldn’t figure out a way to earn enough through the platform. With hardly any money left to pay salaries, Bhise came clean with his employees. “We have less than two months of salaries left in the bank. If we are to survive, we cannot pay you for the next six months,” he told them. His four co-founders left and found new jobs. All but two of his employees left as well. Everything he had built over the last three years was gone.

“But I’m not done yet,” Bhise told his wife. They had been married eight years, with two kids, aged seven and five. Worse, Shree Kulkarni, his wife, had quit her job with IBM years ago. He half-expected her to tell him to take up a job. Instead, Kulkarni surprised him. “You may be good at technology, but you have no idea how to do business. I’ve been looking through your accounts. I’ll let you continue with your startup only on one condition—I will join you to take care of it,” she said.



It was more instruction than the offer, Bhise realized. He agreed.

And just like that, the mild-mannered software engineer and young father went from excruciating guilt and stress at the failure of his first startup, to doubling down on it with his wife in tow. This would be the first of many contrarian decisions Bhise and Mobisy would make. Or be forced to make.

Born again

On 21 May, Mobisy, a twice-reborn avatar of the company that Bhise was shutting down in 2010, announced that it had raised $3.5 million in its Series A funding. The investment was led by SIDBI Venture Capital, a wholly-owned subsidiary of SIDBI, a government-owned bank chartered with lending to small businesses.

Mobisy’s current avatar makes Bizom, a SaaS (software as a service) offering aimed at industries that distribute and sell consumer products via the millions of mom-and-pop Kirana stores across India. Industries such as consumer packaged goods (CPG), auto parts, electronics or fashion. Bhise claims Bizom is used by over 120,000 end-users across 300 customer brands like iD Fresh, Parle Agro, Jyoti Labs and Hershey’s.

Five million

The number of unique retailers that Bizom’s reach extends to.

It competes with other specialized sales force automation and customer relationship management tools like Accenture’s NewsPage, StayInFront, eBest and Ivy Mobility.

“We’ve been using them for six-seven years now. We use them for sales and tracking, order automation and also for suggestive ordering,” says Musthafa PC, the co-founder, and CEO of packaged fresh food brand iD Fresh. Suggestive ordering for iD Fresh means being able to predict what products to stock at each of the 20,000 stores that stock its products based on years of past sales data, weekday patterns, seasonality, etc.

Bhise says Bizom’s differentiator is its speed and flexibility. Unlike its competitors, it was developed as a software platform from day one, allowing it to be configured and taken live for a new client in under two weeks. Bizom’s speed of implementation also accidentally opened up a new source of business growth—large consulting companies doing transformational work with retail brands. Such engagements typically run for a year, with the consulting companies increasingly responsible for delivering measurable value by the end of it.

As a result, for a B2B sales company, Mobisy does no outbound sales at all. All of its growth is generated via referrals and inbound leads, upselling to existing customers, or via channel partners who recommend it to their clients.

But getting here wasn’t easy.

 

Unicorn blues: The unbearable lightness of being Hike

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Question: How can you tell that a unicorn startup is in trouble?

Answer: When it starts conjuring up make-believe metrics to tout success/traction.

Take a Hike, for example.

In August 2016, the instant messaging startup founded by Kavin Bharti Mittal raised $175 million. The funding round was led by Chinese behemoth Tencent and Taiwanese manufacturing company Foxconn at a valuation of $1.4 billion. At that time, the Hike was only four years old. It was the fastest Indian startup to enter the exalted unicorn club (startups with a valuation of $1 billion or more).

Since that euphoric high, though, the company has largely flattered to deceive.

In a recent blog post, Mittal laid out a new metric for the company—DAU LTV (daily active user lifetime value). According to the company, this metric attempts to answer the following question:

Returning users

“What % of our user base comes back to our app for how many days in a 7 day period?”

At first glance, “DAU LTV” might sound like a fair metric for a social network/instant messaging company, but it is meaningless at best and grossly misleading and disingenuous at worst.

Why so?

