How Internet came to Pakistan; Apple’s troubles in India

In case you missed it, I was on Internet History Podcast last week discussing how the Internet came to Pakistan. The interview is more of a personal journey than an exact sequence of events. And it came out a lot better than I expected. I was nervous going into it because 1) it was my first podcast recording and 2) Brian is one of my favorite podcasters of all time. I have listened to every episode of both Internet History Podcast and Techmeme Ride Home. I don’t know if I can say the same about any other. And I am definitely looking forward to his book. While anybody could have done these podcasts and I would have heard them because of the topics. I am not sure I would have stuck for that long.

I learned that interviewing is an art form. You can prepare all you want but at the end, it’s more about what the other person can get out of you. Brian is certainly good at it. You can listen to the podcast on iTunes, Overcast or YouTube. I sound better if you listen at 1.5x.

Apple’s troubles in India

From ET Tech:

Apple could be staring at its toughest year in India in recent times, given the sharp fall in shipments in the first half of 2018, as the effects of the company’s change in strategy to chase profitability rather than growth by cutting discounts and distribution channels comes into play, say analysts.

The Cupertino-based smartphone maker recorded a sharp 55% fall in the April-June quarter on-year and a 30% drop sequentially, on the back of an equally bad January-March quarter, where shipments fell 22% on-year and 46% sequentially, as per estimates from Singapore-based Canalys.

Apple sold 1.8M iPhones in India in 2015, 2.8M in 2016 and 3.2M in 2017. As you can see these are not inspiring numbers. But they were growing. 2018 is worse because the company has only been able to sell 850K iPhones as of now. There can’t be any other explanation than it’s a market problem. Despite the fact that India is a huge market there aren’t many people who can afford an iPhone X. But what about the iPhone 8, 7 and especially 6—which is being locally manufactured in India?

What you need to understand about markets like India and Pakistan is that smartphone is more a status symbol than a utility. While SE and iPhone 6 might work in the US because of pure utility reasons. They are not going to work in India because people really want to talk and brag about what they own. It’s far more easy to brag about iPhone X than its predecessors. And if you can’t afford one then a top of the line Samsung J or Prime series is a better brag than a three-year-old iPhone. It does not matter if the three-year-old iPhone is still a better phone overall.

The closest market, where Apple had a success, is China. The major difference between China and India, however, is the size of the middle-class segment. There are a lot more people who can actually afford an iPhone X in China than they are in India. I don’t think opening a retail store in India is going to solve any of the problems. The allure of the iPhone is still there. It’s a matter of affordability. There are no easy answers here, even for Apple, considering the fact that Apple is not going to make a low budget iPhone.

Patari Messes Up, again; Uber-Careem Deal

Patari Messes Up, again:

By now you might already be aware of Patari debacle. I wrote when this whole saga began:

What Patari has is nothing substantial as of now. At least not in financial terms. What it had was the trust. A belief that it’s doing something amazing. And in the process is helping revive the music industry of Pakistan. Nothing hurt that trust more than reports from last week. You lost your community’s sentiments. And in a way that’s all you had. With that said I don’t think all is lost. Kudos to the board and the rest of the team for stepping in quickly. As you probably know Bajwa is out. And Ahmer Naqvi is now the interim CEO. They did the right thing. But a lot more needs to be done. Those twitter jokes will be weird for now. And it will be a hard time for the team to change and instill new spirit into the company’s culture.

The team ended up doing more. Just not what I hoped they will. I have more to say about this. And the article, depending on the schedule, might already be on TechJuice. Speaking of TechJuice, I wrote about Popinjay (yes I realize it’s a bit late but it’s worth checking out) and on the selection processes of our incubation centers. I hope you are liking the diversification in writing. It’s proving fruitful to me at least. Do let me know.

Uber-Careem Deal

From Bloomberg (via TechJuice):

Uber Technologies Inc. and Careem Networks FZ are in preliminary talks to combine their Middle Eastern ride-hailing services, hoping to resolve a costly rivalry as Uber prepares for a public offering next year, according to three people familiar with the matter.

