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.

#PITBLeaks and Our Tech Oblivion

Both TechJuice and Pro Pakistani reported a PITB data breach. I urge you to read both stories especially the one on TechJuice. It’s comprehensive and very well written. And pretty damning too. There is a lot to unpack. I will do it quote by quote. From TechJuice:

Sensitive information of millions of Pakistani citizens may have been compromised in what can be dubbed as the biggest data breach of Pakistan.

In August last year, ProPakistani reported that Punjab Information Technology Board (PITB) has exposed sensitive data of thousands of individuals that comprised of CNICs and scanned copies of personal documents. According to PITB, a bug that attributed to this exposition was taken care of, however, no comments were made on the possession of leaked data.

Nine months later, PITB is yet again in deep waters after it was revealed that sensitive information acquired through various PITB portals is now being sold publicly. This information comprises of personal and family data held by NADRA, criminal records tracked by the Police and call data recorded by telecom companies.

First, a little context. I sometimes feel everything that happens in Silicon Valley starts to happen elsewhere as well. It probably has to do with the similarities between how software systems are built and, pertinently here, potential security loopholes inside them. But past couple of years have been tough for companies operating on massive amounts of data. Even Silicon Valley (the show) threw a jab on them in its latest episode. So it’s natural that data breaches and misconducts have started to happen elsewhere as well.

How did this happen?

From TechJuice again:

The breach traces back to when PITB gained access to NADRA’s server after it was allowed to digitize the data of citizens by linking CNIC numbers to various public departments. This data could only be accessed through authorized users, however, it is now being alleged that these officials shared their credentials which were used for extraction and trading of sensitive information of Pakistani citizens.

More specifically it was AgriLoan, an application built by PITB, that’s to blame. From the article again:

PITB has developed various portals for digitizing diverse sectors. One such portal is AgriLoan that was developed to boost the agriculture sector of Pakistan. The portal service provides loans to small farmers through a convenient process in which all of the data is automated and can be accessed easily just by entering the CNIC of a registered farmer. PITB’s website states that all “stakeholders can access the database of over 350,000 registered farmers”. However, with reports of the recent data breach, it is evident that various unauthorized personnel also gained access to this database.

Upon research, TechJuice discovered that login credentials for Lahore and Sargodha districts were publicly shared for free. The username and password for the authorized access also appeared to be identical, indicating a huge security lapse. They also posted a step by step guide to help other users extract information from the portal.

The AgriLoan login panel was accessible till yesterday, however, the link is not working today. A tutorial on YouTube also explains how to extract CNIC data from the AgriLoan portal. The tutorial uses the same credentials for the Lahore district as revealed by the Facebook user above.

Leave the above Silicon Valley context aside. Because this is not a breach or an attack. It’s gross incompetence. Perhaps the most sensitive information in the country is protected by “lahore_district” and “lahore_district” username/password. NADRA pinned the blame on PITB. Because why not. And oh, they did one more thing. They gave PITB a timeline to fix this. Yes, a timeline. They didn’t revoke the access immediately. They gave a timeline.

Response from PITB

Perhaps the most perplexing thing, at least to me, in all this was the response from PITB. To be specific from Umar Saif. First, he told Pro Pakistani (via TechJuice):

The same media outlet also reached out to Dr. Umar Saif, who said that they are actively revoking the access of their portals and applications, while also launching inquiries and action against alleged personnel. He said that all instances have been resolved and they are actively blocking any breach of authorization. However, he did not comment on the absence of security protocols that were not deployed by PITB in the apps and portals under question.

Seems like a statement that I would expect from him. Fixing what he realized is broken and silent about things he is not completely sure of. You can’t blame him if someone from his large team chooses a stupid username/password like that. So what you do? You don’t say anything but you understand what you need to do. It’s not my fault but I share the responsibility. All good. But then he started tweeting. First these two:

For one these are not the statements of a person who knows what he is doing. And second, when you are being accused of something you don’t respond with a threat. At least not until you have clarified what has happened (from what’s on TechJuice you can’t assume nothing has happened), how are you planning to deal with it and finally distinguish the smoke from the fire. And let the public be the judge of the whole situation.