Individually, DAU (daily active users) and LTV (lifetime value of a user) are by themselves excellent and well-regarded metrics. DAU is an absolute figure that reflects user engagement while LTV is usually a dollar figure that attempts to capture how valuable each user is to the company. But combining the two is like cross-breeding a chimpanzee and a goldfish—it is neither meaningful nor desirable. What’s more, the dimension that this combined metric is said to measure—percentage user engagement over a period—is neither goose nor gander, and has little to do with DAU or LTV.

More importantly, this metric fails the basic test of every good metric. The value of a metric is to provide a ready reckoner of a company’s health—a short-hand to capture and represent its trajectory. Against this requirement, DAU LTV neither informs nor does it capture the company’s health. If anything, it provides a misleading picture of the same.

How so?

In his blog post, Mittal claims that they have “a tremendously active platform” as “a majority of users come back to the app > 5 days out of 7”. Ostensibly, this metric will further rise to show ever greater levels of engagement.

But what this figure obfuscates is that the primary reason for showing a high level of engagement is that users are abandoning the platform.

In the 18 months since its last funding round, Hike’s daily active users (DAU) metric has fallen by a whopping two-thirds—from 23 million to 8 million, according to app market tracker App Annie.

Network effects

The first set of people leaving a social network are typically the marginal users—folks who hardly use the platform. This continues progressively until the only users left are the most loyal ones.

Given that these users are, in any case, the most engaged on the platform, metrics such as a number of visits and time spent would naturally be the highest.

So, when the company says that “the average time spent is about 25 minutes, with the best users spending close to 40 minutes”, it obfuscates the fact that this metric is high because the overall user base and engagement is dwindling.

In contrast, the metrics that the company hasn’t announced publicly actually gives a truer picture of the state of the company.

The overall user base isn’t just dwindling. It is hemorrhaging at an alarming rate. According to App Annie, in addition to the sharp fall of DAUs, monthly active users (MAUs) have declined by more than half—from 37 million to 18 million in the same period.

Not only are these numbers alarming in absolute terms, but they are also alarming in percentage terms as well. The current ratio of DAU to MAU (8 million out of 18 million is 44%, a marked decline from the 62% (23 million out of 37 million) it was at eighteen months back. Even among the users who are still on the platform, usage is falling.

The frightening part for Hike is that it could fall further still.

 

 

The Blume conundrum

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Problems don’t come in a straight line. When they come, they come in slow. They come in fast. They come in all at once. From decisions taken years back.

From calls made yesterday. Flying in from all directions. Thick and fast. Bringing with them a perplexing mishmash of thought—some parts, decisiveness. Other parts, doubt. Long stretches of maybes. There are few places in this world where this state of existence is exemplified more fully than a venture capital fund caught in the middle of raising and returning a fund. Like Blume Ventures.

Bull. Horns. Timer.

Let’s enter the ring.

Who is at fault here?

It has only been a couple of months, but there is a sense of disquiet. There is talk that Blume, one of the most active venture capital firms in India, has slowed down. It isn’t cutting new cheques like it used to. As part of its Fund II, Blume had raised $60 million from investors in India and outside the country in 2016. Of that, the firm had earmarked $16 million to be deployed in new companies.

Or first cheques. Three years into investing, after a total of 45 investments, that money is over. Not that it ran out all of a sudden. Since early last year, the firm has been asking the team to slow down, cut fewer cheques, ensure that the money lasts longer. But it just didn’t happen. The brakes failed. So now, while Blume is meeting founders, listening to their stories, asking for their pitch decks, doing subsequent meetings, when it comes down to committing, there’s nothing on the table. No money. Sorry. Let’s talk in a while.

This is a problem.

Karthik Reddy, the co-founder of Blume, says it’s true but definitely not a surprise. This has happened before. When Blume raised its first fund (let’s call it Fund me) and spent it all too quickly. But the firm got lucky when it raised a small, top-up fund of around $4 million (let’s call it Fund IA). It used some part of this money to invest in five new companies.