I wrote on Uber exiting Southeast Asia in favor of Grab back in March. From the article:

This is an interesting development but not a surprising one. Uber is at a point where they need to prove their worth. Not just as a company well run but also with numbers to push for an impending IPO. The company is no longer the default choice especially in countries outside the US. It’s Didi in China, Yandex in Russia, Careem in Pakistan and Middle-east, Grab in Southeast Asia and Ola in India. Even in US Lyft has gained significant market share away from them in 2017. So a deal to the tunes of Didi and Yandex makes perfect sense. I won’t be surprised if a similar deal comes up for Careem and Ola in near future.

My prediction went well, I believe. In April, Uber was in serious talks with Ola to merge in India. And now a discussion is in place with Careem. But these deals, unlike the previous ones, are not so simple. I wrote about Uber-Ola deal back then:

Let’s start with China. Uber was competing against two companies which later merged into one. While that’s not so bad. The fact that both merging companies were local and Chinese government wanted the resulting entity to win is. It was going to be an uphill battle with no end in sight. The equity shares Uber managed to squeeze in was actually a win for the company. In Russia and Southeast Asia, while markets were relatively open from a regulatory perspective, the number of local competitors were too many. Especially in Southeast Asia where the situation was further complicated by the fact that Uber was competing against local players in each country. Plus a player who was competing in all markets much like Uber itself i.e. Grab.

The situation in India is different. There is only one competitor i.e. Ola. India is not like China. And despite the fact that Ola has a bigger share of the market, Uber’s share is actually substantial. The numbers are often convoluted but it’s most likely that Uber had 30-35% and Ola has 40-45%. The difference is trivial especially considering that Uber operates in 30 cities and Ola in 110. Plus, unlike Southeast Asia, India is one country. A country with 1.3B people no less. The market is just too big for Uber to give up anytime soon. Especially considering how well positioned they are.

Sorry for the long excerpts. But things that were true for Ola are actually true for Careem as well. Careem has one advantage over Ola though. And that’s like Grab it’s dominant in multiple markets. But unlike Grab, the individual markets are much bigger. Pakistan, Middle-east, and KSA are much bigger than say Singapore or Philippines. Indonesia has a larger population size but the population is scattered across smaller islands and hence needs more capital investment. It’s natural for Uber to resist the exit strategy. While they need to show the strong numbers for IPO constraining themselves too much into US and EU can be dangerous in the long run. Uber by far is the largest transportation as a service company in the world. And it would like to retain that position.

Ricult Raises Money; SoftBank Invests in PolicyBazaar

Ricult Raises Money

Ricult, a marketplace for farmers and crops buyers, has raised money from Bill and Melinda Gates Foundation among others. From AgFunder News (via TechJuice):

Ricult, which just raised $1.85 million in seed funding and is backed by the Bill & Melinda Gates Foundation, aims to do just that with a digital platform emulating the services these middlemen provide but transparently and at reasonable rates.

After harvest, Ricult aims to connect farmers directly with end buyers at processing mills, giving them clear transparency on the end pricing. Javaid says Ricult marks up the cost of the inputs for three times lower than farmers were paying before, and on the other end charges the processing mills for access to these farmers. The buyers are happy to pay this fee as Ricult provides them data in return that they wouldn’t usually get, such as yield forecasts or which inputs were used as well as traceability, according to Javaid.

I am a bit oversimplifying when I say that they are a marketplace like Uber. The startup actually wants to help farmers in the whole process of crops production to selling. But while that’s commendable, at the end of the day the startup itself is going to make money if it has buyers on the other side. And that’s where my contention lies with it. While farmers are obviously the right place to start because they are vulnerable of the two, I don’t see data about forecasts and traceability to be good enough motivators for buyers to get on board. Especially in a country like Pakistan where mill operators are kind of a mafia in themselves.

But there are a few things that make me optimistic about the venture. For one, the team is not young fresh university graduates. They are actually experienced business people with possibly valuable connections in the industry. Second, while there are always going to be bad actors in any industry that does not mean there are no good ones. And that’s where their social mission of helping farmers is going to come in handy. And I think it’s pretty smart move on their part to not describe themselves as Uber for X although their business model is pretty much the same. On the contrary, the startup pins the social aspect of their business as a second bottom line.

