Category Archives: Venture Capital

Tracking My Tech Predictions: The ones that came true!

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Over past few years I have been tracking technology trends, analyzing and love predicting things through posts on this blogs, on twitter or through my annual technology trends & predictions. I recently started tracking them in a attempt to see how good is hit ratio. Here are a few of those that really saw the light of day.

Other Tech Predictions mentioned on this Blog:

  • Feb 2010: Social Platform intermediaries in Social Commerce space with no clear value propositions will fail as larger eCommerce players will self-integrate.
    May 2011: Blippy / Swipely pivoted from core proposition – sharing purchases.
  • May 2011: TRPs will be questioned. Future of TRP is digital. Crowdsourced TRPs,
    Aug 2012: NDTV submits a lawsuit against Nielson alleging rigging TRP data.
    Oct 2012: Startup iDubba launches iTRPs
    Dec 2012: Nielson annouces partnership with Twitter for Twitter based ratings.
  • Sept 2011: Google+ will head no where as Social Product
    Today: Its evident! When did you last visit your Google+ profile.

From 2012 Tech Predictions:

  • April 2012: LinkedIn will acquire SlideShare
    May 2012: Yes, LinkedIn acquired SlideShare for $119 Mn
  • April 2012: Indian Ecommerce will see Acqui-hires
    May 2012: Snapdeal acquires eSportsBuy and then shuts it down.
    May 2012: Yebhi acquires StylishYou and shuts it down.
    Aug 2012: Hushbabies acquires MangoStreet and shuts it down.
    Aug 2012: FashionandYou acquires UrbanTouch, UrbanTouch management takes over.
    Related Post by me: Why Ecommerce acquisitions make no sense in early stage.
  • April 2012: Jabong will be aggressive play by Rocket Internet. Will be in Top 5 Ecommerce players in India
    May 2012: NextBigWhat apparently pointed out that they are.
  • April 2012: Series B crunch for players focused on vertical ecommerce.
    Evident: Many ecommerce startups who raised Series A struggling raising a follow on round.

From 2011 Tech Predictions: 

  • Jan 2011: VCs will consolidate Indian Ecommerce plays within own portfolio
    Feb 2012: Flipkart acquires LetsBuy
    Nov 2012: Myntra acquires SherSingh / Exclusively.in
  • Jan 2011: A large player will enter Group Buying / Coupons space
    May 2011: Times Group enters daily deals business with Times Deal
  • Jan 2011: Pubmatic will be acquired
    Nov 2011: Rumors of Pubmatic in acquisition talks by Amazon. Pubmatic turned it down for IPO
  • Jan 2011: AdMax Network
    Feb 2012: Hinted towards AdMax Network in SE Asia which leveraged local inventory and is a leader in these countries. While I expected something like this to happen in India, interestingly Komli acquired AdMax (No direct prediction here).

Why Mobile First is not the Right Strategy!

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Startup events and Investor talks today have this catch phrase – ‘Mobile First’. Its actually started two years back when Fred Wilson wrote a post that says “Mobile First Web Second.”

I recently tweeted, “Can write a post why ‘Mobile First’ is not a right strategy!”. The response to that made me write this post.

Why I said that?
There are some brilliant mobile apps created by startups in recent years, the biggest challenge for all of them is discovery. Few startups are working in this problem too – helping users to discover your mobile apps. The problem is – these startups themselves are struggling in getting users to discover them first.

Google’s Android has over 700,000 apps in Play Store. Apple’s iOS App Store has over 700,000 apps. Assuming these were unique, as a entrepreneur, your startup has to fight with over 699,999 competitors on user’s smartphone, who on an average has only 65 apps installed. Another trend, many users regularly uninstall apps they do not use; once uninstalled – it is very unlikely they will install it again!

Building a successful startup requires two skills – building a product and marketing it. I tweeted that few days back – “Building a product is one thing. Marketing it is another. Remember that!”

Building the Product
Product development in startup is not easy. Everyday there are at least 3-5 updates to the live web application. Even before users realize, they are using on the latest version of web app.

On mobile this is tricky, its impossible to send 3-5 daily releases for your mobile app everyday. Its even more trickier to get your users to download and upgrade the latest version of mobile app every time.

Marketing the Product
Turn around and look at web – what are the ways you can get your start up discovered – Natural Search, Paid Search, Display Marketing (Advt based or Behavior based targeting), Social, Email Marketing and so on. Most of these is very flexible, you can do it all.

On mobile, there is only one mode of discovery that works – Mobile Advertising. Its still not a easy mode of advertising; far expensive; spray and pray approach as its not intent driven (remember – no one is asking for your app!) like Google Adwords and extremely less efficient since its end result is not landing page with one-click sign-up, but its downloading the app, registering the user and retaining him as well.

Btw, I am a believer in products that are driven by value to customers; and not through marketing.

So how does one get Mobile Strategy right?
Glance through the smartphone and check the apps you are most actively using. Its Facebook, Twitter, Gmail, Evernote, Quora and so on. These are essentially web first, mobile later products.

Effective Mobile Strategy is simple – get your product right on the web, acquire initial users, iterate your product (fast), get it right quickly, ensure engagement is in place. Once you have users engaged on the web, they will see value in your product to download your app and stay connected.

Hint – Look at Quora. It was valuable to its initial set of users who were so engaged with the product that they were screaming for getting a mobile app. Quora launched iOS app in Sept 2011; Android App a full year later in Sept 2012.

As a product manager, know that driving adoption and driving engagement for a product are two different things. Don’t try to drive adoption of your product through mobile, its extremely challenging and next to impossible. Instead use mobile as a extension of your product to drive engagement.

Then what about WhatsApp, Instagram, FourSquare, Pulse, Angry Birds and others?
I don’t think anyone has defined this yet, so let me say what are truly mobile first verticals –

  • Communication – If core of your product is deep integration with phone address book. (Eg, WhatsApp)
  • Location – If core of your product starts with location awareness. (Eg. FourSquare)
  • Camera – If core of your product starts with ‘taking’ photos. (Eg. Instagram)
  • Free Time – If core of your product is being valuable to user on the move or leisure time. (Eg. Games, News aggregation services like Pulse). Again extremely difficult category – you compete with Facebook, Twitter and 1000s of apps in this segment.

Yes. These products are not exceptions – they are truly mobile first products.

Wait, will VCs invest in my startup if I dump Mobile First approach?
Next time anyone suggests you or advises you to go Mobile First, just ask them tips to hack app discovery and drive adoption.

The games of investing are simple. VCs will invest only if –

  1. A proven team or experience entrepreneurs (at least 1X entrepreneurs)
  2. If consumer startup – then traction; if enterprise startup – then revenue.

I don’t think any VC will invest in your startup just because you are Mobile first. Take any strategy – web first or mobile first; as long as you get the above two things right for your product – VCs will chase you!

Concluding Notes:
While I was drafting this post, two interesting posts related to this topic came up.

Fred Wilson wrote following in his post “What has changed“, – “Distribution is much harder on mobile than web and we see a lot of mobile first startups getting stuck in the transition from successful product to large user base. strong product market fit is no longer enough to get to a large user base. you need to master the “download app, use app, keep using app, put it on your home screen” flow and that is a hard one to master.”

Cristina Cordova put up some interesting stats about User Retention in her post – “The Biggest Problem in Mobile: Retention.”

Restating it again as concluding remarks: “Mobile Strategy is simple. Get your product right on the web, acquire initial users, iterate your product, get it right, ensure engagement is in place. Once you have users engaged on the web, they will see value in your product to download your app to stay connected.”

Update: I received few notes from startup founders to also include a important note in this article which I missed – ‘Even when you build a web application, design your product as a responsive web design’. I completely agree.