He ended with this.

Much calmer, but it’s still a statement of denial. Let’s assume it was just smoke. Wouldn’t be wise to address the smoke rather than denying it? But there is no explanation which creates more room for “fake news”. Instead, the message is toned towards media reporters. Which the man of his stature should not be worrying about. Especially when nothing has happened—according to him. But I might just happen to have an explanation for this.

Tech Oblivion

Years ago I wrote a critical piece on a startup at an early growth stage. The founder, who is now an acquittance, sent me an angry email. Not because what I said was wrong (in hindsight the article was a bit off). But questioning my right to say it. In his mind, he was changing Pakistan. And my article hurt his and company’s reputation. In my mind, I was trying to do my job and possibly helping him. It just happened that I disagreed on some of the product decisions he was making. And wrote about them on a publication meant for such articles. You would think we have come a long way.

Unfortunately, the situation hasn’t changed much. Most founders still focus too much on themselves. And not so much on the product, the business model or the customer experience. The people in the ecosystem are not helping because they are treating the founders like angels. You are not supposed to speak against them. Yes, what they are doing probably does not make sense, and sometimes even gross, but it’s alright because they are being bold. And courageous, something news reporters and writers are not—for some reason.

It’s a mentality that has taken us nowhere. And we are still wondering if there ever going to be a unicorn? And will we ever be able to break through? On the same grounds digitizing government is a great step forward. But it’s just that. A great step forward. Or maybe a GREAT step forward. But it’s not noble in entirety. There are always going to be consequences. Naturally, some of them are going to be bad. And it’s under-appreciation of those that lead to tweets like these. Yes, I am more concerned about the tweets than the data breach. Because I am certain Umar Saif and his team can, if not already, fix the latter.

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.

Patari’s Inflection Point

Khalid Bajwa was involved in sexual harassment cases brought public by a couple of women via Twitter last week. I wrote how I felt personally about the issue on Thursday. A few of you replied back and suggested that his actions are best classified as flirting. And not necessarily harassing. And that WhatsApp screenshots, which can be cropped to make your case better, does not prove anything. While that’s definitely true. I don’t think what he was trying to do was flirting. Flirting does not make the other person uncomfortable even if he/she started it. Clearly, that wasn’t the case here. Women involved were uncomfortable. They were trying to avoid the discussion Bajwa was forcing them into.

I didn’t say anything about what this means for Patari. For one I was already done writing for the week. And I was late so didn’t want to delay any further. Plus, the news was fresh. I normally take some time to form my opinions. And perhaps most importantly I was angry. Not a good emotion to have when you are trying to write something. Patari is probably the best thing to come out of Pakistan’s tech ecosystem in recent years. They built a great product and there is a vibe to its existence that made me optimistic about its long-term future. And no matter what you think of Bajwa after these cases, whatever Patari is today, it’s a representation of him in many ways. That’s not to defend him. Rather point out how insincere and dreadful his actions were.

When you had created something so amazing, you owe a certain responsibility to it. A responsibility not to mess it up unintentionally. And Bajwa showed utter carelessness to the trust that people bestowed upon him by helping Patari become what it is today. That includes Patari’s user base, artists and most importantly people working inside the company. I wrote in Patari’s bull case why I am optimistic about company’s long-term future:

Last week’s update made me think about Patari’s long-term future. I was bullish on their success last year when I wrote Tabeer, Fanoos and Patari’s Opportunity. But after understanding the challenges they are up against I started to question my assumptions. If record labels are so well positioned than how they are going to make it? I think I will stick to my guns for now. I believe Patari can change the incentives game around. There are a few things, albeit abstract, that are in their favor especially on a 2-3 year time horizon:

1. They have solid traction and are connected to their community (artists + listeners) in a way that most startups from our country are not.

2. They don’t have serious competition in sight. I don’t know of any music streaming service that is challenging them in a meaningful way. Though there are no substantial early mover advantages in music streaming business. The window they have right now is nothing but gold to build a great customer experience and create some kind of lock-in.