It’s the last point which I believe got Bill and Melinda interested in them.

SoftBank Invests in PolicyBazaar

From TechCrunch:

India’s PolicyBazaar, which runs a digital insurance business of the same name and a lending marketplace called PaisaBazaar.com, is the latest company to join SoftBank’s $100 billion Vision Fund after it announced a new funding round of over $200 million.

The deal was led by the Vision Fund with participation from existing investors including InfoEdge, the company behind jobs platform Naukri.com. The startup’s other investors count Softbank, Temasek, Tiger Global and True North, but an announcement from PolicyBazaar didn’t specifically mention if any of those names took place in this latest round.

The news is making rounds on Twitter mainly because of SoftBank. And not so much for PolicyBazaar. Flipkart exit was a hard one for SoftBank. Though the returns were good it hampered SoftBank’s longterm ambition in the country. The juggernaut, in particular, its vision fund, is betting on a utopian future where AI is pervasive. And sees itself as the glue that connects different parts of the future by investing in companies from all sectors of life. And from all important tech hubs of the world. This The-Ken piece (paywall) highlights SoftBank’s vision for India. And provides a useful framework to understand their investment in PolicyBazaar.

To achieve this goal, SoftBank needs to invest in and own a part of the most important “frontier technology” companies in the world, in areas such as robotics, AI, autonomous transport, space tech and Internet of Things (IoT), but it would also include the companies that would serve as the data-feeders for these high-tech firms. Which explains why the Vision Fund wants a piece of companies in e-commerce, food, work, medicine, transport and payments, companies that are seeking to bring new tech to old industries or are entirely disrupting and taking the place of the old guard. The major companies in these sectors will have access to massive amounts of data that will serve as the training harness for the downstream high-tech firms in AI and robotics.

Do read the whole piece if you are a subscriber. I recommend subscribing if you are not.

Walmart-Flipkart revisited, Alibaba buys Daraz

Walmart-Flipkart revisited

Ben Thompson while writing about Walmart-Flipkart deal (paywall):

The problem with Walmart investing, though, is that I struggle to see what exactly the company can add: there was basically zero discussion of how Walmart will make it more likely Flipkart will succeed in its battle with Amazon. Walmart’s executives tried to argue that the benefit would go the other way — Walmart would learn from Flipkart — but wasn’t that the point of acquiring Jet.com?

This is what happens when your writing is focused on nuanced markets like India and Pakistan. The deal is a great news for Indian tech ecosystem in general and Flipkart’s team in particular. So I got caught in the moment which resulted in my analysis containing a massive oversight. Ben’s piece made me realize what I missed. And I think he is right. The deal is problematic in the sense that there is nothing about Walmart, and its massive retail chest, that can help Flipkart in the long run.

Indian government does not allow companies with major foreign company shares to open multi-branded retail stores in the country. Though you can open single branded e.g. Ikea. And the rumored Apple’s. Both Amazon (because of its US origin) and Flipkart (because of major outside shareholders) can’t open retail stories. They get around to that problem by investing in their suppliers and by opening companies under different corporate structures. But Indian government recently cracked down on it and no individual supplier can fulfill more than 25% of orders from the website. Which means both Amazon and Flipkart are and will remain, pure Internet companies with no physical foothold. And that’s something Walmart is yet to figure out for itself let alone helping someone else.

As for as offline retail goes, Walmart can’t open a retail store in India because of same regulation that prevents Amazon and Flipkart. And they won’t be able to serve more than 25% of Flipkart orders because of the aforementioned crackdown. Which makes their wholesale operations of little to no value for Flipkart. One gets the feeling that an investment from a local company might have served Flipkart better. At least that would have allowed Flipkart to open retail stores. And offline retail is where the meat of Indian commerce is right now. To conclude the deal does not harm Amazon as much as you might think. The lever to Amazon’s success is Amazon Prime. And that remains the same regardless of the operating country.

