I am looking forward to attending iSpirt’s Intech50 event next week in Bangalore. Fifty Indian enterprise technology companies will be there, meeting with fifty CIOs from the US and India.  Congrats to everybody at iSpirt, including Sharad Sharma and Avinash Raghava, for organizing what promises to be a productive spot-market.

We have put the names of the Intech50 companies into a list and categorized by tech category (applications, infrastructure, tools), vertical (e.g. none, financial services, retail) and geographic focus (India, India->Emerging Markets, India->Global, Global). See the Slideshare embed below to view or download the document.   Perhaps this is of help to you while navigating the Intech50 event.

These companies are two-thirds infrastructure, one-third applications. Analytics and security dominate the categories, followed by HR and CRM. A good 75% are horizontal solutions while the rest are verticalized. And more than half have a global go-to-market while about 40% are focused on India or adjacent markets.

The last decade, especially the past five years, has seen a lot of change for the better in the enterprise tech startup market in India. Startups have started building world-class product and user experiences. They have understood how to leverage online marketing to acquire customers outside India, versus relying on channel partners in other countries or sticking to just the India market. They have figured out how to initiate direct sales abroad, not relying on hiring expensive VPs of Sales as a first step but sending founders abroad to kickstart sales. They have started efficiently selling into the long-tail of companies rather than just focusing on large enterprises. And they have taken full advantage of platforms such as AWS, Force.com, etc. to run and distribute their products.

I think there is a clear progression forward from the types of enterprise software companies started 7-15 years ago which many times started with services projects; were usually vertically focused on banking, telecom or retail; and, despite branching out to SE Asia, Middle East and Africa, have generally tapped out growth at the sub-$10M annual revenue mark.  There were exceptions of course, including companies like I-flex, Subex and Ramco.

Lightspeed globally has put a majority of its capital to work in enterprise technology companies, represented here.  Many of our portfolio companies, including Qubole, Numerify and Bloomreach, have teams in India.  In India, we are looking for enterprise technology companies that can be category-defining and category-leading and can scale to $50-100M in revenue over time.  We are finding higher than average growth coming from applications companies focused on a global or US go-to-market – examples in India would be Freshdesk and Unmetric. We are also seeing such growth from globally-focused infrastructure and developer enabling technologies – examples in India would be Druva, WebEngage and HelpShift.

See you at Intech50! Come talk to us. You can reach me at dkhare at lsvp dot com.

 

 

 

 

 

India is seeing an explosion of smartphones’ installed base (chart below). This is leading to a burst in data consumption – Airtel’s mobile data consumption doubled in Q3, FY14 vs. Q3, FY13 and data revenue has become a quarter of the company’s total revenue. We are  starting to get onto the early part of the S-curve in terms of mobile-data growth.

Cumulative base of smartphones in India

Smartphones in India

(Source: Gartner, Industry)

Online transactions businesses like OTAs (MMT, Cleartrip, Yatra) are nearing 40% of their users on mobile and ecommerce companies (Flipkart, Snapdeal) are seeing 20-30% transactions from mobile. This trend will continue as smartphones will have deeper penetration than computers in India and for many people a smartphone will be their first and only connected device. Also being a personal device, a smartphone is more accessible than a computer even for users who have both.

This smartphone base will lead to creation of opportunities across sectors and an interesting one is in local businesses. Globally, Lightspeed has invested in companies like Sidecar (transportation), Grubhub (food), Styleseat (beauty stylist) which are betting on transferring demand generated online to local services fulfilled offline. We believe this trend will be led by mobile (smartphones) in India.

The current leader in connecting demand online to service providers offline in India is JustDial – mobile data traffic on JustDial is now more than 22% of total traffic, up from 12% in FY13 and 5% in FY12, and this will likely inflect more sharply with increasing smartphone penetration. Since JustDial is a horizontal and doesn’t provide a category specific experience it may be hard for JustDial to do more than generate leads for local businesses. JustDial is valued at around $1.8B and that points to an opportunity for vertical specific platforms that can provide a better value proposition to consumers and local businesses by leveraging smartphones.

The smartphone as a medium has the potential to provide a disruptive value proposition by taking an interested lead a few steps further and converting it into an informed and highly qualified potential customer (or even a transaction). Given access to rich content, fine location and direct calling at the moment of consumer need, a smartphone is uniquely positioned to provide a category specific experience that is not possible on a phone (non-smartphone) or a computer. We are already seeing this happen in verticals like transportation (Ola, Uber, TaxiForSure) and food (Zomato). More verticals where there is an unmet consumer need and an opportunity to leverage smartphone capabilities are healthcare, break-fix and education/vocation.

Entrepreneurs in this space need to keep the following elements in mind:

Consumer side:

  • Design the business to be mobile-first: Have a responsive mobile design or an app. The good news is that 90% of new smartphone sales in India are presently Android (unlikely to change anytime soon), so a majority of the market can be covered by focusing on Android.
  • Create a consumer experience specialized for the category: Take users as close as possible to the offline transaction.  For example, the difference between looking for a restaurant on Zomato vs JustDial is substantial. Another great experience is to see an Uber cab move towards oneself once one books it in their app.
  • Create consumer side entry barriers: Once the platform has early traction, elements like an active community, crowd sourced reviews/information can help retain leadership. Pagalguy and Team-bhp are two strong Indian communities and have grown despite popular belief that Indians do not like to contribute user-generated content online.