Why Ecommerce acquisitions make no sense in early / nascent stage

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Few (Series B / Series C) funded ecommerce companies in India have started making/announcing acquisitions of smaller players. Recently when I posted about the 2012 Predictions & Trends, I made an comment that in an early ecommerce market, acquisitions of competition or startups really makes no sense. Trying to put few thoughts on that here.

A typical such small ecommerce startup that gets acquired by larger & known ecommerce player is structured as follows –

  • About 2-4 founding team members; 5 to 10 employees; up to 25 or so if the venture has received any institutional stage funding
  • Focused on one vertical – sports; electronics; kids; jewellery – Catalog of 1000 to 10000 product SKUs
  • Order Acquisition Channels – Direct Traffic, SEO, SEM, Social, Affiliates, Email Marketing, Display Advertising.
  • Team Structure: Founders, Product Development & Management Team, Online Marketing, Category Managers, Logistics & Operations Managers, Customer Support
  • Social Media presence – Fans on Facebook; Followers on Twitter
  • Business Partners – Vendors for Procurement, Logistics, Payment Gateway, Customer Support
  • Product, Platform & Technology
  • Warehouses & In-house logistics for Series A funded players
  • Gross Orders – between 50 to 100 per day; few Series A funded players may have from 200 to 500 per day.

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What happens when a considerably large & deeply funded ecommerce player (say LargeEcom.com) acquires a small startup (SmallEcom.com) with assets as mentioned above –

  • Category Focus:
    SmallEcom.com will be either a horizontal player or vertical focused player. If horizontal, then most of the products will be already present in acquiring company. If vertical then it might be a small ecommerce startup with about 500 to 5000 SKUs, the acquisition further does not make any sense. The acquiring LargeEcom.com could have directly poached category managers or could have developed that category in-house just by hiring few more category managers!
    . 
  • Order Acquisition Channels:
    Any online ecommerce venture’s assets are how they are acquiring new customers. The biggest challenge is not acquiring SmallEcom.com, but making the most of these channels. Post acquisition, these channels are ‘unfortunately useless’ to the acquiring company – LargeEcom.com. Here is why –
    .
    • Direct Traffic >
      If website of SmallEcom.com needs to be shut, the direct traffic will be redirected to LargeEcom.com post acquisition, doing that quickly reduces the value to its existing users. If website is shut – value of all other channels die on its own, explained below.
      . 
    • Natural Search or SEO >
      SmallEcom.com’s URLs in Google Index no matter how well optimized will lose rankings when the traffic is diverted to another domain. All time and money invested in search optimization over months / years is diminished immediately.
      .
    • Paid Advertising: SEM & Display >
      Search Campaigns are optimized over a period of time to reach lower the cost per clicks. Though the same can copied from SmallEcom.com in to account of LargeEcom.com’s adwords account, the same CPCs will not be maintained. Well, otherwise the acquiring company LargeEcom.com’s has its own online marketing team, it will be a max one week job to create new campaigns for the catalog of SmallEcom.com.
      .
    • Social >
      Post acquisition, SmallEcom.com’s Facebook Fans & Twitter followers cannot be moved to LargeEcom.com’s brand page or twitter handle. Again – value of the time and money spend behind this channel is reduced to zero on day 1 itself.
      .
    • Affiliates >
      There are few affiliate marketing companies in India, they work with all ecommerce companies. Most likely LargeEcom.com would have better negotiated rates (cost of acquisition) with the same affiliate partners thats SmallEcom.com has partnered with.
      .
    • Email >
      There might be few duplicate email addresses, but is this a reason for LargeEcom.com to acquire a ecom startup with a small number of email addresses knowing that email marketing has diminishing returns over a period of time.
      .

The conclusion is – to retain the value of the startup’s order acquisition channels, the venture needs to be up and running. The big question for large acquiring company – should be it done at a cost of duplicating every resource available – two marketing teams, two product teams, two tech teams, two customer support teams or two operations teams?

The answer is No in both the cases – that is why acquiring a ecommerce startup is senseless; and most of them happening in India now can be termed as Acqui-hires, hired for talent.

  • Founding Team:
    The founders are retained, most likely to quit post the expiry of retention period. Once entrepreneur is always a entrepreneur by heart.
    .
  • Team Structure:
    Post acquisition, most roles will be dual and overlapping in both organizations. Unfortunately many cannot be accommodated since the larger entity cannot have – say two Online Marketing Heads or two Operations Head. Only in the case when the acquiring company has open positions, high chances that the team members are accommodated, else asked to quit.
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  • Business Partners:
    Vendors for Procurement – will be added to LargeEcom.com if it was acquiring a vertical ecommerce player and was not present in the same category. Most likely, this will not be more than 100 new vendors; again which could have been easily acquired just by hiring 2-3 new category managers (so why acquire?). If horizontal player was acquired – there would a overlap in vendors too.
    .
  • Logistics & Payment Gateway:
    LargeEcom.com would already enjoy better pricing for both with its partners, needless to say they both work with similar service providers for logistics. Acquiring a startup will not increase footprint in terms of pin-codes served.
    .
  • Customer Support:
    In a small startup, customer support is usually handled by a very small team; often by founders. If acquisition is across city – a Delhi based startup is acquired by Bangalore based one, clearly means that the team is either axed or goes on job hunting mode as they would not be open to relocation. This also holds true for other teams as well.
    .
  • Product, Platform & Technology: 
    The smaller startup that gets acquired will probably be running a ready-to-integrate ecommerce platform. Surprisingly, even the larger acquiring company might be as well running on some ready to use ecommerce platform and struggling to hold it up. There is absolutely no question of seamless integration here, ask your engineering folks! Either ways, since the acquisition is not for technology, the product and platform improvements on the smaller startup’s ecommerce platform will be lost as well.
    .
  • Warehouse & In-house Logistics:
    Few funded startups today have started with own warehouse & in-house logistics. Post acquisition, the lease on such warehouses expire (for two reasons – acquiring ecom startup already has own warehouse in that location with excess space + managing two warehouses in same city at a distance from each other means doubling operational costs). In-house logistics employees are either temps or contract workforce or on rolls of another company.
    .
  • Gross Orders:
    The SmallEcom.com site that was just acquired was doing about 50 to 200 daily gross orders; The LargeEcom.com site who acquired it will usually claim to do between 10,000 to 25,000 daily transactions. On order to order basis – acquiring an loss making ecommerce startup that will does 0.5% to 1% transactions will add any value to large entity? No.
    .

So why are these acquisitions happening?

  • New Vertical?
    No. It is not right to acquire a company for say $1 Mn or even 1 Crore to add new category to your product portfolio. Hire two category managers and have the new vertical rolling in 3 months.
    .
  • Acqui-hires?
    No. They happen if it was a case of known proven talent who build a super kewl product / technology platform but did not hit a right idea or execute it well. Examples – Oink (by Milk), or Gowalla and so on.
    .
  • Revenues?
    No. A large loss making ecommerce entity acquiring another loss making small ecommerce startup – two negatives don’t add up to positives.
    . 
  • Assets? No.
    Clearly no assets are doubled post the acquisition. Nothing on revenue, product, process or technology.

May be signs of desperation. May be lets try out something new. May be even VC / PE signaling – ‘Hey, we guys are growing inorganically, new category, new vertical and so on – we will require more investment capital in next rounds, care to participate?’. They may participate or may not – but is this a right strategy to present or package to existing investors where the net value of acquisition post 12 months (or even on day of acquisition) is zero.

However, some acquisitions do make sense – Homeshop18 acquiring Coinjoos or Flipkart acquiring Mime360. (Sorry – I don’t name bad acquisitions). Venturing into new vertical at times makes sense for acquisition – for verticals like huge catalog driven businesses – Books & Digital Music. It takes months together to build a team and build this massive catalog and then start business operations; acquisition makes more sense than building it grounds up; but not for any other category.
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So Amazon.com acquires? Why can’t we?
Amazon acquires cause it should acquire and own large ecommerce companies to maintain its undisputed lead. It is a listed company, needs to focus on growing is topline revenues and at the massive size that Amazon.com is – it has capacity to absorb losses and yet show some superb green numbers in balance sheet.