3. If anything Internet is going to be more pervasive in coming years. And Patari is all record labels have to reach this new target audience. A scary proposition for any content producer. Despite the incentives being hugely in their favor right now, record labels are too dumb to understand this. And too lazy to build or help build an alternate.

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 rest of the team for stepping in quickly. As you probably know Bajwa is out. And Ahmed 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.

But it might just be what the young startup needs right now.

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.

Why Alibaba buying Daraz is good news?

A brief follow up from last week. Reliance JioMusic—Saavn deal is not what I understood. First, Saavn will keep its brand identity. It might be something along the lines of Jio-Saavn but the name will live on. And the founders will continue to lead it. Second, and perhaps more importantly, Saavn will not be an over top the service for Reliance only as I thought it would be. Rather it will be available to everyone just like before.

This paywalled article from The Ken has more details.

Why Alibaba buying Daraz is good news?

I don’t have any insights on whether this is actually going to happen or not. It does make a lot of sense though. Regardless, I think Alibaba’s potential entry is a fascinating news. I concluded in eCommerce Impediments:

I do believe that this is more than $1B industry. But ecommerce players will have to change their approach if we want to be there rather quickly. Or maybe Jack Ma can do something about it.

The Jack Ma reference was part sarcastic and part optimistic. There is only one way for startups to operate in any market eCommerce included and i.e. by targeting a small niche and owning it. That rarely happens though. The allure of ease with which you can start a business on the Internet deludes the fact how difficult it is to actually run one. So startups rush towards expanding their offerings. And end up taking a bite their mouths can’t swallow. And that’s precisely what’s happening with eCommerce players in Pakistan. I laid out the challenges in broader strokes in the aforelinked article.

Keep that in mind and the fact that we are already a huge market for Chinese products. It makes a lot of sense for Alibaba to venture into Pakistan. A population of about 200M is alluring, to say the least. There might be a political angle as well. The recent Pak-China Economic Corridor is certainly encouraging for Jack Ma’s team. And if one thing you can be sure of any Chinese company is that they play well with their government. That’s almost required by law. Xi Jinping will certainly be more welcoming to Pakistan than say India which he sees more of a rival than a friend.

I mentioned 200M people of Pakistan. I don’t assume all of them will be Alibaba’s customers. At least not immediately. But they might be. I will go on and say that Alibaba is the only player who can further expand the market. Current eCommerce players have spread themselves too thin in the most concentrated parts of the country. And now they have little or nothing left to expand into new cities. Yes, by virtue of being on the Internet they are everywhere, to begin with. But further you are from the main cities more bottlenecked their distribution is. And then there is all so big challenge of online payments.

Alibaba can solve both these problems in one stroke. I am particularly excited about AliPay. In other words, Alibaba can open up the market. And that’s precisely what eCommerce in Pakistan needs right now. From Tacking Uber.

Secondly, in Pakistan, distribution is still a thing. Actually, its the main thing. People are not experience buyers. While they might appreciate you they don’t necessarily buy you for that. Why? Because they are not used to it. Hence most businesses are competing on distribution and that’s exactly the reason why startups are having a tough time. To open up the market startup needs to be a force in itself first.

This is also a good news for the rest of the players as well. It will take the brass tacks off the equation. You will know, for once, who the biggest player in the market is. Once that’s gone we might get our focus right. And start paying attention to the only thing that truly matters if you are true to building an Internet business. And that’s customer experience.

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.

Patari’s Bull Case, Spotify to launch in India

Patari’s Bull Case

Last week’s update made me think about Patari’s long-term future. I was bullish on their success last year when I wrote Tabeer, Fanoos and Patari’s Opportunity. But after understanding the challenges they are up against I started to question my assumptions. If record labels are so well positioned than how they are going to make it? I think I will stick to my guns for now. I believe Patari can change the incentives game around. There are a few things, albeit abstract, that are in their favor especially on a 2-3 year time horizon:

1. They have solid traction and are connected to their community (artists + listeners) in a way that most startups from our country are not.