Merchant side:

  • Provide incremental revenue opportunity to merchants: Local businesses in India are most excited to embrace technology if it helps acquire new customers (they are much slower in adopting technology to boost productivity). Instrument RoI measurement early on and make it a core part of the merchant pitch. For example, Zomato had very early on embraced cloud telephony to track calls generated from their website or mobile apps to show impact to their merchants; this continues to be a core part of their merchant offering.
  • Have a mobile offering on the merchant side: It is very interesting to see how savvy even small merchants are about using apps like Whatsapp. Most merchants have (or will have) smartphones and are comfortable using them. Give them a mobile console to connect with your platform. For example, a lead management app for a real estate broker could be a great way to not only increase his productivity but also to get him to share his data with the platform.  Unlike merchant interfaces in the West which are computer-centric, merchant interfaces in India need to be mobile-centric. Nowfloats is doing this.
  • Entrench deeply inside merchants through technology: If businesses in the category are already using technology for their processes, then find a way to connect into their technology. This could be a massive differentiator on both consumer experience as well as the entry barrier. For example, one could plug into the CRM of a dentist, restaurant, play-school, builder, car-dealer etc. Bookmyshow is a great example of how plugging into the multiplexes helped create a great consumer and merchant experience.
  • Managing salesforce/productivity: If the monthly cost of non-founder sales team after initial training is 50% of the monthly revenue collected by them, it shows the inherent quality of the business. For example, Infoedge’s and JustDial’s people cost are ~35% and ~50% of their respective revenues (Source: respective public filings). For Infoedge and Justdial, people costs include corporate, technology and other staff so the ratio of salesforce cost to revenue is likely to be meaningfully lower. If this equation is working, then the next challenge is to recruit, train and retain at scale – most such businesses would need thousands of feet-on-street to reach scale (JustDial’s salesforce is around 4000 and Infoedge’s is more than 2000). There are interesting ways to juice salesforce productivity E.g. Justdial equips it’s salesforce with devices to enhance and track productivity and qualifies a sale over the phone before sending an feet-on-street agent.

A key challenge for businesses in this space is around the point above on balancing the cost of monetization vs. the revenue collected. While it is partially solvable through being a market leading brand for that category,  strong execution and using some of the concepts outlined above, but a big part of this balance is also anchored in the category itself. It is important to be in a category where the customers are more valuable (because of ticket sizes, category margins, frequency of purchase, etc), in order to achieve this balance.

We would love to hear your thoughts around other ways in which the growing smartphone base can disrupt (or not?) demand generation for local businesses.

newyear

With all the speculation about Bitcoin and an exciting 2013 behind us, I thought that a list of predictions for 2014 would be a good way to start this year. These predictions are based on growth patterns of similar networks, the traction in various ecosystem activities last year, and my conversations with various Bitcoin enthusiasts. So here are my Top 10 predictions for Bitcoin 2014.

1. More than $100M of venture capital will flow into Bitcoin start-ups.

This pool of capital will be distributed across local/global exchange start-ups (e.g. BTC China*), merchant-related services (e.g. Bitpay), wallet services (e.g. Coinbase) and a host of other innovative start-ups. A large chunk of the capital is likely to flow into startups which have emerged winners in their respective segment with majority market share. Building exchange liquidity and merchant network is tough. Hence, these businesses are likely to command high valuations as well. That being said, there would be plenty of money available for start-ups trying to solve a plethora of other challenges (e.g. private insurance, security), that exist with Bitcoin growth and adoption today.

2. Mining ‘will not’ be dead

A lot of press notes and individual viewpoints state that mining is dead, as we are already in the petahash domain and are restricted by Moore’s law from a technological stand point. I believed this until I heard Butterfly Labs and HighBitcoin talk about how enterprises can potential adopt mining. With transactions and transaction fees rising, it would be highly profitable for large enterprises to have data centers with mining equipment to process daily transactions. Medium enterprises, who cannot invest in capital expenditure, would resort to cloud-based mining. Finally, small enterprises would have to pay transaction fees, to the network. These fees would still be lower than those paid to Visa and Mastercard. In conclusion, we can potentially witness investment from large and medium enterprises in mining farms as early as the end of 2014.

3. There will be less than 5 alt-coins (out of the 50+ in existence) that will survive 2014

The open source nature of the Bitcoin protocol led to the advent of over 50+ alt-coins, most of which are blatant rip-offs with a tweak or two here and there. These can be divided into three categories

  1. Coins which are Ponzi schemes, where the sole purpose of the inventor is to drive the price of the alt-coin up and them dump
  2. Coins which can be mined easily and can have potentially more liquidity than Bitcoin
  3. Coins, which are based on a fundamental innovation and can result in specific adoption or security led use cases.

In my opinion, only the category 3 ones would survive. PPC coin, which has introduced a proof-of-stake system in addition to proof-of-work, is one such coin. It is on my list of survivors. It is also important to note that presently, other than Bitcoin, no other alt-coin has shown the potential for a growth in its acceptance network among merchants or companies. This is likely to remain true for 2014 as well.