The deal is especially problematic for Walmart. Ben Thompson concludes his update:

Indeed, as far as I can tell, the only potential benefit to Walmart and its investors is that Walmart’s backing potentially makes Amazon’s fight for India more expensive. Even that, though, is likely to prove to Amazon’s benefit in the long run: Jeff Bezos’ company will almost certainly have a longer leash with investors than will Walmart; if the company wants to truly concern itself with Amazon the money would have been far better spent at home.

Despite the longterm threat Amazon poses for Walmart. As of now it only has a single digit market share of US retail (offline + online combined).

Alibaba Acquires Daraz

From Pro Pakistani:

Daraz Group, a leading e-commerce company in Pakistan, Bangladesh, Sri Lanka, Myanmar and Nepal today announced that the company was fully acquired by Alibaba to become a member of Alibaba Group.

With the acquisition, Daraz will be able to leverage Alibaba’s leadership and experience in technology, online commerce, mobile payment and logistics to drive further growth in the five South Asian markets that have a combined population of over 460 million, 60% of which are under the age of 35.

I pretty much stand by my analysis from last month. Except the fact that I now think Alibaba is not rushing into this. They are probably going to take some time before dipping their toes fully. By that, I mean integrating an online payment to the tunes of AliPay. Their major stakes in Tameer Bank, the bank behind Easypaisa, are going to be handy. I can’t wait for Telenor to start touting about it as their innovative new product for Alibaba.

Wallmart to Buy Flipkart, Ola Invests in Vogo

Wallmart to Buy Flipkart

Wallmart is in talks to be the largest shareholder in Flipkart. From ET Tech:

The world’s biggest retailer is nearing a deal to buy a majority stake in India’s top online retailer for at least $12 billion, people familiar with the matter said. Flipkart’s major investors, including SoftBank Group, are on board with Walmart purchasing as much as 80% of the company, the people said, and they may complete the agreement in the coming weeks.

Wallmart is increasingly losing feet because of its customers gravitating towards eCommerce. In the US the biggest threat is of course Amazon. Especially after the latter’s purchase of Whole Foods last year. The purchase allowed Amazon to solve one problem it hasn’t been able to till then i.e. groceries. Because of limited shelf life, most grocery items run the risk of being rotten if they come from far parts of the country. So a traditional local storage and delivery model is a must-have. The very nature of groceries made it a hard problem for Amazon who thrives on centralized storage and operational excellence. With Whole Foods now part of America’s most admired company the need for Wallmart to address the Internet in general and Amazon, in particular, is not just necessary. It’s a matter for survival.

One way to do that is to look outside the US. The US is a stronghold for Amazon. The only two economies that can match the US in terms of spending are China and India. Because of their massive population sizes, they are an eye candy for every eCommerce player. Wallmart’s online foray into China has the same US problem named Alibaba. The online retailer sells anything and everything. And has massive distribution network apart from the formidable online presence. Wallmart entered by buying a couple of younger players. While the efforts have resulted in Wallmart gaining higher single-digit market share, it’s definitely not what they hope it could be. As such India represents a massive opportunity for Wallmart. Here the largest online retailer is not a conglomerate but rather a rookie upstart named Flipkart.

I wrote about Flipkart and India’s local eCommerce players last year:

I am clubbing them together because they are competing in same eCommerce space. Flipkart is the poster child of India’s tech ecosystem. Founded by two brothers in 2007, it’s the highest valued startup in the country. And the idea is clearly inspired by Amazon. Actually, the founders worked there before coming back to find their own. They are the largest player in the category with every third Internet user in India being a user of either their website or app. Earlier this year eBay invested in Flipkart and as part of the deal, Flipkart now owns eBay India too (though the later operates separately).

Together, as of now, Flipkart, Snapdeal, and Amazon own 75% of the market share. But it’s Snapdeal that seems in hot waters moving forward. From Tech in Asia:

Amazon’s commitment of US$5 billion to the relatively open Indian market, after finding the going tough in China, transformed the market dynamics. Flipkart and Snapdeal, which were in a race to grab market share with discounts, suddenly had the rug pulled from under their feet.