2. They don’t have serious competition in sight. I don’t know of any music streaming service that is challenging them in a meaningful way. Though there are no substantial early mover advantages in music streaming business. The window they have right now is nothing but gold to build a great customer experience and create some kind of lock-in.

3. If anything Internet is going to be more pervasive in coming years. And Patari is all record labels have to reach this new target audience. A scary proposition for any content producer. Despite the incentives being hugely in their favor right now, record labels are too dumb to understand this. And too lazy to build or help build an alternate.

Spotify to launch in India

India is a lot more interesting than I thought it to be. From ET Tech:

Music streaming giant Spotify is working on launching its service in India, co-founder and CEO Daniel Ek confirmed during the company’s investor day presentation.

“We are working on launching in some of the biggest markets in the world, including India, Russia, and Africa which has a very rich musical culture,” Ek said.

Spotify will join Gaana, Saavn, Hungama, Apple Music, Google Play Music and Amazon Music among others. Royalties model makes it easy for record labels to have the same song/album on multiple streaming services. More streaming services mean less differentiation for one individual player. Customer experience becomes less of an issue unless you go out of your way to mess things up. And less differentiation at customer touch point means very little chances of one player becoming an aggregator giving leverage back to record labels.

There is nothing ingenious about this though. It’s an old business model working surprisingly well in 2018. There is no guarantee, however, it will continue to do so. Especially when one name, more than anything else, is increasingly becoming synonymous to listening music in the country (hint: Patari in Pakistan).

Gaana Raises Money, Netflix Hindi Originals, Amazon Music in India

Gaana Raises Money

From TechCrunch:

Chinese internet giant Tencent is continuing to put its money in India and in music streaming services after it agreed to lead a $115 million investment in India’s Gaana.

Gaana is a music streaming service that was started by Times Media, the company behind the Times of India newspaper and tech incubator Times Internet among other things, seven years ago. Gaana didn’t reveal its user metrics, but CEO Prashan Agarwal said the company is “only 10 percent of the way towards building a business useful for 500 million Indians.

Music streaming while great for consumers is a tough business. I wrote in Tabeer, Fanoos and Patari’s opportunity:

Keep this in mind and now think about streaming services like Spotify, Apple Music, and Patari. They have little to no leverage in the whole system—despite all the hype. Because essentially they are just a funnel—a way to distribute music. But so is Google—a funnel. Yes, but Google has the unlimited number of suppliers. Almost everyone writing on the web is a supplier to Google’s funnel. Content creation on the web has been democratized in a way that music has not. When you have that much abundance in the production, the value shifts to the curation. And that’s what Google has been reaping the fruits of.

Almost every streaming service, from day one, is in direct conflict with one entity they are totally dependant on building a great product i.e. record labels. Unlike text, music creation, the sort of which that gains mass traction, is hard. While you can create it on your own. You can’t make it. Artists need record labels and that shifts the power balance to these labels rather than streaming services. Despite the fact that it’s streaming services who own the customer experience. I presented a bull case for Patari in the article to ultimately become the record label itself. But it will be easier said than done. The argument holds true for Gaana and Saavn except the complexity is tenfold. Due to the size of the industry record labels in India are much better positioned than they are in Pakistan.

Netflix Hindi Originals

That begs the question why music streaming services can’t be Netflix? Frankly, I didn’t know the answer till last week. But I was in luck. Ben Thompson answered it while writing about impending Spotify IPO in his newsletter (paywall). There are three key differences between Netflix and Spotify (read Patari, Gaana, Saavn etc):

1. Netflix started as DVD renting service. This allowed them to build their audience without getting into any conflict with film studios. They were operating at the bottom to get even noticed by the studios. The only company they competed against was Borders.

2. Movie industry operates on licensing model. While that makes streaming a movie more expensive, to begin with, it’s actually good for the long run. Licensing is a fixed cost while royalties on which music industry operates is a marginal one. This implies that Netflix could only venture into the streaming business when they have 1) sizeable audience to justify licensing fees and 2) enough cash to pay licensing fees upfront. Because of the licensing model movie titles go in and out of Netflix every month, but they always have enough to retain their customers. Not all but enough.