Usual self plus

“So it happens. It is temporary.” That’s Reddy speaking. His candid, usual self plus a sore throat. Dressed in a grey tee, jeans, and sandals. His iPhone kept face down on the table. “I understand where the team is coming from, but they need to understand something as well.”

What?

A simple rule—in the business of venture capital investing, a fund must deploy new cheques in the first three years of its life.

What is the future?

Anything later and planning for exits becomes much more challenging. [We will get to exits in just a bit] “This comes with the risk that I don’t have money for new cheques for three to six months when I am in between raising funds, which takes time,” says Reddy. “The team will come, saying boss, this is a good company, it is going away, what is this? There is no money. I say, who is at fault here?”

Reddy doesn’t stop. “All of us no? If you had delivered me the exits, I would have raised the money. Now you can’t hide in the shadows and say it is your job to raise the money. Of course, it is my job. I am sharing carry with all of you. [Carry is earned by partners of a fund after it has returned money to investors. It is a percentage of the profits, usually 20%] Your annual goals are taking the company to the next level.

That’s the KRA (Key result area). Take the companies to the next level because that is the marketing material for my next fund. Not that the company has grown 3X in revenue but can’t raise a single dollar. Or can’t get sold. If you are asking that I go and raise the fund in three months, show me the performance. We are all collectively responsible.”

 

Developing the multiple ideas to achieve a goal

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Companies are now pushing out a few thousand cycles often focused on tech parks, universities, and business-centric neighborhoods of a few cities, establishing a customer base in relatively controlled areas as they try to branch into trickier ones. Yulu is up and running in Pune and Bengaluru, where Amit Gupta says they have 4,500 cycles across both cities and an average of 15,750 trips per day.

Some of those trips happen at Cessna Business Park, where Yulu operates about 100 bicycles, 60 of which are designated for employees of networking hardware company Cisco. Gupta says around 85% of those cycles get ridden each weekday.

Launched with the bikes

Chartered Bike has 38,000 users and plans to soon have 4,000 cycles on the road, up from 500 in June of 2017, according to Executive Director Sanyam Gandhi. Mobycy CEO Akash Gupta said they launched last August with 100 bikes in Gurugram but now own 2,000 cycles across four cities, where he says they have 125,000 users who ride those cycles 7,000 times per day.

He wants 40,000 cycles across 8-10 Indian cities over the next six-nine months, dropping different numbers of cycles in different places, depending on the demand. PEDL has cycled in nine cities across the country, according to its website.

Compared with the giants of the industry, these numbers can seem precious. Mobike claims 9 million cycles and north of 200 million users across 200 cities, and the $928 million it’s raised makes the $500,000 raised by Mobycy look bad. But in India, the terms may be much more level than those numbers make it seem.

What are the priority markets?

All that capital and expansion hasn’t made Mobike profitable, and the pressure to flood markets across the globe has led to a full-on retreat for Ofo, the other Chinese cycling giant. Ofo has fled cities across the globe where the company says regulations have hindered sustainable growth, and they’ve remained in what they’re calling “priority markets,” which often seem to be larger cities with at least some established cycling cultures, such as New York and London. The plan, they say, is to reorient themselves toward making money instead of being everywhere at once.

“In the early phases of this, the companies were all fighting to win by getting big, so you kind of had to grow,” Jeffrey Towson, an investment professor at Peking University, told The Ken. But bicycles cost money, and now that a select few startups have claimed a spot atop the international order, Towson said investors are probably less inclined to dump money into cash-guzzling growth.

Multiple requests

Ofo, which didn’t respond to multiple requests for comment, has drawn back its India operations from several cities to just one, Pune—a city where its future is unclear.

Mobike India CEO Vibhor Jain didn’t sound any different from other operators when he wrote in an email to The Ken that the company started by sending 2,000 cycles into Pune, and, for now, is focused on expanding there. They’ve deployed a portion of their bicycles on the campus of the Maharashtra Institute of Technology, the results of which Jain called “very encouraging,” though he wouldn’t give specific numbers about ridership or rate of growth. Beyond Pune, he said Mobike wants to have a presence in “at least 10 cities in the next 18 months.”