Amazon could offer better prices as well as selection and back it up with world-class services like Amazon Prime Video. The biggest loser was Snapdeal, which saw its market share dwindle. Flipkart managed to stay the course and inspired sufficient confidence for Tencent, eBay, and Microsoft to infuse it with fresh funds.

This leaves three big players in the market – Paytm ecommerce backed by the cash-rich Alibaba, the rejuvenated Flipkart, which could achieve a bigger market share through the acquisition of a marked-down Snapdeal, and Amazon.

Personally, I believe the news is troublesome for Flipkart too. Recent rejuvenation aside it’s dangerous to play in the same field as Amazon and Alibaba. Both can go on and on without making a dime. The longer it goes more trouble it spells for Flipkart.

Sorry for the long excerpt. But it nails down what brings Flipkart to the table. The deal presents a rather unique opportunity for both companies. For Flipkart, it solves the spending problem. They can compete with Amazon head-on using the money from Wallmart. And that is no less than $12B. And for Wallmart, it’s an opportunity to be the market leader ahead of Amazon, for once.

Ola Invests as Lead in Vogo

From ET Tech:

Vogo, a three-year-old startup, operates a scooter-sharing network which allows users to pick up the vehicle from designated pickup points throughout the city and drop them at any other designated point at the end of the ride.

Vogo’s funding comes as another startup, Metrobikes, is in advanced talks to raise $10 million from top-tier venture capital firms Accel and Sequoia, as ET reported in February.

“Ola’s investment in Vogo is important. India has the largest two-wheeler market in the world. It does make sense for the company to ensure they can capture that market in the long run,” said an analyst, speaking anonymously to ET.

It makes sense for Ola too. It’s perfectly in line with what I said when Ola acquired Ridlr. Acquire as much as transportation lifecycle of rather heterogeneous Indian consumer as possible. To curry up Softbank for an Uber exit.

Uber-Ola Deal, Ola Acquires Ridlr

Uber-Ola Deal

From Dara Khosrowshahi’s email to Uber employees announcing Uber-Grab deal:

It is fair to ask whether consolidation is now the strategy of the day, given this is the third deal of its kind, from China to Russia and now Southeast Asia. The answer is no.

One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors. This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t.

By core markets, I assume he meant US, Europe and, our subject matter, India. Or did he? There have been constant rumors of a consolidation in the Indian market as well. Much to the tunes of China, Russia, and Southeast Asia. The rumors are partly true. At least the fact that the deal was on the table at some point in time. The deal looks simple on the surface. Uber willing to give up a market to its bigger rival in exchange for a stake in the latter. But it’s not as simple as it looks. Yes, Ola has more market share than Uber in India. But that’s about it. Rest of the story is different from China, Russia, and Southeast Asia.

Let’s start with China. Uber was competing against two companies which later merged into one. While that’s not so bad. The fact that both merging companies were local and Chinese government wanted the resulting entity to win is. It was going to be an uphill battle with no end in sight. The equity shares Uber managed to squeeze in was actually a win for the company. In Russia and Southeast Asia, while markets were relatively open from a regulatory perspective, the number of local competitors were too many. Especially in Southeast Asia where the situation was further complicated by the fact that Uber was competing against local players in each country. Plus a player who was competing in all markets much like Uber itself i.e. Grab.

No matter what Uber could have done, it’s unlikely they would have got 27.5% (percentage number of Uber’s shares in Grab) market share of the region. Even if they had the required spending would have been too much. Like Dara said you can only fight so many battles at one time.

The situation in India is different. There is only competitor i.e. Ola. India is not like China. And despite the fact that Ola has a bigger share of the market, Uber’s share is actually substantial. The numbers are often convoluted but it’s most likely that Uber had 30-35% and Ola has 40-45%. The difference is trivial especially considering that Uber operates in 30 cities and Ola in 110. Plus, unlike Southeast Asia, India is one country. A country with 1.3B people no less. The market is just too big for Uber to give up anytime soon. Especially considering how well positioned they are.

With that said I don’t think the deal is completely off the table. For one, there is Soft Bank. The investor holds majority shares in both companies and will be aggressively pushing for the consolidation. What’s stopping the deal is actually the controlling share. Who is going to stay and who will leave. Soft Bank is definitely pushing Uber to leave but it’s not going to be easy. A growing Indian market can be a huge talking point for the impending Uber IPO next year.