My guess is Amazon keeps all acquired ecommerce properties (Zappos, Woot, Diapers, Soap, Audible, etc, etc) live and independent post acquisition not alone for the culture of startups – but for reasons explained above. They need to maintain order acquisition channels for these acquired companies active and generate revenues.

While in India, a Series B / Series C funded ecommerce venture cannot run dual operations or two loss making entities.
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Concluding Notes:
I am not against acquisitions & exits, they are must for startup ecosystem. And they should be in plenty to keep the ecosystem building. But don’t agree with such acquisitions made by Series B / Series C funded ecommerce companies which end up adding no value to the company. They hurt in long run, when multiple investors get involved – burn their hands and then completely give up on the sector or market itself.

Otherwise I will stick to what I wrote earlier on predications for investments made in both horizontal & vertical ecommerce in India.

 

Predictions 2012: Technology Trends; Investments & Biggest Exits in Indian Internet / Tech Space

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This post is a update to one of my earlier post written about a year ago on similar lines.

Multiple new products, investments and its always a good thing for the ecosystem which matures with time. Indian tech industry is changing at a rapid pace, its only fair to go back and recheck those predictions and ensure to keep it up with the times.

Meanwhile, predictions that came true:

  • Had indicated the possibility of this particular VCs (without naming specifically, though evident who) investing actively in Indian Ecommerce merging its portfolio companies to form an large entity. Just few days over a year after this prediction, Accel and Tiger Global backed Flipkart acquired Letsbuy.
  • Mentioned that a large player will enter Group Buying deal space. The coupon/deal space was too tempting for many to resist at that time and as I expected, Times Group (Indiatimes) entered this space in May 2011.
  •  Specifically mentioned of Pubmatic being acquired; There were rumors about a possible acquisition offer by Amazon for $300 Mn which was declined as the company chose an IPO over acquisition. Meanwhile Google acquired AdMeld for $400 Mn.
  • Hinted towards AdMax Network in South East Asia which leverages local inventory and is a leader in these countries. While I expected something like this to happen in India, interestingly Komli acquired AdMax. (Though I did not predict this to happen).

 

Predictions for 2012 onwards:

Product based Ecommerce companies:

Flipkart, HomeShop18, Infibeam will continue to grow; and (no brainer now) that Flipkart will emerge as the market leader amongst the Indian players. I expect Flipkart and these leaders to attempt the following –

  • To ensure profitability of logistic operations, either introduce upfront minimum charge for Cash on Delivery below a certain price value or markup its prices by a small amount.
  • Introduce a co-branded credit card with rewards. Not as a branding or marketing exercise, but to encourage existing users to move towards pre-paid payment mechanisms.
  • Spin-off its logistics, customer care, operations departments in to a different company to ensure profitability of Flipkart before it hits an IPO.

Though many criticize the Samwer brothers (Rocket Internet) for creating copies of successful business models – I see nothing wrong in that. How different are any of the other ecommerce sites with their Amazon.com ambitions? Rocket Internet fellas are aggressive risk-takers, investors and amongst their bets on Indian market, Jabong.com has potential to enter in the top 3 / top 5 spots. At some point of time – they may consolidate Fabfurnish.com and HeavenandHome.com into Jabong and set a stage for IPO or an exit through acquisition (Amazon.com?). Rocket Internet is as smart as any other investor when it comes to getting acquired. Watch them!

Marketplace models like Ebay, Indiatimes, etc may face tough competition owing to their helplessness to control key factors like logistics, operations and product quality; precisely what funded startups are keen to build on.

There are now niche plays coming up – Ecommerce services for Tier II/III towns. Most likely candidates to struggle, conceptually sounds great – but the on-ground reality is much different. Will they not accept user orders if customer is from Mumbai or Delhi? I know you talk about ambitions of Tier III youth, age bracket 20-35, etc – but do they require iPad? if yes – why will not Flipkart serve it.

About Amazon’s India plans – I mentioned of the same in this post about about Junglee.
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Vertical Ecommerce and More –

Many ventures who have raised between $2Mn to $5Mn – are yet to move beyond the 500 transactions per day mark even after a year. Few yet to cross 200; scalability is must for any Ecommerce venture to succeed. Verticalization of ecommerce has happened before time.

Predict more consolidation in Ecommerce industry in vertical investments. Simply for the following reasons –

  • There will be a Series B crunch. Most investors have already made multiple investments in ecommerce services. Companies will face tough time raising further investments and will require to raise Series B investments from existing investors. Investors hedge risk by investments in multiple ventures, they will require deep pockets to put more money in one venture, diluting founders more and eventually controlling the company. This shall lead to multiple consolidations between portfolio companies (Flipkart + Letsbuy scenarios).
  • There are multiple vertical funded ecommerce companies in market today. This has happened before time, for verticals to succeed, the horizontal ecommerce play itself should be very large. This is exactly why ventures like Flipkart (books), Letsbuy (gadgets), Snapdeal (coupons) who started as niche expanded into horizontal play.

Few players who have launched multiple sites for focused ecommerce approach, other than doubling costs of user acquisition, the only notional benefit it brings to table is SEO. This might not be even proved in Indian context – though a different vertical, we see that Shaadi.com with single brand focus is as popular as Bharat Matrimony with its multiple brands.

Another trend in Ecommerce is online grocery shops – at this stage most of the ventures are focused in single cities, the challenge for every startup in this domain is to replicate this operations in every city, every locality they expand into in a same or much more efficient manner. Unaware of any investments made in this vertical yet; I’m guessing investors are also looking at same – scaling beyond 2 to 3 locations.

Ecommerce for kids – someone shared a joke with me ‘Probably the rate at which online baby stores are coming up is greater than growth rate of India’s population.’ Very little differentiation between existing players, some of them already moving towards a franchise model (which probably beats the economics of online stores).

Amongst vertical investments – many have happened till date in Fashion. This is an interesting space, however already crowded with no differentiation left. Increased cost of user acquisitions, operations and logistics along with Series B or follow-on investment crunch will take a toll on few players. Funded players will try many things – new brands, labels, etc. The question always will be – what differentiation to bring to table? what exit for investor?

There is also a serious talent crunch with many funded ecommerce players, not just at junior but at middle and senior management levels. Another trend that will come up soon is acquihire deals.

Trend you will notice soon – the last slide of pitches will now read acquisition by Flipkart, instead of Amazon. But in an early ecommerce market acquisitions of competition really makes no sense – will write about this some day.

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Group Buying / Daily Deal / Coupon Companies:

Post the Groupon IPO, the obvious was out – this is not a profitable business to be in. Even the leaders moved away from the Group Buying space – tells us the story of Group Buying or Daily Deals. Has suggested last year that funded players will grow, they did but by pivoting to product driven horizontal ecommerce.

The Groupon IPO spoiled the party for many others who were waiting to be acquired by Google Offers or Living Social. Amazon is know to build large profitable businesses, though Living Social has raised a massive $800 Mn+ in investments till date – its fate might be uncertain. Either hit the dead pool or an acquisition by Groupon itself at a very cheap price!

Back to India, there is nothing much left to say now for this vertical, its just a matter of time when large me too companies who joined the party will start calling it quits. Ebay who experimented with it silently abandoned its play, others like Times, Rediff, Mouthshut will too have to review their presence in this vertical in some time.

Some significant players who made presence felt in the couponing space are – online recharge players like FreeCharge & PayTM. It is too early to comment on their exit, however its a interesting vertical (specific only to India) to watch for following reasons – operators doing something fundamentally wrong as own customers pay bills outside, multiple players have entered the segment, players need to retain consumer interest without causing deal fatigue.