Whether anyone’s expansion plans work may well depend on how city governments envision the future of urban transit.

Here’s the ideal cycling infrastructure for any Indian city, or any city anywhere, as laid out by Anne Lusk, a Harvard University research scientist who’s done a lot of research on bicycle facilities and policy: There should be lots of cycle lanes, and they should be interwoven with each other and other forms of public transit, so commuters can travel seamlessly from bus to bike to train, or however they get to work and back.

These lanes should be lined with trees that shade cyclists and keep the asphalt from broiling in the afternoon sun, and which creates a barrier between bicycles and all the vehicles with motors. Once these lanes are built, make sure they stay cycling lanes. That means no motorbikes, no parked cars, no vendors.

Swiggy 2.0: Bigger. Bolder. Better?

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There’s really no other way to say it. Swiggy is taking the food-tech war to the next level. The company is shifting its strategy. From operational fine-tuning, reactive responses and focused execution to an ambitious, risk-taking, possibly market-disrupting approach.

Looking beyond the food delivery market, Swiggy is gearing up to launch a more general delivery play across three categories—grocery, alcohol, and medicines. This is the story of Swiggy’s transformation, but it’s not a story that begins here and now. Its first chapters were written over a year and a half ago.

Growth of the food-tech market

By the beginning of 2017, the food-tech market had consolidated. Two players remained— Swiggy and Zomato; locked in a battle for control of the food-tech space. It looked like battle lines were drawn. Swiggy was becoming the destination for food delivery. Zomato was the preferred option for food and restaurant discovery. It looked like the market would be split down the middle between them, and everyone would go home happy.

Then Zomato Infrastructure Services happened.

In February 2017, Zomato launched Zomato Infrastructure Services (ZIS)—their cloud-kitchen service to help restaurants. Nine months later, Swiggy responded. In November, Swiggy launched Swiggy Access. Access lets restaurants lease out kitchen space in Swiggy-owned cloud kitchens. Swiggy took it one step forward though. Access also housed two of the company’s private labels—The Bowl Company and Homely. By owning inventory and the end product, Swiggy reasoned that it could improve profitability. It was a good plan—one that could give it a leg up.

Then Zomato launched a subscription service—Zomato Gold.

The reception to Zomato Gold was like a bomb going off. Less than three months after its launch in early 2018, it had racked up over 150,000 subscribers and partnered with 2000-plus restaurants. Nobody had expected a subscription service to get such a massive reception. Once again, Swiggy had to respond. They took their time, but finally, two weeks ago, they bit the bullet by launching their own version of a subscription service. Called Swiggy Super, it offers free delivery on all orders and no surge charges.

By all accounts, Swiggy is tired of responding. It now intends to define the food-delivery war on its own terms.

Expanding the services

The four-year-old startup has realized that food delivery alone won’t help grow its user base. Which is where its new general delivery offering comes in. It is Swiggy’s attempt to go from being a habit to a lifestyle. Swiggy’s ambition is to make its app a habit-forming destination for users. Food-ordering, after all, happens only once or twice a day. At best. Swiggy sees general delivery as a way of increasing usage. In short, Swiggy is trying to get you addicted to itself.

This isn’t a half-measure. Swiggy is also trying to figure out how to make the addiction profitable for itself. The first bit might be easy. The second isn’t. Indeed, the move comes fraught with risk. Swiggy’s logistics operations—which it has built from the ground up—will help the company in its quest to diversify its use cases.

But the grocery delivery space is littered with stories of companies that have tried and failed. The ones that have survived in the grocery space, such as BigBasket and Grofers, haven’t found the going easy either. In both cases, they had to drastically revamp their business models to survive in the space.

So why, despite all these cautionary tales, is Swiggy forging ahead with these plans? What does it hope to achieve? Will its core competency of food delivery translate easily into these new spaces? And what must it do to succeed? Many questions, some easier to answer than others. Both for onlookers as well as Swiggy.

 

A business model that is neither goose nor gander

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Currently, OYO’s business model runs in two streams. A 100% inventory model and a fully-owned hotel model.