4. Bitcoin community will solve problems including that of ‘anonymity’

One of the key roadblocks for governments and financial institutions to start participating in Bitcoins is the anonymous nature of transactions. This has led regulators to believe that Bitcoin can potentially be used for money laundering, terrorist support etc. The good news that we have a very active Bitcoin community globally, which is constantly evolving the protocol. Hence, my prediction that in an effort to make Bitcoin more accepted, this community will come out with a solution to ‘anonymity’ that regulators can live with. One of the ways is it being done today is by forcing exchanges, wallet services and other Bitcoin companies to have KYC practices similar to those of financial institutions. As a side thought – Internet was and is still used for porn. That does not make it ‘not useful’!

5. US, China and other global forces will not be at the forefront of Bitcoin adoption

Fincen, PBOC and RBI’s reaction to Bitcoin in US, China and India points to one single conclusion – we are not going to let a ‘controlled’ and ‘vast’ financial system adopt a decentralized crypto-currency, which can be anonymous and used for illegal activities…as yet. Countries which have had a history of currency issues and have not had effective monetary policies are the ones who will be at the forefront of Bitcoin adoption. With China out of the mix currently, one can look at Argentina, Cyprus and others to lead. These may be smaller as a proportion of the global base. However they are likely to have much more local penetration and most importantly more government support or less government intervention – whichever way you want to look at it. That being said, successful internet and mobile companies in the US/Europe are the ones, who are most likely to offer digital goods in Bitcoins. Zynga just announced their experiment. I would not be surprised if Spotify, Netflix etc are next.

6. Indian ecosystem will be slow to evolve; limited to speculators and mining pools

The Indian Bitcoin start-up ecosystem today is limited to less than ten startups, including exchanges such as Unocoin, wallet services such as Zuckup, mining pools such as Coinmonk and some other ideas – compared to hundreds of them in each US and China. There is little evidence today to ascertain whether any of these startups are going to create a home market or serve an international market. In fact on the contrary, the Indian market is likely to be served by global Bitcoin companies. For instance, Itbit, a Singapore based exchange has already started targeting Indian consumers. Global services have demonstrated the capability to be credible especially when it comes to convenience and security by solving complex algorithmic problems. This also makes them more defensible in the long run (e.g. Coinbase’s splitting of private keys to prevent theft) and poses a big challenge for Indian Bitcoin start-ups. There is an active Bitcoin community in India (about 15-20 people), which is trying hard to create awareness among consumers and regulators. I sincerely hope to see at least one world-class Bitcoin startup come out of India.

7. The use of Bitcoin will evolve beyond ‘store of value’ or ‘transactions’

The underlying Bitcoin protocol makes itself applicable beyond the use cases of ‘store of value’ and ‘payments’. The Bitcoin foundation took a huge step in allowing meta data to be included in the blockchain. This will unlock a lot of innovation and maybe even prompt regulators to acknowledge the potential of Bitcoin, making it all the more difficult for them to shut it down or suppress it. As one can see from the current Bitcoin ecosystem map that there are almost no startups, which solely use the protocol without using the ‘coin’ or the ‘currency’ as a function. 2014 will be the first year to see some of these.

8. The ‘browser’ of Bitcoin will come this year

The Netscape browser made the Internet happen. ‘Something’ will make Bitcoin happen. It is still very difficult for the average ‘Joe’ to understand, acquire, store and use Bitcoins. Though Coinbase and several others are working on innovative security algorithms and making it easy to store Bitcoins digitally, it is still not enough to make Bitcoin mainstream. Hence, what a ‘browser’ did to the Internet, a product or technology innovation will do it to Bitcoin in 2014. This will make the transition to Bitcoins frictionless. Kryptokit and Eric Voorhees’ Coinapult are promising startups in this direction. Encouragingly, all the building blocks for that to happen – like mobile penetration, cryptography algos etc are already in place.

9. The price of Bitcoin is likely to range between $4000-5000 by the end of 2014

Well, though some people will argue otherwise, price is not the most important thing about Bitcoin. But given the interest and its volatility, it does deserve a place in this blog post. Speculators have predicted Bitcoin to go upto $100, 000; some say the maximum it can reach is $1300. Though, am sure that there is some underlying basis for these predictions; here is the one for mine. Bitcoin’s price is a function of supply and demand. While the supply is predictive, the demand is less so. However, the increase in the demand of Bitcoin can be compared to networks such as Facebook and Twitter, which have followed a ‘S’ curve of adoption. All such networks typically take 6-8 years to plateau out with year 4-5 being the steepest. Though Bitcoin was invested 4 years ago, I would say that 2013 was its 2nd real year. Given the nature of the ‘S’ curve, the price increase in 2014 is likely to be 3-4 times more than the one this year. Hence, the $4000-$5000 range, where the Bitcoin price is likely to settle down in 2014.

10. Last but not the least – Satoshi nakamoto will be Time’s Person of the Year 2014.

Please read about him here.

* Investments of Lightspeed Venture Partners

pwimage

The technology world has become a little bit flatter over the last ten years; the US monopoly on producing technology startups with impact outcomes has been broken.  We have all seen impact product companies coming out of Europe, Israel, and China over the past decade.

These startups are leveraging new platforms and customer behaviors that were non-existent ten years ago, including platforms such as app stores, SaaS app marketplaces, smartphones, tablets, content marketing channels, social media, and embedded payment options; and new user behaviors such as self-service on-boarding, bottoms-up technology adoption in SMBs/enterprises, use of open source technologies, and search as a primary way to find new applications/technologies.