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Online Travel Companies:

Not much changing in travel landscape. As mentioned last year – Yatra & Cleartrip are clear IPO exits. Last year MakeMyTrip and SAIF acquired Ixigo, Yatra & Cleartrip might as well look at smaller acquisitions in this space, particularly players in holidays/vacations – the likes of mygola.

It has been a while that Naspers/MIH has invested in ibibo; with ibibo.com focusing only on games from now, it might look at some kind of exit with Goibibo.com. Meanwhile, Naspers / MIH / Ibibo might look at acquiring one or two startups either in gaming/travel domain to solidify these two verticals, or to expand in to new verticals since they clearly indicate focused growth now with Gaming (Ibibo), Travel (GoIbibo), Ecommerce (Tradus) & Automobiles (Gaadi).

RedBus.in is the clear leader in online bus ticketing space, it will continue to be IPO candidate or hot acquisition target. Owing to high valuation of RedBus, its now noteworthy competitor TravelYaari will be in better position to be acquired – in all probability by Yatra / Cleartrip or GoIbibo.

Repeat – Dear Railway Ministry, please list IRCTC on stock markets. Massive opportunity.
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Online Car Rentals:

Just two years back we saw host of daily deal sites, in last month we have seen about 4 investments made in Online Car Rentals space – Ola Cabs, Savaari, YourCabs and TaxiGuide. Predict Ola Cabs to take a lead in this space – and be a possible acquisition candidate for Uber.

This prediction is not based on the fact that they have raised highest of the lot – because its strategy is right. To be successful in this space, they need to concentrate only on the top 8-12 metros, 90% of their target customer base is in these cities. A smart online car rental service will start only in cities where fleet cabs like – Meru Cabs, Easy Cabs or others have significant presence and created the market. For now, more cities just looks good on paper.

Time will prove this right or wrong – as for now, this vertical has just started showing signs of growth (and already getting crowded). It kind of makes sense for Ola Cabs to make a small acquisition in this space and expand quickly.
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Advertising Networks – Web / Mobile:

Last year I suggested that this particular vertical is hinting saturation of market. Out of the existing lot (Tyroo, Komli, Ozone Media, AdMagnet, and other players) – clearly Komli has grown out of India and with its series of acquisitions (Aktiv, ZestAds, AdMax) is trying to position itself as large digital advertising company in Asia, indicating its preparation for an IPO or could be acquired by large agencies like WPP, Dentsu, Publicis or similar.

Unfortunately for India, there is not much technology play in advertising networks, most end up working in model similar to agencies (except the creative part). But few niche technology players in this domain are Sokrati (Paid Search) and Vizury (Display Re-targeting). Both have raised smaller investment rounds earlier and could be good acquisition targets; unlikely for Komli for its partnership with Efficient Frontiers (for search) and display re-targeting has been mastered by many now. Of all players, Ohana Media* could be a acquisition target – its behavioral marketing techniques that combine audience data across channels is amongst the best differential technology available in India today.

Tyroo recently acquired DGM India for $0.6 Mn. DGM was India’s largest affiliate marketing company – a small acquisition size may play spoil sport for couple of startups wanting to monetize through shopping / affiliate related models and currently looking to raise funds.

InMobi continues to be the hot IPO candidate in this space. Google acquired AdMob when advertising on mobile web was at its peak time; current mobile advertising focus is shifting towards in-app advertising, which might even make it a acquisition target for Google (Android) or Apple (iOS devices). New players like Vserv or others would have to build a product sweet sport – number of publishers, impressions available per day and so on, very early days for them.

Guruji seems to now have completely focused its efforts on AdIquity – its mobile advt yield optimization and mobile RTB platform (similar to Pubmatic, but for mobile). Good strategy, may provide exit for its investors by a quick acquisition by InMobi or even by Pubmatic or other web based RTB players like Rubicon Project). As Google continues to mess up its core product – search, it is high time Guruji re-look its search business, not for India but for the world (like duckduckgo).

Pubmatic – is IPO bound. Last year I mentioned them as a potential acquisition target. Its obvious Google spoke to them before acquiring Admeld, they reportedly reject Amazon’s $300 Mn acquisition offer.

*full disclosure – I was earlier associated with Ohana as head of product & marketing. the name was skipped last year due to my association.

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Education:

Many people in investment circle say repeatedly that Education along with Healthcare are hot segments ripe for disruption. Well it is, and a majority of them don’t have a clue what that disruption will be (this includes me). There are already multiple investments made in this Education domain till date, most of them unfortunately will be write-offs and struggle for their next institutional round.

Startups / Investments in Education sector can be classified following segments –
a. Entrance Tests (Online test preparations services)
b. Online Applications (Choose college, careers for India & Abroad)
c. Virtual Classrooms, Online Tutors (self explanatory)
d. Hardware Plays (Education Devices & Tablets)

Startups in A & B –

  • Over crowded space (many funded players, pivoted players, existing players with deep pockets)
  • Though India has lacs of students every year; the choice of colleges are limited – Top 25 colleges are key in every stream (MBA, Engg, Medical, etc). The long tail of 10,000+ institutes does not matter. For the skewed supply-demand ration, these top 25 colleges will attract students anyway. If startups are paid commissions for referrals from Tier-2/3 institutes – to monetize these startups might be recommending colleges that they should not otherwise.
  • Consumer value does not extend beyond 1-time use of service.
  • Students & Parents rely more on taking (free) advice from their friends and family; or people in social circle who can share recommendations.

Startups in C –

  • Fancy names – cloud campus will not do much for its business. Internet is and always was cloud.
  • The best content driven organization – Khan Academy. Its free.
  • Changing syllabus, all online courses need to be revamped. Content heavy services, high cost of content creation; no control on content piracy.

Startups in D –

  • Foolish attempts. Anyone who thinks they can proliferate new tablets for education only are bad students of internet.
  • Education is a content play; not hardware play. Students today have access to computers, laptops and soon Android tablets (steep decline in prices). Instead of building new devices – try delivering content to devices students already have access to.

Education by nature is largely offline category and service oriented. Most of these startups are attempting to package them as products, but will be largely service driven plays behind curtains. Investors care about multiple returns on their investments – will they get 10X returns, I doubt.
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SaaS Products:

The fascination for SaaS products continues with investors and will go on for some more time. Since these investments are in very early stage, it will not be appropriate talking about exits. No one has tried to classified SaaS products yet (not to my knowledge) – but let me attempt it as following:

There are Consumer SaaS products that follow a freemium model – Dropbox, Evernote, Hootsuite, Skype and so on, and there are Enterprise SaaS products.

  1. Business SaaS products priced by usage – Typically products that cater to large business spends. Example., Clickable (catering to online advertising), Interview Street (Hiring) or Amazon AWS (Hosting & Computing), Box, 37 signals, etc.
    Companies will continue to spend more on advertising, hire more with time – hence more revenue potential for these startups.
  2. Business SaaS products priced by features – Bill.com (Online Billing), RingCentral (Virtual 800 number), Xero (Accounting), etc. Best way to identify them is the pricing, the revenue potential of such products will not grow significantly as its users grow.

Restricting only to Business SaaS products – Type 1 SaaS startup will maximize its revenue per user as its customers continues to grow, spends more on advertising, hire more, use more hosting, etc. Type 2 SaaS startup will require more clients to maximize its revenue.

Amongst Indian SaaS products, currently Interview Street is probably in the best position to be acquired (may be by LinkedIn). Freshdesk is also a great product, that has a long way to go building a differentiated model from its competitors (which are in plenty). Another Indian SaaS startup I am a big fan is Practo, but it might take them a while to be considered for acquisition since technology is yet to transform health industry, most big giants in health-care yet to embrace tech.