Contrary to what Son would like you to believe, OYO doesn’t actually operate the hotels in which it has taken up 100% inventory.

This is more of a commitment around occupancy than a complete take-over of operations. While this allows OYO to operate in a relatively asset-light model, the flipside is that the company has little to no control over day-to-day operations.

Refusing to honor though

Social media is riddled with cases where hotel owners refuse to honor OYO bookings or the hotel conditions and amenities are not in line with expectations.

The fully-owned Townhouse model affords the company full control over the hotel experience, but given that these are largely greenfield projects, involve major upfront investments to set up the hotel and an asset-heavy model to run operations.

It also means that scaling up from tens to hundreds of hotels is a daunting challenge. Even today, OYO only has 38 townhouses in total.

What this means is that contrary to Son’s attestation that like Google and Facebook, OYO will reach profitability with scale, the fact of the matter is that these models are hardly comparable.

Unlike pure digital plays like Google or Facebook which can achieve significant economies of scale, for the likes of OYO, each additional room added comes with a cost – both for setting up as well as for managing and maintaining. Apart from the thin sliver of costs attributable to consumables (which is just a few percentage points of the overall costs), there are no significant economies of scale awaiting OYO.

Already giving competition

But like Son claims, an AI (artificial intelligence) delivers a competitive edge to OYO? Can “43 million micro-optimizations per day” help OYO price its offerings better? It might have helped if OYO was the market-maker but in industries like hotels and especially in the low-end segment that OYO operates in, pricing is determined by two things.

Firstly, there is a natural bound in terms of the highest rates that can be charged (going up higher would bring these hotels in direct competition with the premium brands who offer far higher levels of quality and service for that price point) and secondly, pricing fluctuates by a simple dynamic involving unused/available inventory and customer demand at any point in time – the more the supply of available rooms, the lower the price and the more the demand, the higher the price.

This can be solved with simple algorithms that pretty much every hotel chain already uses and doesn’t require AI, much fewer millions of micro-optimizations a day.

It appears that given the current hype around AI, the temptation to force-fit AI into your narrative afflicts the owners of billion-dollar hedge funds just as much as it does seed startups presenting pitch decks.

Brand – The double-edged sword

All said and done, even its harshest critics will agree that OYO has one thing going well—the brand. The tens of millions of dollars invested in advertising the OYO brand and emblazoning all the partner hotels with its signage have made OYO’s name all but ubiquitous in India. Now that the company has over 7,000 partner hotels across more than 200 cities in India, every neighborhood in these cities is likely to have an OYO brand hotel prominently visible.

You would think that having a recognizable brand carries reputational heft and is, therefore, valuable. But as in the case of Kingfisher Airlines, a brand is valuable only if the execution on the ground matches the brand identity and provides the brand owner with some kind of pricing power.

In the case of OYO, neither of these are guaranteed. It has little to no control over ground-level operations and the fact that OYO discounts hotel room prices on its own platform relative to these same rooms on aggregators such as MakeMyTrip and Booking.com might point to a lack of pricing power.

 

Easier said than done: Building for the voice-first audience

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In fact, it was instrumental to his shift from the US to India to start Slang Labs with co-founders Giridhar Murthy and Satish Gupta. “I was really unimpressed by Alexa initially. Then one day I found myself trying to switch off the lights in my house by telling the voice assistant to do it. That’s when I realized that voice could be the future of interfacing,” he says.

A high-quality application

Slang Labs, which offers a voice-recognition application that, simply put, makes apps responsive to voice commands, isn’t Rangarajan’s first venture. In 2012, his Little Eye Labs became the first Indian company to be acquired by Facebook.

At Little Eye Labs, Rangarajan and his team had figured out how to optimize an app’s performance on Google’s mobile operating system, Android. “At the time we were building this, engineers in India weren’t even looking at testing their apps for performance. They thought it would be too cumbersome to test it across platforms. They only relied on analytics to judge their app’s performance,” says Rangarajan. Little Eye Labs broke that culture amongst developers.