We believe it is now the right time for Indian product startups to step up to the global plate, especially in mobile applications, developer tools/enabling technologies, and SaaS for SMBs.  There are already several examples of such companies, including Browserstack, Freshdesk, Helpshift, InMobi, Kayako, Nimbuzz, Simplify360, Webengage, Wingify and Zoho.

Investing with this theme, we are excited to partner with Chandan and Vaibhav at Phone Warrior to take mobile communications to the next level.  What Wikipedia did to encylopedias and Waze did to radio road traffic reports and paper maps, namely disrupting existing businesses with community, real-time and mobile, Phone Warrior is doing to plain old phone calls and messaging.  Phone Warrior’s user growth, retention and engagement in countries around the world over the past six months gives us confidence that they are well on their way to finding product-market fit.

Phone Warrior (incubated at 91Springboard) is building a globally-relevant cloud-based platform to crowd-source mobile phone numbers and turbo-charge the value of this data through big data techniques, graph search and machine learning.  Through this platform, Phone Warrior powers an essential set of services that has grown rapidly over the past year and could get onto every mobile device in the world across all forms of communication including phone calls, text messaging and over-the-top IP-based messaging.  Their product is currently visible on mobile devices through services such as caller-ID, spam blocking and call-blocking.

There is much more to come that leverages this core platform.  We look forward to exciting times ahead with the Phone Warrior team.

Post Authors: @dkhare and @anshoo

appstore

[Also published on Medianama]

It has been only five years since the launch of the iPhone App Store in July 2008.  Feels like fifty dog years.  In reality this is not a long time, compared to nearly twenty years since the launches of Yahoo (February 1994), Amazon (July 1995) and the IPO of Netscape (August 1995).  Over these twenty years, not only have startups innovated on product/design and business models and but also on demand generation/user acquisition strategies.  Yet only five years after the launch of the App Store, the pace of innovation in mobile app user acquisition seems to have hit a brick wall… in the search for increasingly efficient methods of marketing, we seemed to have hit the efficient frontier.

In India, efficient user acquisition is a key problem area for developers targeting Indian users as well as global users.  Fortunately, marketing has gone online, along with placement, onboarding, monetization and payments. And mobile marketing can be done at world-class levels right in India.

So, what is this efficient frontier? What are the best practices for mobile user acquisition?

To provide some concrete pointers,  I organized several founders-only sessions on enterprise/SMB SaaS user acquisition as well as mobile user acquisition in Bangalore, Delhi and Mumbai. This month, I also organized and moderated a session on mobile user acquisition with TIE in Delhi.  Our eminent panelists included Harinder Takhar (CEO of PayTM), Pathik Shah (Head of Growth, Hike), Jamshed Rajan (Chief Product Officer, Nimbuzz) and Chandan Gupta (founder/CEO of PhoneWarrior).

So here’s a summary of what we discussed – please note the tone of the conversation was more around hacks and learnings from practitioners as opposed to some over-arching strategic viewpoint on mobile user acquisition.  Many of these tips fall into the non-scalable bucket but some are more scalable. I will leave it up to you to decide which is which.  Also, it was assumed that developers were tracking efficiency of marketing campaigns and funnels through some form of app instrumentation, whether through commercial solutions like Mixpanel, Apsalar, Flurry, Google Analytics etc or home-grown analytics.

CONVENTIONAL PRE-MOBILE TECHNIQUES

These include traditional PR/media outreach, analyst relations, direct selling and tradeshows/conferences.  These techniques are fairly inefficient and out-of-date for mobile apps as most target users/consumers are not reached through these means.

Blogs/websites: Chasing Techcrunch and other tech blogs does not have nearly the same effect it had a few years ago – previously, a post on Techcrunch could drive 50-100k visitors/downloads – now, this number is down to 100-500 downloads.

Vernacular newspapers: Targeting vernacular media outlets across India, as opposed to the English and Hindi dailies could provide some advantage. Regional language papers are hungry for technology news and can be quite effective in reaching regional audiences.

Localization: On a related note, for some apps, it makes sense to provide app store listings in several different languages, sometimes backed up by the product being localized as well but not necessarily.

TV: In India, it could be useful to get onto NDTV Cell Guru and other such shows.  These media outlets also have Facebook, web, mobile and video assets to drive awareness.

Print: Some panelists had tried this. It does not have any meaningful impact on mobile app downloads.

Offline: Some panelists had tried stationing people on campus to get some initial adoption. It does not work and the message gets diluted/warped when temporary employees are hired to do this.

MOBILE 1.0 TECHNIQUES

These include OEM/mobile operator distribution, mobile advertising and search engine optimization (SEO).

A basic deterrent is app size – especially in Tier 2 towns and beyond, people are wary of downloading apps greater than 10MB in size.  Really need to minimize app size.

Factory loading: Average OEM/carrier deals take 5-6 months at least and have to be positioned as helping the OEM/operator differentiate. Most OEMs are now looking at apps/services as revenue streams so this should be baked into the business case for them, perhaps as a rev-share.  Some panelists mentioned Rs 5-10 per install as what Indian OEMs are asking for.

If the app is already factory-loaded onto the product, this doesn’t drive activation either – factory-loading has to be on the homescreen and accompanied by an above-the-line marketing campaign (e.g. advertising or logo on device box) preferably paid for and driven by the operator/OEM.