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Online Gaming:

We will continue to hear of online gaming for few more years, examples of Zynga or Rivio (Angry Birds) for some more time to come. Will there be a exit for any player – No. Take clues from Zynga’s $200 Mn acquisition of OMGPOP – it takes a hit game like Draw Something (massive traction with over 10Mn installs in first 30 days of launch, and cross 50Mn+ early this month) to be noticed and get acquired.

Same happened with Rivio for Angry Birds. The key is simple – keep building till you get that winning game on hand.
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Online Matrimony:

Nothing changes here. Bharat Matrimony is profitable play to my knowledge and is looking for its IPO towards the end of this year or early 2013. With Shaadi.com – unsure of its IPO happening any time soon, just as Ias mentioned last year, very unlikely before Consim Group.
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Online Classifieds:

JustDial as known by everyone is heading for IPO. The online-offline model and discovery through phone & web seems to have really worked for them. Really wanted to write something about other players in this segment, but they seem to be busy monetizing more through Google Adsense – so leaving them to rust in peace.

The whole hype about Craigslist was probably the reason why everyone got on to this play. Having said that, not just in India – but globally the online classified vertical is now open to disruption – there are interesting startups like Taskrabbit, Zaarly and more.
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Applications:

Waiting for an Kodak (Oops, I meant Instagram) moment? You may see it soon with Saavn. Amongst all the apps I have seen till date, Saavn is the hottest in terms of distribution, reach and usage.

Tweeted this once – Flipkart should acquire Saavn. There are multiple synergies – Saavn has a vast catalog (subset of Flipkart’s digital service Flyte) and Flipkart has no mobile presence for its digital service. Rather than building a mobile app, waiting for its distribution, Flipkart can start monetization with Saavn’s near 10 Million users from day 1.

Expect in next year or two, this section will have more (and interesting) names!
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Other Exits related to India –

  • Slideshare – expect it to be a great exit story. LinkedIn should probably evaluate the opportunity, once business contacts are made – its time to prove move ahead on keeping them engaged with business content, Slideshare is an excellent fit for then; the other player is of course Quora as written earlier.
  • BookMyShow is another super product in making. Scalable web business models are all about aggregating demand/supply – BookMyShow is well positioned and has all potential to be the largest entertainment company in India.
  • One97 is also set for IPO.
  • Another company I admire is Zomato – but for whatever reasons the company is focused on content and is not building a great product. There is so much more they can do in this space, not sure why they are happy with old & simple play of content + advts.

 

No Clear Exits:

My list of no clear exits has some new names. Like last year – SMS Gupshup, PayMate, mChek continue (read: what problems are mobile payment services trying to solve); will add SeventyMM, SatNav & MapMyIndia to that list (Google Maps and GPS on smart phones has played flattener for their offerings).  For reasons mentioned earlier – majority of players in Online Classifieds & Education vertical have no clear exit plans. Also Onward Mobility (if continue with offline distribution of their apps) is on the list.

Have taken off Guruji from the list – for reasons explained above. They will exit for AdIquity, not for its search business.

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Concluding Notes:

All views are personal opinions indicative of on-going trends, don’t take them too seriously. I was outright rejected by one VC when applied for role as technology (internet + mobile + new media) investment analyst for lack of relevant experience. A top consultancy firm thought it was in our mutual interest not to join them 😉

The only unfortunate part of this post is taking names of startups/companies, many of them founded / managed / invested in by people I know personally and have great respect for; few as friends, entrepreneurs & acquaintances. Having said that, I analyze trends and will be really happy to be proven wrong by passionate entrepreneurs. When it comes to investors, admire those who have placed their bets on companies or products where exits are/were not obvious. That is what risk-taking is all about!

Cheers till them. Will revisit these predictions next year.

Have a different opinion, would be great to hear. Write to me on pj@beingpractical.com / follow on twitter.com/beingpractical.com

Lets Blame It on Rio (and not the Ecosystem!)

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Having read so much on blogs, forums, one on one interactions with entrepreneurs, VCs – I conclude that “Blame It on Ecosystem” is the favorite game for people in Indian startup space (both included – entrepreneurs & the investors). And the blame game continues – Entrepreneur complaining that this VC just “does not get it” when their pitch does not make it; Investors complaining that they are “yet to find a Bn dollar company” from India.

There is a lot of rant already over this topic without much reasoning. Unlike my other posts on this blog – I will not try to express any personal opinion about a business domain here; but just highlight why the Indian Startup scene is about 10 years behind Silicon Valley.

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Indian VCs don’t take risks –
Entrepreneurs have higher appetite for risk than investors. Every investment in any investor portfolio is a risk. There is a calculated risk that every VC takes, be it Indian or US investor. Indian VCs don’t take risk is a incorrect statement, the right way to put this is – risk appetite of Indian VCs is more inclined towards proven business models of west. After all a entrepreneur takes a risk with belief in his idea, VC with his money in entrepreneur’s belief to execute.

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Only Validated Business Ideas get VC invested –
OTAs, Daily Coupon Sites, eCommerce, Finance Lead Generation & similar., these are proven business models with metrics that are well defined.
– X visits result on Y transactions at average value of Z
– X spends result in Y leads and Z conversions from it

This is a low risk appetite investment, where it is not a rocket science to determine how to scale up the business and predict profitability & revenue projections. Knowing these metrics and a good team – the VC is more comfortable & confident with such investments in India.

Compare the same for an Facebook, Foursquare, Quora, Twitter, Dropbox or Evernote. If such businesses are pitched at early stage to VCs here, most of them would have no clue on what metrics to use for basis of their investment. All such platforms raised a angel round or small VC round before the metrics were clear.

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Lack of 2nd/3rd Generation Entrepreneurs –
Now why did I mention initially in this post that India is ten years behind Silicon Valley? – because Silicon Valley today has entrepreneurs & investors who have done 2X/3X exits. Living up a 2X or 3X full company life cycle till exit gives an incomparable experience, the next company they build is ‘better product & platform’ than the earlier and so on.

In India, with notables of Naukri, MakeMyTrip and few others we have started seeing first generation exits now, both Sanjeev Bikhchandani & Deep Kalra are doing the right things with spotting new investments for the next mile. To have more entrepreneurs going 1X, 2X or 3X exits, is anywhere between a 5-10 year game plan.

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Pre-Revenue Investments –
There is a big misconception that in Silicon Valley companies get funded in pre-revenue stage. Yes, they do – but not all; not the ones without strong user engagement, not the ones without a solid team behind the product or platform. And for B2B products, not the ones who have initial set of customers who swear by the product!

This might not be false for India as well. If Sanjeev or Deep Kalra want to start their next entrepreneurial journey – who will not invest?

Pre-Revenue Startups like Facebook, Foursquare and many others did not raise large investments or achieve high valuations in their first round. These companies themselves raised either an angel investment or a very low value Series A investment to start, validate their product, get users/customers and then went for a big round of investment/valuation.

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There are no Early Adopters –
Unless an entrepreneur agrees that his product is bad or not a market-fit or has not tried enough, in my opinion this is the biggest excuse. How can one justify the same in a country of 1 Billion people. In a country which easily figures among the top 10 countries by users for any successful web product in valley – from Orkut, Facebook, LinkedIn, Twitter, Foursquare, Quora and many others!

For B2C products – you have not tried enough!
For B2B or Enterprise SaaS products – did you guys not hear of Wingify or Fusion Charts or InMobi. This is digitally connected world – no one has bounded a company by geographical limits. These are proven models of product driven startups from India.

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Disconnect with Valley –
The kind of companies that are funded in India today are the ones that were funded in US about ten years back. I have no disrespect for the Indian companies – infact they are building the base for the next wave of Internet boom – exactly the same that happened with US.

With a whole lot of first generation entrepreneurs in India – we expect at least the VCs to bring an perspective on whats happening in US & other parts of the world, not the obvious answers that everyone knows. The learning from valley does not come or has not reached to many investors in India.