With Little Eye Labs, Rangarajan correctly predicted in 2012 that most online activity would move onto mobile interfaces, away from PCs and desktops. “At that time, Flipkart was just launching its website, and Ola and Uber had not entered the market yet,” he says. Facebook’s subsequent acquisition of Little Eye Labs vindicated Rangarajan’s vision, thus putting an early stamp of approval on his ability to read headwinds.

Little Eye Labs reduced the inefficiencies within apps. With Slang Labs, his newest venture, Rangarajan wants to go a step further—he wants to make them listen and talk. This isn’t some punt in the dark. The opportunity is clear as day.

Efforts made for the digital conversion

Despite all its promises of turning digital, India ranks a lowly 47 out of 86 countries when it comes to internet inclusivity, according to a report by The Economist. Not a good sign for the majority of India’s 1.1 billion-plus population.

According to experts, a major reason for this is the lack of multilingual support for internet interfaces, products, and services. By 2021, Indian language users will amount to 536 million people—close to four times the size of India’s English-speaking internet user market.

According to a KPMG report, some of the Indian language internet users are already transacting and surfing the web in their own languages.

It estimates that the Indian language user base in digital payments and e-tailing will grow at a CAGR of 26% to 33% over the next five years, pulling in a new 120 million language users over the next five years. Something needs to be done to open the internet up to them. Text translation has proven clunky and clumsy. Voice, Rangarajan believes, is the key to unlocking the internet experience for vernacular users.

Many companies involved

He isn’t alone in this. There seems to be a wave of companies, both big and small, looking to realize the voice opportunity. Liv.ai, an AI-led speech recognition platform, was acquired by Flipkart this week for an undisclosed amount.

Flipkart hopes the acquisition will fast-track its plans to create an end-to-end voice-driven shopping experience. Earlier this month, Amazon’s Alexa launched Cleo, a new skill that enables the voice assistant to accept and respond to queries in Hindi. Amazon says that Cleo will gradually make a debut in Gujarati, Tamil, Marathi, Kannada, and Telugu, as its regional user base grows and adds to Cleo’s vocabulary.

But is the nascent voice ecosystem ready for these 120 million users? Or the 100 million after them? It’s a daunting proposition.

 

Knowing the Amazon’s shopping cart

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And if enough of their leading search verticals become big enough for large platforms to emerge and wean away users, they’ll be left with the lowest value search users.

Thus, its venture investments in vertical players—Practo for health, CarDekho for automobiles, Commonfloor for real estate, Cuemath for tuitions. It gives Google a window into verticals, while potentially delivering financial returns as well.

Strong Product Management

Here, Google’s thinking is driven by its strong product management teams. “They’re always thinking and debating, what is the next leg for our product? What will make our products dramatically better in 10 years?” says the founder of a Bangalore startup that has seen these discussions from the inside.

Google understands that its biggest nemesis is Amazon because most monetizable queries are for products. Increasingly, that is something more and more people do on Amazon. For instance, in Q1 2018, Amazon made over $2 billion from advertising!

That said, one venture investor didn’t have too high an opinion of Google’s venture arms. “Their investment deals are very difficult to time and understand because sometimes they are very active and keep making deals, but sometimes they just disappear and don’t do any deals,” he said. He points to examples such as Ridlr, an app to book public transportation. They did due diligence on the company, but it was finally acquired by Ola. “Ridlr actually got in trouble because they were so hopeful that Google is going to buy them that they kind of gave up on doing everything else,” he said.

“Amazon finds it difficult to invest because they’re more of a building company. They’re like, let’s build this, rather than buy. And then, three different teams will build it simultaneously and will compete to win,” says the CEO of a tech startup based in Bangalore.

Difficult to stay affiliated

As a result, Amazon finds it hard to collaborate. It’s in their DNA to build and control.

Add to this the fact that Amazon lost out on two of the largest and most strategic deals—Flipkart and BigBasket—and you’re left with a fairly average portfolio.

Amazon entered India very late. It was 2013 and Flipkart was already the darling of the e-commerce industry; raking in all the money from investors. After five years and investments of nearly Rs 24,000 crore($3.4 billion), it has set-up robust logistics, warehousing, wholesale and retail e-commerce, and payment operations in India.