Ola acquires Ridlr

So the race is on. Who is going to get big enough sooner to convince Soft Bank to force the other out? Ola acquiring Ridlr is in line with that strategy. Ridlr is what Travly was before they turned into ride sharing albeit the company has significant growth to prove. But how does it make sense for Ola? Ola’s CEO has below to say about that:

Public transportation serves millions of Indians every day, and powering these needs with real-time information, mobile ticketing, cashless payments, and reliable services is bound to impact their end experience. The challenge really is to make the entire ecosystem inclusive and robust for all. Ridlr, in a short span has made huge strides in this space.

The underlying story, however, is that it’s a posturing statement to Uber. Showing who has the investor’s (read SoftBank’s) confidence. And that’s not a bad strategy at all.

Reliance to Acquire Saavn, Sehat Kahani Raises Money

Uber has agreed to sell its Southeast Asia operations to Grab for a 27.5% share in the latter. Dara Khosrowshahi, Uber CEO, will join Grab’s board. I don’t have anything to add to my original analysis.

Reliance to Acquire Saavn

I wrote in Spotify’s launch in India last week:

Spotify will join Gaana, Saavn, Hungama, Apple Music, Google Play Music and Amazon Music among others.

Two notable names in the missing subtext of “among others” were Airtel’s Wynk and Reliance’s Jio Music. By virtue of being over the top services on two of the biggest telecom operators in the country, Wynk and Jio Music has a significant market share. From The Ken (paywall):

But executives closely involved in several music streaming companies maintain that these numbers are often inflated and that as a thumb rule, the actual base typically is half of what is reported. App Annie data accessed by The Ken for January 2018 revealed that Airtel’s Wynk had 21 million active users, followed by Jio Music at 18 million. Gaana and Saavn, the data showed, had 17 million and 15 million active users, respectively.

While Gaana and Saavn lead in the total number of subscribers. Their active subscriber bases are lesser to those of Wynk and Jio Music. These numbers were particularly troublesome for Saavn—Gaana recently got backing from Tencent. From the same The Ken article:

A decade later, the situation couldn’t be any more different. Gaana is funded by Tencent, while Saavn, as per executives in India’s music streaming circles, is battling for survival and seeking fresh investment. Saavn, according to multiple people aware of the situation, is currently in the market for a fresh funding round of $50 million at a valuation of around $200 million. Saavn’s monthly revenue, sources say, is around $1 million, largely coming from its overseas subscription offering.

The report was spot on. This week from ET Tech:

Reliance Industries has signed a pact to buy out Saavn music app for $104 million in cash and rest in stock, to merge it with its own digital music service JioMusic, valuing the combined music platform at about $1 billion.

This feels like a sad end. Saavn was the torchbearer of India’s music streaming industry.

Sehat Kahani Raises Money

From Dawn:

Founded in 2017, the startup recently raised $500,000 in seed funding from multiple sources and plans to expand its operations in the coming months.

What Sehat Kahani is trying to do is to create an all female provider network that connects home based female doctors to patients in under-served areas where health is still a dream, through quality tech-enabled solutions.

I could not be more fond of what Sehat Kahani is trying to do here. From Craigslist, Telemedicine and Healthcare Startups last year:

While I am skeptical that Craigslist model will ever work, I think telemedicine can. The problem, however, is it’s an inferior product being offered to an over-served market. Private banks, hospitals, schools, no matter what you think of them. They are over-serving the urban population of Pakistan. So either you need a product that’s 10x better than what they are offering and charge a premium. Or you need to find customers that are being neglected by these incumbents i.e. people living in rural areas of Pakistan.

The latter makes a lot of sense for these startups to consider. First, it solves the last mile problem of healthcare. Hospitals have no reach to the rural demographic. And presumably, they are not interested as well. Which makes these areas an ideal market for a startup to tackle. Second, by serving these under-served customers you can slowly build a product that catches up to what’s being offered by big-name hospitals.