My point of disconnect with valley here is that many in investment community today are still unaware of Quora, Spotify, Dropbox, Evernote, Airbnb, Rovio, and so many others. In one of my meetings I had to tell a investment analyst about 500startups, Angellist and in another one that Ashton Kutcher is also a technology investor! And in one more, someone explained if a American company like Lenovo can be big in China, others too can (? – OK)! And that people in investor circles are still unaware of Yuri Milner & DST.

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No Product Focus –
There is a buzz within investor circles that the next Google, Facebook, Amazon of the world will come from India. With comfortable investment decisions in validated business models like eCommerce – post my above experiences I sincerely doubt if Indian investors will be able to spot such opportunities when it knocks your doors?

The current series of investments about eCommerce in India are a hunt to find the next Amazon. But, Amazon itself has ceased being an eCommerce company long time back, it is a product/ a platform and much more beyond all that – view Amazon’s Hidden Empire .

In US, investors invest in products & platforms; in India – they invest in companies. Huge Difference! When did you last hear of an eCommerce (leaving aside daily deals and private shopping, though a format of eCommerce itself) or Online Travel company getting funded in Silicon Valley?. If you are building a B2B or B2C product/platform company in India, all investors will be to help you with money & connections, but only handful of investors in India will be help you with product or platform – choose wisely!

Disclosure: Experience – I reached out to two venture capitalists at some point of time for role as investment analyst with experience in diverse products & platforms – was rejected outright for lack of ‘relevant experience’. No sour grapes, but I could have saved some millions for them 🙂

I am of a strong opinion that there is a huge need of in-house product & platform management advisory in many Indian venture capitalists. All ecosystem changes are driven by improvement & innovations in products & platforms, not by revenues. Lastly, it is only the consumer products that will scale up and be a billion dollar company!

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Everyone wants to invest Early Stage / Series A
Everyone wants to invest at early stage, but no one wants to take risk. So investments will happen early – but validated business models only. Some good examples for early stage investments in India are redBus, InMobi – while some good early stage misses are Infibeam (which has grown significantly larger without any outside investment).

Angels and Seed stage funds are well positioned to spot early opportunities than institutional investors.

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Premature Incubation Model
Going for a incubation model – make sure you choose the right one among the ones you are joining. Reason to say this – incubation models in US have mentors who have great experience in building products & platforms at scale. Y Combinator – has Paul Buchheit (creator of Gmail & Google Adsense), 500startups has Dave McClure (PayPal, FBfund, Simply Hired and more) and mentors from hottest companies and startups in valley; and so many others.

I have simple belief – Internet & Mobile startups are as good or as bad as the products you build. If you are choosing a incubation model – make sure it compliments your actual requirements. Last reason an entrepreneur should choose a incubation mode is money!

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The Know-It-All Attitude
This goes to Entrepreneurs – if you have, please shed away this attitude and get in a mode to learn, to take advice and asking right questions. Relationship status between an Entrepreneur and Investor is complicated – you can’t live with them or you can’t live without them, so you might as well accept them the way they are.

While closing your meetings / pitch with prospective investors – take feedback on the product, business model and the pitch. They will advice you based on their best strengths and experience, but only if you ask! In my personal experience – I managed to get some key improvements & suggestions on the product I am building.

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Please learn to say No
Entrepreneurs learn to say no to investors who do not see and agree with the vision you hold for the product.
Investors learn to say no, and fast. Entrepreneur’s time is equally important as yours! If the product does not match your investment interest – communicate it as fast as possible. Saying no immediately may not so bad; but keep a hope alive may be frustrating for the entrepreneur.

PS: Please respond faster to emails! I exchanged few notes with some of ‘the investors’ in Silicon Valley – always found a reply within 12 hours in all cases, some of them in less than 30 minutes.

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Quality of Press Releases & Coverage
The state of ecosystem is also reflected by the type of news coverage & press releases one reads on Indian Blogs. People movements – in most cases of those names who we have never heard of before, New sales office in Middle East, Forward looking statements on revenues & projections, Surveys that say the obvious in press releases, Claims & unacceptable figures, and so much more! Damn – we would like to know more about your products & platforms, everything else is just crap!

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Concluding Remarks –

Startup ecosystem is built with entrepreneurs, their companies, their early customers and then the investors. You control 75% of the ecosystem already, investors will follow. In the same context I remember one of Sameer Guglani’s tweet – “Founders r creators / accelerators, angels, VCs r service providers. our business runs because founders start companies & not other way arnd.”

The point I am trying to convey here is that if you think or perceive that ecosystem is not evolved in Indian start up scenario, stop complaining and don’t be an entrepreneur. There is no point in waiting for a right time to build your startup, the time to start is now. Get started!

Ecosystem or no Ecosystem – it did not stop a redBus, Naukri, MakeMyTrip, Flipkart, InMobi or SlideShare* to be what they are from India. Why should it stop you!

The term ecosystem means lot of other components as well. Feel free to add more to the comments based on your experiences.

 

What problems are the Mobile Payment Services trying to solve?

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When I heard of Twitter founder Jack Dorsey’s announcement of mobile payment startup – Square, I loved the simplicity of the service. Few months Jack Dorsey tweeted that Square is processing transactions worth $1Mn per day – that is a cool revenue run rate of $10Mn per year for a two year startup (Square charges 2.75% charge per transaction when paid through credit card)

With very little knowledge of how offline transactions work in US, but it is definitely a card driven economy. Coming to Indian scenario – unsure if any Mobile Payment Services company in India will declare the value of transactions it processes per day. For a country like India, although the opportunity for mobile commerce looks huge – unable to relate if existing mobile payment services are trying to solve any consumer problem.

Back in 2006, when penetration of mobile phones in India was growing at an exponential pace – with falling talk times, it was predicted that India will be one of the largest telecom markets in the world. Well, that has surely come true. In internet world – there was another wave of prediction. Analysts & Enthusiasts found another buzz world – mCommerce which was supposed to be a multi-billion dollar industry by 2010.

With time, the definition of Mobile Commerce is itself a cliche’d.

  • Is it mobile commerce when a consumer books a airline ticket online, gets a confirmation and PNR number on to his mobile number . Displays the PNR ar airport counter and gets ticket?
  • Is it mobile banking when consumer receives confirmation of debit/credit transaction on his mobile
  • Or is it when the discovery, intent & transaction for a product/service starts and ends on mobile phone?

The definition is now debatable – but with mobile communication included, online transactions and services have scored a big mile.

The proposition of Mobile Payment Systems is (or was) very simple:

  • Offline Merchants – Allow consumers to walk-in to any shop with his mobile phone, buy stuff and make payments
  • Online Merchants – Tie-Up with multiple online eCommerce/Travel portals – allow them to purchase products through their payment service
  • Own Marketplaces – Create own marketplace on mobile that combine eCommerce, travel, utility services etc and enable payments for such transactions through their own system

Honestly, this would have sounded amazing to everyone back then. Undoubtedly very huge potential – Offline retail transactions are worth billions of dollars everyday, Online Merchants wanting to reach out to very high percentage of consumers who have not come online due to lack of internet connectivity and mobile device seemed very logical, & of course with own marketplace strategy they too wanted to own a sizable chunk of users/revenue and be a destination for commerce.

The mobile boom did happen. It is very difficult to find someone these days without a mobile phone. But then why is it so rare that we don’t get to find people using mobile payment services as it was predicted earlier.

Trying to analyze why did this zillion dollar plan on paper did not translate to even millions of dollars in reality. Here are few thoughts, there may be many other reasons as well that contributed to this –

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Limited size of Market –
With 95% mobile subscription in country on prepaid, and average ARPU of less than 200 INR (& steadily declining with time) – mobile payments or transactions is definitely the last thing on such user’s mind. Addressable market for this service is considerably very small and will be a subset of eCommerce market.