Some of the smaller/newer OS/OEMs providers are being more aggressive in courting developers. These include Tizen, Intel, Amazon, and Blackberry.  If you build your app for these, you will maybe get an advantage and may get paid to build out on their platform. The flip-side, however, is that these platforms have small audiences and will most probably not drive a meaningful amount of downloads/usage.  Panelists mentioned Parag Gupta at Amazon, Annie Mathew at Blackberry and Priyam Bose at Microsoft/Windows.

Mobile advertising: General consensus is that users acquired through paid advertising tend to be less loyal than users acquired organically.  One exception may be advertising to users of competitor apps on Facebook and the use of promoted posts on FB. Panelists mentioned Google/Admob, Inmobi, Flurry, Tapjoy, Yieldmo, HasOffers etc.

Mobile advertising gets an initial burst of downloads to move up into the top rankings on the app stores and then some drip marketing is required to keep rankings high.  Some people expressed an opinion that any burst marketing should be done on one day rather than over several days and perhaps should be done on a Friday so the boost in rankings persists over the weekend.  The key is to get into the top 10.

One needs 100k-200k installs per day to get into the top of the charts in India. Can’t get there through paid advertising.  Advertising is not cheap.  Especially given the messaging wars between Line, WeChat, Whatsapp, Hike and others, mobile inventory seems to be sold out in India.

If you measure real CPI (i.e. CPI taking into account successful download rates, activiation rates and 3 or 6 month churn), actual cost of customer acquisition (CAC) ends up 4-10x as high as CPI quoted by ad networks. In India, iPhone CPIs are under Rs 120 ($2) and Android Rs 30 ($0.50) at low scale.

There are mediation layers from Flurry, Hasoffers, Mopub and others available so that developers don’t have to integrate multiple ad network SDKs into their apps.  All these SDK providers have their own ad networks but also connect with other ad networks. Meanwhile, publishers use SSPs to route between ad networks. It’s a complete spaghetti-like mess.

Incentivized downloads: Tapjoy/Flurry used to provide this but have moved away from this. Panelists urged developers to not even think about trying incentivized downloads as CPIs are high as are uninstall rates, given that users are downloading without any intent to use.

Search engine optimization: Most developers mentioned that web SEO did not work for them.  Content on the web does not bring traffic from the web to the app stores.  Some people mentioned content marketing e.g. blog posts and posting presentations on Slideshare as a way to drive some traffic.

Mobile web: Make sure you have a http://get.yourwebsiteURL.com mobile-optimized website up and running.  Apple and Android have special HTML widgets to include here that you insert once you know the OS of the device (through the header). These widgets redirect to the relevant app in the relevant app store.

Social media is not very effective for user growth. It is somewhat effective for engaging existing users as well as a support channel.  Adding social network sharing within apps does generate some virality, especially if sharing is encouraged at points within the app where users get a delightful experience.  Apps with social as their core may benefit from Facebook, including automated actions posting to Facebook (e.g. ‘read’ or ‘play’).

Virality:  Startups should track their k-factor/viral-factor and viral cycle time.  Even a k-factor of 0.2 really helps if it can be sustained over several months/years.  A viral factor anywhere close to or greater than 1 is phenomenal but can only be sustained for a short period of time.

MOBILE 2.0 TECHNIQUES

App store optimization (ASO): The panel talked about platform stores (like Google Play, iOS App Store, Blackberry App World and Amazon), indie stores (like Getjar, Opera, UCWeb and Appia) and operator portals/stores. Most indie stores have a paid/sponsorship model but CPIs are the same as ad networks.

Platform app stores require carefully crafted keywords (repeated in title and description), creative content (which is mostly only read by loyal users), quality screenshots/logos and a good demo video for Google Play (linked through Youtube). Do not to go overboard here e.g. do not stuff keywords in the title/description – you will look desperate.  Best tools for ASO include Google Trends, Searchman SEO, AppCodes.  Reverse engineer the search algorithms on the app stores by typing in keyworks to see output of apps appearance.

Getting featured is obviously great but is driven purely through relationships (for Apple and Amazon) and algorithmically (for Google Play) with the curation teams for each platform, sometimes on a geography-by-geography basis.  Always make sure to comply with the design guidelines provided by each platform – this makes it more likely you will get picked up for featuring. Use AppFigures and Appannie to track your performance and reviews.

App updates also drive additional downloads and push up ranking for a short period of time.  Since there are no well-proven A/B testing methods for mobile apps, it makes sense to try several variations with each app update.

Cross-promotion: Companies like Outfit7, Zynga and Google have very effectively used their large network of apps to cross-promote new app launches. Outfit7 has been able to get to one billion+ downloads and has cross-promoted new launches to tens of millions of downloads in a few weeks.

Barter: Many developers don’t think about this, perhaps because it only applies when their apps get to some scale (several million MAUs). The trick is to find mobile app properties that (1) have tens of millions of MAUs; (2) have users in demographics/regions that you are targeting; and (3) have a large proportion of unsold or remnant inventory i.e. low sell-through rates.  Bilaterally trading this remnant inventory can then be quite an efficient, not to mention cashless, way of driving downloads.

Referral schemes: Virality can be driven through incentives that provide an individual relevant app-specific user benefits in inviting people successfully. Examples include Hike (free SMSs for each successful invite), Dropbox (additional storage for each successful invite), Evernote (one month of free premium service with each successful invite) and Paypal ($5-10 for each successful invite).  These schemes do not work for single-user utilities if you hand out real money.  Users will try to hack around this system.