But despite setting up a large presence through fulfillment centers spread all over India, Amazon wanted to buyout Flipkart’s investors. This was for defensive reasons, to prevent Walmart from getting it, says the co-founder of a technology-focused PE company. It also coveted BigBasket because it wanted repeat customers, he adds.

In 2016, Amazon bought two companies outright. The first was Emvantage, a payments platform with its own payments gateway to building its own payments business before it launched Amazon Pay wallet services in India. Later that year, it scooped up Westland Publications, a Chennai-based publishing firm owned by Tata Group’s retail arm, Trent Limited.

Taking Baby Steps

Amazon has also made small investments in Indian companies, such as home services provider Housejoy, financial products marketplace BankBazaar, digital insurance player Acko, fintech firm ToneTag, and QwikCilver. QwikCilver is an end-to-end gift card solution provider that powers Amazon’s gift card business. Amazon also bought a 5% stake in departmental store chain Shoppers Stop, a public company.

Amazon’s most strategic investment will be in the offline space.

But creating large volume businesses won’t necessarily give Amazon good margins. For that, it needed to expand its presence in fashion. This is where the Shoppers Stop investment comes into play. In return for the investment in the departmental store chain, Amazon got the whole fashion catalog of the company. There would be a separate store on Amazon’s website for Shoppers Stop, and Amazon will eventually install experience centers inside Shoppers Stop stores.

 

Fantasy sport, real money: Dream11 thrives on betting minus regulation

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Now you might be wondering why we would change the name of a person for just playing a game. It’ll become clearer as we go on.

Having an insight into the application

Headquartered in Mumbai, Dream11 was officially incorporated in 2007, but it was in 2012 that the company found its true calling, when Harsh Jain and Bhavit Sheth, the longest-serving directors in the firm, decided to pivot to a freemium fantasy cricket game on Dream11.com.

Now the leader in India’s fantasy sports space, Dream11 has grown from 2 million users in 2016 to over 20 million in 2018. It holds 90% of the market share with revenues going up from around Rs 83 lakh (~$114,245) in FY15 to Rs 62 crore (~$8.5 million) in FY17. This leap is nothing short of gargantuan.

Fantasy sports platforms allow users like Somani to act as owners of their own sports teams. On Dream11, he gets 100 credit points to make a team of 11 players in a match. A fantasy team can have players from both the competing teams and the performance of that virtual team is then based on how the real-life cricketers play in the match.

Points are then awarded for the players’ batting, bowling, fielding, economy rate, and strike rate. The team which scores the most points wins the tournament. Depending on the tournament structure, there can be a single winner to thousands, where the money from the pot is distributed as per the rank of a team.

Matches more fun now

Somani’s friend, Kiran Chawla (name changed), a 24-year-old sales executive at Amex, Gurugram, says that this makes watching the matches more fun because it gives a sense of having some skin in the game.

Once again, we had to change a name. And with reason. Because fantasy sport is very much in bed with betting. Even English comedian and host of HBO’s Last Week Tonight, John Oliver, thinks so. He dedicated an entire segment to fantasy sport where he drew parallels with traditional gambling games. Oliver starts to describe fantasy sport by saying that these are “the most addictive thing you can do on your phone, other than, perhaps, cocaine.”

Gambling, games where the outcome predominantly depends on chance, is one of the most restricted and harshly regulated industries in India. Only three places—Goa, Daman & Diu and Sikkim—allow casinos to operate within their jurisdiction.

Dream11 is also restricted to the Google Play Store. What then made it grow so fast in a country quick to narrow its gaze at all forms of sports betting?

A Punjab and Haryana High Court verdict.

Rejection of the complaint

An individual called Varun Gumber had lost Rs 50,000 (~$696) on Dream11 and had appealed to the court to initiate criminal proceedings against the site under the Public Gambling Act of 1867. The court rejected the complaint observing that it is a game of considerable skill. This is all that fence-sitting entrepreneurs wanted to hear. Harsh Jain acknowledges this in an ET interview; he says it kept their ‘Dream11 alive.’