Active Credit Cards in India are declining –
According to recent numbers published in this TOI report – number of active credit users in India has tumbled down from 20.7 Million (in March 2008) to 10.8 Million (in November 2010).

eCommerce Services discovered Cash on Delivery –
India is a cash driven economy and most eCommerce services have realized this by today. COD accounts for anywhere between 30% to 60% of transaction for players who have enabled it. IVR payment mechanism also has widespread acceptance for ordering directly through call center.

Banks play their own Game –
In fact they already have started playing their own game. Banks are launching their own mobile banking applications and promoting it aggressively. That leaves mobile payment services out of their own play-field.

The 3G Magic may not happen –
The 3G magic shall happen to other services, but in my opinion nothing dramatic will happen for mobile payment services companies. There is simply no connection between acceptance of 3G by consumers and why ‘new consumers’ will subscribe to credit cards or link up their bank accounts to a mobile payment service company. They will fight for existing consumers between competition and the banks.

Radical shift to app-economy –
Smart Mobiles & Tablets devices are making a huge difference to the way consumers are accessing services on handheld or portable computing devices. With advent of app-stores and in-app payment systems – the mobile ecosystem has grown more radically than any of these players would have thought about.

Money was always Mobile –
If the pain point that mobile payment systems were (or are) trying to solve was allowing consumers to do transactions wherever & whenever they want – then this consumer pain never existed. Money in whatever format – cash or card was always mobile.

 
I see and hear of Mobile Payment systems usage in India only in the context on prepaid recharges & utility bill payments. But that was not what they aimed for, correct?

To sum up the article –

  • Money was always mobile; the consumer pain point mobile service providers were trying to solve never existed!
  • These businesses were way ahead of time; and in most scenarios got investments before validation.
  • mCommerce model evolved differently and in a way that kept such players outside the ecosystem.
  • mCommerce will evolve along with eCommerce; will go hand in hand – but definitely not before.

In my opinion this vertical is classic case of ‘ahead of time’, ‘investment without validation’, and ‘dynamic changing ecosystem’. Lesson for entrepreneurs and investment managers – make sure your companies are a part of “validated ecosystem” and solves a “valid consumer pain.”

 

Twitter Business Model – 8th Wonder of the World

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Twitter – the microblogging platform that revolutionized social media. Tons of businesses today are revolved around the tweetoconomy (tweet economy) – right from developing applications, social media agencies, and so on.

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While it might be an billion dollar economy that revolves around twitter and social media today, unfortunately Twitter still is trying to evolve its own business model. My argument here is that although the Twitter ecosystem is valuable, its going to be very challenging to monetize it. Twitter may have some business model (as it now has – promoted tweets, trends and users) but it will not justify the investments made in Twitter and the valuation it has today.
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And discovering that business model which justifies the valuation & investment may be as good as finding the eighth wonder of the world. Here is why:
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Twitter ecosystem consists of three factors:

  • Users – who tweet
  • Tweets – the 140 character messages which users write
  • Applications – all applications that allow users to write these tweets

All other functions of twitter – search, trends, lists, etc are functions of these 3 factors.
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Twitter has 175 million users; 75% of all tweets are outside of Twitter website and about 40% of them from mobile devices. Growth of twitter was propelled by three factors:
– Acceptance by celebrities and big brand names, which lead their followers to come on-board twitter
– Twitter became a pet of mainstream television and offline news
– Widespread development of applications by developers across the world. The twitter API was easy to implement and build quick apps, many innovative applications where built by developers which would have taken twitter ages to come out with.
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As per twitter website, as of Sept 14 2010 – there are a whopping 95 million tweets a day. (Imagine the monetization Google will achieve with 95 million search queries!). However most tweets are irrelevant; according to a research report by Pear Analytics – 40% tweets are Pointless Blabber, 38% are conversational, 9% have pass-along value, 6% are self promotion, 4% are news while rest 4% are spam.
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Tweets get a very little attention span. A study did by Sysomos revealed that – 71% of all tweets generated get no reaction – 23% get replied  – 6% get re-tweeted.
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The life-span of a tweet is another big issue – and every tweet gets a fractional life-span before it gets lost on tweet streams. To put it simply, fractional tweets are seen, more fractional tweets are read and even more small fraction of them are responded.

The life-span depends on factors like
– number of followers you have
– % of followers online at that time
– rate of tweeting of people followed by your followers at that time for them to notice your tweet
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Twitter’s Business Model

Few months back – according to internal documents leaked and published on Techcrunch, Twiiter was expected to reach an revenue of $140 million for 2010. The documents were leaked in 3rd quarter of 2009 – post which Twitter launched its 3 business offerings – Promoted Tweets, Promoted Trends and Promoted Accounts.
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Was Twitter referring to these 3 offerings to generate an revenue of $140 Million. In that case assuming 33% contribution towards revenue generated for each of them, they have to generate $46 Mn per year – at rate of $125,000 per day.
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Thats very expensive! Should twitter be charging $125,000 per day for these offerings? The answer to this question may surprising be Yes!
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Reports mentioned on sites like Clickz, Mashable, Wall Street Journal, The Next Web, Read Write Web – and many others have indicated that costing of promoted tweets is upwards of $100,000 per day!
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Such high costs are not justified as the business model is still not proven. Advertisers paying for these should be aware that these features are mostly available on twitter.com, while 75% activity on twitter happens outside of Twitter through applications and mobile devices. While there is no or very little context and relevance in which these promoted tweets, trends or accounts are served.
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Twitter’s ecosystem cannot be monetized!
Twitter’s ecosystem may be valuable, but cannot be monetized! Here is why was we summarize each of its component.
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Tweets:

  • Most tweets are blabbers, pointless
  • Most tweets do not have any intent like search keywords, and even if they have any intent – it will be momentary.
  • Most tweets are meant for others (for followers). Finding intents specific to self may be difficult task.
  • An user’s tweet can be completely different than his previous one – hence establishing relevance or context and validating seriousness of that context is not possible.
  • If Twitter is able to build an killer-product that deciphers user’s intent and in real time shows and advertise to the user, the only relevant format in which advertisement can be displayed to user is by tweeting a reply. This will lead to tweet-spam and users will protest!
  • Is the advertisement will include a link (of say ecommerce website) – chances of users to complete a transaction may be very less. Visitors from Twitter are known to have highest bounce-rates with a huge majority of users not exploring beyond 1-2 pages.
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Trends:

  • Trends are collective tweets of a large set of users. Most of the times trending topics are consequences of large offline news events and big announcements made by brands, companies and individuals (celebrities)
  • Its understood by commonsense that a promoted tweet may not cause same impact amongst users as a natural trend. The viral factor in a natural trending topic will be 1000X of promoted trends.
  • If twitter continues with promoted trends – at a costing of $100,000 per day – this model is not scalable and will not appeal to small segment of advertisers
  • Its not even possible for Twitter to monetize natural trending topics as they are usually related to subjects or topics that cannot be monetized. Twitter cannot predict a trending topic; and for an current trending topic which has potential to be monetized, it might be difficult for them to get find an advertiser before the topic stops trending.

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Users:

  • Most followed Twitter users are celebrities or big brands that have pulled more users to Twitter. Twitter will not have been at this scale without such users.
  • Twitter will continue to offer featured users and verified accounts for free, they may not be a business model here.
  • Promoted Accounts is being offered without much reference to user’s behavior or interest. Hence there may be little value to businesses for ‘promoted accounts’ to gather users to whom their tweets may not be relevant.