Beyond a certain point, only word-of-mouth/virality works, can’t use paid. This does not apply necessarily in the case of apps where the lifetime value (LTV) of an average user has been quantified, as can be done with many user-paid models like games, ecommerce and subscription services.

UNCONVENTIONAL TECHNIQUES

Use social influencers: If you can identify and target social influencers, it sometimes works to make them proponents of your app.

Gamification: Leaderboard-based incentivization does not impact new user acquisition.  Make sure that gamification works even if the user does not have any friends using the same app.

Push SMS marketing: CPIs end up being within 25% of where the ad networks are, so not much different in price.  Historically, SMSs went out to non-data, non-smartphone users as well so were not effective.  This can contribute to cheapening the brand. Also, TRAI has specifically banned sending spam SMSs to users on the DND list.

Restricted invite lists: This is what Mailbox did, as have many others.  A permanent beta is a less extreme example of this. This make sense for apps like email which need to be scaled up slowly given their complexity.  However, restricted invite lists only make some sense when there is a lot of PR and noise generated some other way to drive artificial scarcity.

Review sites: At small scale, this helps. Some developers pepper comments throughout review sites such as Appolicious, AppTurbo and AppBrain to drive some downloads.  This also build links into the developer’s website to drive Google search rankings.

Here’s a video of Dev Khare of Lightspeed Ventures in conversation with Manik Gupta of Google Maps on the topic of building global businesses on top of maps.

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(Source: Ron Mader)

We are in an early eco-system here in India for technology startups.  It is hard to find strategic talent or mentors with experience in product management and marketing, as I have mentioned in my previous post on The Silent Killers of Startup Growth in India.

One treasure trove of learning and mentorship exists amongst the current community of practicing founders in India.  We are seeing a lot of grassroots efforts around the country where founders are getting together to talk specifics around areas such as product management, sales, marketing and fundraising.  These include iSpirt’s ProductNation roundtables, organized by Avinash Raghav – some blog posts here on this: sales & marketing, sales & lead gen, positioning & messaging) – as well as others organized by NASSCOM and various incubators/accelerators.

To do our bit, we decided to focus our efforts on bringing together founders in separate closed-door roundtables in Bangalore, Delhi and Mumbai over the past month. We had about 30 founders participate across all these sessions.

Our focus was on two sets of companies with somewhat different dynamics – enterprise/SMB software and mobile consumer apps.  The challenges for both sets are around finding rich seams of customers in India and/or abroad.

The discussions got tactical, in a very good way. This is where the learnings come from – from anecdotes and data about what has worked and what has not worked.  It felt as if the founders were happy to share learnings and were energized by helping each other out.  No generic platitudes, like we see at many conferences and panels.

I’ll report more on the specific learnings on the mobile apps side and enterprise/SMB software side in posts next week.

I hope more efforts like iSpirt’s roundtables are undertaken around the country.  Our eco-system needs this.

[Published in Mint on May 30, 2013. Here is the link to an abbreviated version of the article on LiveMint.]

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[Credit: Laurynas Mereckas]

Building a startup into a successful high-impact company is not easy – it is hard no matter where in the world the founding team may be located or which geography is targeted.

It is even harder in India, despite the macro outlook almost always looking rosy – 1+ billion people, strong economic growth, emerging market/BRIC, technical expertise, many underserved needs etc.

Many of India’s successful startups have navigated a maze of challenges, creating leading brands and sustaining for long periods of time.  Correspondingly, it is much harder in India, relative to the US/Europe, for competition to unseat leading brands.  Erstwhile startups that have created a successful brand include Cafe Coffee DayDr Lal’s PathlabsFlipkartIndian Energy Exchange (B2B), Indigo Airlines, Infosys (B2B), InMobi (B2B), Justdial, Makemytrip, Naukri (B2B), one97 and Snapdeal.  

Here are some of these environmental challenges that I see many startups facing here. These are almost never explicitly discussed. Perhaps this is because it’s like the air – it is just self-evident and it is hard to solve for these.

Market friction

Many of the successful companies we talk about today in India took 10+ years to get to escape velocity and impact.  Why? India-focused startups have to change buyer behavior and/or create infrastructure  (eg Flipkart’s several thousand people in logistics, Meru Cabs’ owned & operated taxi fleet, One97′s PayTM mobile payments infrastructure), as opposed to purely focusing on better/faster/cheaper solutions.  As a result, I generally see linear organic growth in companies targeting the Indian market.  There are some companies that have overcome this by creating low-friction offline models e.g. Dr. Lal Pathlabs with low-capex collection centers, and micro-finance businesses with repetitive hassle-free loans to the bottom of the pyramid.

Some other sources of friction include:

  • the need for offline presence (even for mainly digital companies).
  • difficulties in payment collection from consumers and businesses.
  • gatekeepers that have optimized for self-preservation/cashflow.
  • government-driven paperwork for compliance & set-up and regulatory uncertainty.

A series of small markets

Startups need large markets (Rs 2500cr+ or $500 million+) to get large and succeed.  This is hard to find in India, perhaps due to early consumer demand, unorganized markets, regional differences or foreign substitutes.  For example, digital advertising is a roughly $400 million annual business here, with mobile at 10% of that. To access and maintain growth, almost every new startup here needs to increase their focus on creating and evangelizing their category versus just focusing on their own startup’s growth.