Jain, also the chairman of the Indian Federation of Sports Gaming (IFSG), in an interview with Moneycontrol in June, noted that until September 2017 there were just 10 fantasy sports platforms in India. Today, there are over 70.

The growth of fantasy sport in India though has largely gone unnoticed. While venture capitalists are now starting to see this fast-growing market as a promising investment opportunity, the future for Dream11 and the like is uncertain as they operate in a regulatory grey area. No one knows how various state governments will view this going ahead.

We reached out to Dream11 for a meeting but the company declined. A detailed questionnaire also didn’t elicit a response.

 

RIP Tapzo: Will the Ouroboros rest in pieces?

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The Ouroboros is dead.

The Ouroboros is an ancient mythical symbol of a snake eating its own tail. It’s often taken to symbolize the eternal cycle, especially in the sense of something constantly destroying and re-creating itself. It also represents the infinite cycle of nature’s endless creation and destruction; life and death.

Epitomizing the Ouroborous

As we had written earlier, Tapzo, self-billed as “India’s first all in one app”, is the one Indian startup that epitomizes the Ouroboros—displaying a constant, incessant urge to reinvent itself, pivoting from one avatar to another incondite. The head eating the tail.

However, unlike the mythical creature that could reinvent itself infinitely, Tapzo’s days of reinventing itself are seemingly over. In an email to its users, the Sequoia-backed company announced that it would cease operations by the end of October this year.

“Tapzo app will be shutting down from 31 October 2018. Starting 1 September 2018, we will be switching off all the transactional categories,” read the email. It also detailed how users can close their accounts and redeem any unused balance left in their wallets and accounts.

The email goes on to say, “Since we launched the app 3 years ago, we’ve been fortunate to serve over 5 million customers. Your feedback and reviews (200,000+ on PlayStore alone) and the 4.5 ratings kept us motivated and always learning. It’s been a pleasure listening to you all and continuously shipping an app update every few weeks consistently. But all good things must come to an end.”

All good things must come to an end? I suppose this is true in a broad philosophical sense. But if you are an eight-year-old startup that has raised more than $30 million in VC funding and believe that you have a “good thing” going, you don’t come to an end by way of a summary email to your customers. You don’t shut down your service overnight and move on.

So, did Tapzo really have a good thing?

A flawed value proposition

Tapzo’s all-in-one app premise was that mobile users in India need not download multiple apps for cabs, food-ordering and other services. Instead, Tapzo provided access to all these services within a single app. The value proposition was that users could save space on their phones. In addition, they would be able to compare services to choose the cheapest/best offering at any point in time.

Ankur Singla, the company’s CEO, and founder had claimed in November 2016 that “close to 140,000 users use our app daily and we do close to 55,000 transactions a day with an annual run rate (ARR) of Rs 210 crore (~$30 million) in GMV/bookings.

And we plan on growing 2X in the next six months.” The company also claimed to have more than five million app downloads—a metric that was touted in the farewell email as well. Singla had also stated that Tapzo was going to break-even in March 2018.

And yet, here we are today with the platform shutting down. For a company that claims millions of downloads, the announcement of the service shutdown met with sepulchral silence on social media—there was hardly any reaction from its ostensible user base; no one expressed love or regret that Tapzo was shutting down.

Vanity Metrics

No one seemed to care. A telling sign that vanity metrics such as downloads and user reviews are not necessarily indicative of a loyal customer base, much less of having achieved product-market-fit of any kind.

As we have pointed out before, the basic flaw in Tapzo’s value proposition was that in trying to become all things to all people, it ran the risk of not representing anything to anyone.

An all-in-one kind of super app might seem like a seductive value proposition, most of all to VCs with Chinese Renminbi signs in their eyes. But for such an offering to gain traction it needs to have two aspects nailed down.

First, there needs to be a strong core use case that can serve as an anchor for other services, and secondly, the portfolio of offerings should have some adjacencies so that one service seamlessly blends into the other as an in-line user experience.