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Applications:

  • Twitter has indicated it will not allow applications to monetize tweets
  • Twitter cannot charge application developers. With 75% tweets coming from applications, Twitter is more dependent on them.
  • If Twitter starts monetizing individual tweets, they will also need to credit the applications that completed the monetization action.
  • While there are few benefits associated with applications like Quora to integrate with Twitter; stand-alone twitter applications will also need to have a way to monetize. If they are not able to monetize and generate revenue by themselves or through Twitter – they may start loosing interest in building or maintaining applications for Twitter..

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Twitter’s Speculated New Business Models:
Business model speculation and criticism is not new for Twitter. There were reports that Twitter may be be coming up with an eCommerce or News related business model. Here is my take of them:
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eCommerce:

  • There are few tweets shared between users about product recommendations, purchases and reviews. Tweets work in an open environment and Twitter may not be able to add more value to such conversations that are already happening.
    Example., if Dell continues to generate millions of dollars revenue through Twitter, there is not much Twitter can do to get a share if that.
  • In event if Twitter is forcing upon some business model related to eCommerce on to large brands on-board, there are multiple small accounts that will continue to converse as always. A business model that cannot be expanded to cover all its users equally will not last for long time.
  • Twitter itself is not an eCommerce seller like Amazon and can never be one. Neither can it act as an affiliate

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News:

  • Twitter is used by meaning leading publications and individual users to break stories. Once the story is pushed to twitter – its responded by followers, a huge story ends up becoming a trend and initiating conversations.
  • The process of publishing a twitter, spreading to follows, building conversations over it happens in a very short span of time. Twitter by itself is not a news service, any attempt to be in this domain will mean competition from well known and well followed media organizations. For a user – he is still very happy with the existing news publishers on Twitter.

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Concluding Remarks:
Twitter has always remained in the spotlight and seems like raising more capital is not a problem for them. For the fact that VCs have invested over $360 Million, Twitter is surely bound to give their investors a good exit and their quest of finding an business model will be going on for some time.
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Right now, its not clear if Twitter is or is not under great pressure to show an convincing business model, but some point they will have to. Twitter team is no doubt struggling to find a revenue model that fits its ecosystem – an ecosystem which has value for its users but is extremely difficult to monetize for the company that owns it.
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While Twitter is not ready to accept proven online business models like search and display, Twitter’s discovery for its revenue stream will be as good as finding the eighth wonder of this world!

Twitter Business Model – 8th Wonder of the World

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Predictions – Biggest Exits in Indian Internet Space in coming years

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There would be multiple Consolidations, Mergers, Change of Strategies by lot of VC-invested companies by 2015.
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Product based eCommerce companies:
Lot of interest seen in recent times by VCs. LetsBuy, Snapdeal, FashionAndYou, Flipkart, and so on, Infibeam as well (though still not part of any portfolio yet). Future of eCommerce companies will depend completely on two factors:

– Internet penetration in India > 200 Mn by that time
– Improvement in eCommerce transactions (Infrastructure + User Comfort)

The rate at which investments are made are much higher than rate of growth of both the factors mentioned above – which in a way may be good – as all invested companies will act as catalyst in growth and get new set consumers on-board.

If we see an IPO exit for atleast one of product based eCommerce companies that will be awesome;  One or Two VCs in India (without naming any here) have been actively investing in eCommerce space. There may be a very high possibility that they may merge two or more portfolio companies to form an large entity, which may be just a good acquisition target for Amazon or an IPO exit.
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Group Buying companies:
Was surprised (like many others?) with GroupOn‘s decision of acquiring SoSasta. There are established players in Group Buying space, I’m sure GroupOn has seen some merit and synergies. For existing leading players like SnapDeal, Deals and You and Taggle – they will continue to grow and have to.

Possible exit for them will be Google (since they are starting with Google Offers) or an acquisition by eBay; or maybe GroupOn India may now want to expand presence with one more acquisition. Not to forget that LivingSocial will also come knocking. Now that eBay has ventured into Group Buying space – it has much higher accountability as deals are now served by eBay and not marketplace. eBay India may acquire someone if they decide to have an experienced them to execute this business vertical.

Expect one very large player to enter Group Buying space in next 1-2 months, if well executed – in all probability it may give tough challenge to current market leaders.

Unfortunately many small players will hit the dead pool (few of them have already) due to execution challenges, expansion costs, and lack of operating revenues to keep going as the model is very easy to replicate, but not easy to scale with thin-margins and high acquisition cost.
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Online Travel Companies:
Clear IPOs for Yatra & Cleartrip. Will be great exit for all invested players. GoIbibo and ezeego1 are also leading players in travel domain – Goibibo’s exit may depend on ibibo’s overall plans, ezeego1 may raise capital through markets directly bypassing VC route.

Redbus is promising, they are very high on number of transactions – ticket size may be lower compared to Airline tickets, but % margins will be definitely higher. In all probabilities – Redbus may too hit an IPO or will be an acquisition target for Yatra or Cleartrip (listed travel companies by then as MakeMyTrip has acquired Ticketvala)

I hope someone in Indian Government thinks of the opportunity of listing IRCTC on stock markets.
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Ticketing eCommerce:
BookMyShow will expand to more geographies – they have presence in Malaysia & New Zealand. To get to more such markets, they will require more capital – further investment and definite IPO candidate. Reliance ADAG is trying to make it big in entertainment through BIG – they might knock doors.
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Technology Companies:
Pubmatic (industry’s first yield optimization player) may get acquired in few years. It faces good competition from AdMeld & Rubicon Project, however none of these yield companies are focusing on small publishers (the long tail) which may be the key to larger success.

iYogi by all speculation is IPO bound. Slideshare is leading in its segment and may be a great exit story. Fusion Charts is another one that may be acquired for technology and customers; and so is Martjack.
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Advertising Networks:
Existing players – Tyroo, Komli, Ozone Media, AdMagnet and others. Do not forecast a immediate exit for these players – the number of players in this segment has been same for long time (no new entrants) – and otherwise too existing players seem to looking outside of India, are they hinting saturation of market? The frequency of acquisitions of pure advt-networks has decreased outside India (no big news in so many months?).

There is no distinct advantage over each other and offerings (if Vizisense is treated as product outside of Advt-Network). Would have been great to see an situation like AdMax Network (owns up majority market share in countries they operate – very tough competition to Google as they have leveraged on local language audience which is majority).

Google has played a flattener by opening up its unlimited inventory on Doubleclick exchange through Google Certified AdNetworks program. Post which the publisher development story may have taken some hit, but wondering why have not the Indian Advt Networks integrated on Google’s Doubleclick exchange yet – expand you publisher network!

InMobi which is now the largest mobile advt network (outside of Google/AdMob) – maybe one of the biggest exits through Nasdaq IPO. There is no immediate need for Google to buy another mobile advt network – that leaves IPO as only logical exit unless AOL, Yahoo or Microsoft realize that they haven’t looked at the mobile monetization business seriously.
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Matrimony Portals:
BharatMatrimony (Consim Group) would be going for IPO in coming times. Not aware of any investors in Shaadi.com (although there are in Mauj & Fropper), if business is profitable and there are no investor pressures – unlikely to see an IPO from them (at least before BharatMatrimony).

Read somewhere that Jeevansathi has abandoned markets in South India (not sure of this), however its already a part of listed InfoEdge group, spin-off very unlikely as numbers are reported as part of InfoEdge.
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No Clear Exits:
SMS GupShup, Guruji, mCommerce companies (PayMate, mChek and others) are few companies I am not convinced of having an clear exit strategy. (Someone do throw light on this)
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Promising Startups:
The next wave of promising startups in India will be product-driven companies. Although the eco-system to fast acceptance of technology products is not so strong right now – it will be in coming years. Emergence of interesting start-ups like Practo, Zaakpay, Grexit, emo2, Workasaur are first steps in that direction.
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Hoping to see many success in next 5 years! Best Wishes
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This opinion was posted originally as an answer on Quora at: http://www.quora.com/Which-Indian-internet-company-will-have-the-biggest-exit-by-2015