Some examples of overcoming this challenge include:

  • spending large amounts of capital to create a category (eg ecommerce, OTA, wireless telecom).
  • expanding into adjacent markets (eg Info Edge, which expanded from jobs into matrimonials, real-estate, education etc.).
  • building or piloting in India and transplanting to the US (eg Zoho)
  • aggregating several emerging markets outside India, perhaps before proceeding to Western Europe and the US (eg InMobi, iFlexSubex).
  • attacking a large spend base (eg Micromax for hardware, Cafe Coffee Day for coffee/tea/snacks, BillDesk for bill payment).

While many startups choose to access existing categories abroad (eg smartphone apps), many Indian startups have successfully created India-specific categories, including inbound marketing (JustdialZipdial), B2B marketplace (IndiamartIndian Energy Exchange), assisted services (OneAssist, Onward MobilitySuvidhaa), MVAS (OnMobileIMIMobile), entertainment services (Dhingana) and transport aggregation (RedbusOla Cabs).

Lack of trust

Lack of trust is endemic in India, whether you are driving through the streets (and perhaps Delhi is an extreme example of lack of trust!) or negotiating with corporate partners. Examples include:

  • (some) people misrepresent themselves materially without any consequences (eg overselling).
  • (some) founders focus on control at the expense of value creation.
  • potential buyers have a hard time parting with payment details or paying for off-the-shelf software.
  • (some) people negotiate all the corner cases in extreme detail, to the point where the law of diminishing returns kicks in pretty strongly.
  • trust gap between regulators, law enforcement and business.
  • trust gap between promoters (aka founders) and investors and potential misalignment on timelines and strategy.
  • (some) government and companies focus on protecting themselves from the 1% of customers who are gaming the system at the expense of the 99% remaining customers.

Relationships, not contracts, govern deals.  Many brands in India are created from execution reliability at scale rather than product differentiation.  Brands  in India are disproportionately more valuable as they represent a trusted provider of products or services – think about the enduring value of the Tata brand in multiple unrelated categories.  As one consequence, I believe more startups should think about brand-building here in India relative to if they were in the US.

Hard to find strategic talent

Almost every entrepreneur and investor I speak with has this issue.  This is not easily solvable – the only potential solution is to focus on A+ people right from the founding team onwards and never compromise on that front, even if it means slower roll-outs.  Zoho and InMobi are often cited for building great teams.

Strategic talent is hard to find, including executives, product managers, product marketeers and design experts.  We find ourselves scouring large established companies in India for executives and many times find these executives short on ability to take career risk and lower startup-level compensation in exchange for equity.  We look abroad sometimes to import talent.   One other friction point tends to be lack of middle management willing (or empowered) to take their own initiative and a cultural bias for say:do ratio > 1 (interesting quote by an anonymous founder) which generally means that execution requires a lot of hand-holding.

The smaller pool of founder/co-founder and risk-taking startup employees results in lots of churn and inordinately long hiring cycles, although this is changing fast at a cultural level in India.  It is also quite stunning how many times people who have signed employment contracts do not show up on their first day of work.

Not enough experienced mentors

India has an early (but fast-growing) eco-system for new venture creation. I see successful founders giving back to the founder community in a big way through investments, mentorship and driving industry hygiene.

However, there aren’t enough successful founders yet to cater to the much larger group of new founders who need help.  Without the perspective provided by aligned mentors, many founders are finding it tough to pivot or accelerate.

I am optimistic on this front, as many experienced and competent mentors have stepped forward over the last two years.  In my opinion, this is one of the reasons driving the creation of many of the incubators and accelerators in India which are centered around these hard-to-find mentors.

Constricted access to capital

This has been an issue in India for a long time and is probably why there is a higher focus here on companies to get to cash-flow breakeven fast or to trade-off growth for cash-flow.  It is not surprising that the early successes in Indian ventures have mostly come from services-oriented business (e.g. outsourcing, BPO) or offline consumer businesses that grew organically for a while.

Many would point to investors being over-cautious and risk-averse.  I think that the environmental factors mentioned above are the causal factor for investor cautiousness and not vice versa.  I would argue that the $1.1B in 2011 and $762M in 2012 (source:  Venture Intelligence) that went into venture in India was perhaps more than the market could absorb efficiently.  Capital is abundant in the growth stage, once product-market fit and/or profitability has been achieved, and hard to come by in the development stage (ie pre-revenue and/or pre-traction stage).

Indian startups have developed a unique set of growth strategies to overcome the challenges mentioned above.  I will write about these different growth strategies (and perhaps deep-dive into some of the challenges) in subsequent posts.  I am hopeful and excited about companies in India that are overcoming these challenges.

Thanks to the brain trust, who provided feedback and contributed ideas, including Bhawna AgarwalKunal BahlRaj ChinaiAshwin DameraPranay GuptaRavi GururajRavindra KrishnappaSasha MirchandaniKavin MittalSuchi MukherjeePallav NadhaniHitesh OberoiJanhavi ParikhAvinash RaghavaAmit RanjanRajesh SawhneyVijay Shekhar SharmaAmit Somani and my colleagues here at Lightspeed Ventures Maninder Gulati, Apoorva PandhiAnshoo Sharma and Bejul Somaia.

Please note that three companies mentioned in this article – Dhingana, OneAssist and Indian Energy Exchange – are Lightspeed portfolio companies.

Here’s Ashish Thusoo, CEO & founder of big-data-as-a-service company Qubole, speaking with GigaOm:

[Also published on VCCircle]

There has recently been increased discussion, and mainstream press reporting, on the adoption of a ‘marketplace’ model (vs. an inventory model) by e-commerce companies (e.g. these two articles in Mint: Mint 1 and Mint 2).  This discussion reflects an underlying presumption that one model is better than the other.  In framing the issue as a comparison of the two approaches, I think the dialog fails to address the more important question of why this shift is taking place and whether there are other approaches that can address the underlying challenges.

The shift towards ‘marketplaces’ is taking place as companies try to find a new balance between the following priorities:

  • Maximizing capital efficiency
  • Maximizing customer delight (selection, post purchase experience etc), and
  • Minimizing logistical complexity (which helps to maximize scalability)

The need to find a new balance is triggered by scarcity of capital.  As long as capital was freely available, most ecommerce companies focused heavily on the customer experience, which was best served by an inventory model.  As capital tightens, these companies must now balance the need to delight customers with the need to build a viable business.

What are marketplaces?

Let me start by defining what I believe to be true online marketplaces.  These are platforms that enable a large, fragmented base of buyers and sellers to discover price and transact with one another in an environment that is efficient, transparent and trusted.

  • Efficiency is a function of liquidity (enough buyers and sellers) and an effective price discovery mechanism (e.g. an auction).
  • Transparency is ensured by applying the same set of rules to all participants, and because buyers and sellers know who they are dealing with.
  • Trust is provided by features such as buyer and seller ratings, reviews, and integrity / guarantee of payment.

Marketplaces are difficult to execute against because they require adequate and simultaneous liquidity on the buyer and seller side. Once adequate liquidity has been established and the ‘flywheel is spinning’, these businesses exhibit strong network effects (because a market that has the most buyers will attract more sellers, and the increasing base of sellers will in turn attract more buyers).  So once a marketplace becomes dominant, it scales organically and often exhibits ‘winner take all’ characteristics.  Additionally, because marketplaces are essentially technology platforms that provide tools for buyers and sellers to participate and a trusted environment that facilitates price discovery and transactions (vs. actually being responsible for fulfilling transactions), they can scale very rapidly.

We’ve seen all of these dynamics play out at close range as a result of our investment in the Indian Energy Exchange (IEX; www.iexindia.com).  IEX operates an electronic market for power in India and has emerged as the dominant power exchange in the country with deep liquidity.

The take-away is that when you get marketplace business models right, they are profitable, scalable, defensible and highly valued.  Which is why contrasting the inventory model with a marketplace model makes for an exciting debate.

The inventory model

In India, there is no question that being in control of the product (i.e. having physical inventory) enables a superior post-purchase consumer experience.  If you have the product in your control, then (assuming your systems and processes are robust) you: (i) have visibility into your stock level, (ii) know where the product is physically located, and (iii) control the pick, pack and ship process.  This means that you minimize the likelihood of accepting an order only to later discover that you don’t have the product. It also means that you can optimize dispatch time.  The bottom line is that being in control of the product enables you to deliver faster and with higher accuracy, and respond effectively to customer inquiries about shipping status. Given the correlation between delivery times and return rates that we’ve observed (i.e. long delivery times are clearly correlated with high return rates), this is really important.

The problem is that being in control of the product has meant that companies compromise capital efficiency – because they buy product from vendors up-front, thus tying up capital in inventory, while at the same time exposing themselves to inventory mark-down risk.  This can get ugly – which is why it makes sense to explore other approaches, one of which is a marketplace model.

Marketplaces in ecommerce – how different are they really?

The reality is that most of the marketplace models we see in ecommerce are not ‘platforms’, as described earlier.  For example, in ecommerce marketplaces the prices are fixed, not discovered, and the ecommerce company is responsible (from the customer’s perspective) for several aspects of the post-purchase experience, such as fulfillment and customer service.  The reality is that to the customer, many of these marketplace companies look identical to inventory-led ecommerce businesses.  In other words, these models are simply one possible response to the constraints and challenges of traditional inventory models.  And the marketplace model is not without its downsides – for example shipping costs are higher because multi-product orders are fragmented across vendors and shipped separately.  And this in turn may lead to customer dissonance because a customer won’t receive their entire order at one time.

There are other solutions [Note that for purposes of this discussion I am not considering FDI related implications on company structure.]

Other possible ways of mitigating capital intensity while remaining in control of the product include (but may not be limited to) vendor credit, consignment sales (where products are in the possession of the ecommerce company but are not paid for upfront) or back-to-back purchasing (where the ecommerce company places the order on a vendor/supplier after receiving an order from a consumer). For example, ASOS, a UK-based online lifestyle retailer, has net working capital of less than 2% of sales while operating an inventory model.  Similarly, Shoppers Stop in India has a negative working capital model – again despite being an inventory-led business.

Focus on the substance, not the glossy headlines

This is a meaty and critical subject for any company involved in online commerce. We’re encouraging our companies to experiment with strategies that resolve the trade-offs outlined in this post because we think companies that successfully do so will have more attractive scale and economic characteristics over the long-term.  The purpose of the post is not to take sides on the inventory vs. marketplace model debate or address the pros and cons of each approach in detail – rather it is simply an attempt to surface the underlying issues that are driving the evolution of how ecommerce companies operate in India.

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