3. Because of the licensing, and not royalties per stream, model film studios can’t just pull out their content on the basis of Netflix making House of Cards. This means House of Cards improved the quality of the product without endangering the business model.

All this makes the making of “Love Per Square Foot” and other Hindi originals far more easy choice for Netflix than what Tabeer and Fanoos are for Patari. Or whatever Gaana is making on its own. Love Per Square Foot does not endanger the presence of Dangal on Netflix. And by the time the licensing deal with Dangal is over, Netflix might be coming up with their own Aamir Khan original. Besides you can only watch Dangal so much. Not true for a song you love though. Perhaps Steve Jobs was right all along. People don’t just want to listen to music. They want to own it.

Amazon Music in India

From ET Tech:

With this, Amazon Prime Music will compete with music streaming apps Saavn, Gaana and Apple Music in India. As part of the offering, Amazon Prime Music will offer ad-free streaming along with unlimited offline downloads at no additional cost to the existing Prime subscription for users in 10 languages.

India’s digital music industry is expected to reach Rs 3,100 crore in revenue by 2020, with 273 million online music listeners, according to a report by Deloitte last year. In terms of market share, Gaana reported crossing 60 million monthly users in January while Saavn recently reported 22 million users. Industry estimates peg the overall number of Prime customers to be around 10 million in India.

So why Amazon is interested in such a low leverage/margin industry? Amazon music makes sense because Amazon is not intending to make money out of it. For them, it’s mean to sell more Amazon Prime subscriptions. And as ET Tech noted above, its bundled as free to Prime subscribers in India. The same goes for Apple Music. Apple doesn’t have to make money out of Apple Music. You already pay for it when you buy a $1,000 iPhone or $350 HomePod. Yes, Apple Music costs $10/mo but that’s a dime a dozen.

WhatsApp Payments Followup, Uber to Sell Southeast Asia Unit to Grab

WhatsApps Payments Follow-Up

There was another angle to Paytm Vs WhatsApp debacle that I missed in my article last week. And that’s why NPCI allowed WhatsApp to launch, albeit limited beta, when certain UPI specifications were missing. Vijay Shekhar was quite adamant that he never got such a deal. That he had to comply with every little detail of UPI before launching for any user let alone 1M beta testers. He then went on to call Facebook manipulative and evil. And to put words in his mouth the modern day East India company. While a sprinkle of patriotism is nice the fact remains the Internet knows no boundaries. Unless you are of course China. And I am not sure India is willing to go that route. The country gained a lot from their Silicon Valley diaspora.

Part of Paytm’s success even has a lot to do with outside investments from Softbank and Alibaba. To Indian government’s credit, they refused to allow WhatsApp operate as a full fledge payment company. From ET Tech:

Last year, the messaging app, the largest in India, tried to partner with a private bank in the country to develop a digital wallet app to facilitate payments on its platform. That was when it ran into a reluctant Reserve Bank of India. The regulator was not ready to allow a foreign entity to enter India’s digital payments space, according to multiple stakeholders ET spoke with to piece together the story behind WhatsApp payments.

The fact that they are not operating as a wallet protects them from any legalities. This does not, however, explain why NPCI allowed them to launch without following full UPI specs. More importantly to create a walled garden of payments (iPhone only) when previously no one was allowed to do so. One reason could be the 270M user base. By courtesy of being the most dominant chat app in the country, WhatsApp has the ability to introduce UPI to a lot more people than any previous entrant had. Everyone else had to build their audiences from scratch. This is a typical example of demand controlling the supply. Only, in this case, it’s a regulator who controls the supply. Perhaps more importantly, a regulator willing to go lengths to make India a cashless society. You can’t say they had the wrong intentions.

With that said Vijay Shekhar’s outburst is good for the long haul. Though it might not have stopped WhatsApp from rolling out the beta version the way they wanted to. It will put significant pressures on them and NPCI moving forward.

Uber to Sell Southeast Asia Unit to Grab

From CNBC:

Uber is preparing to sell its Southeast Asia business to Singapore’s Grab in exchange for a sizable stake in the company, according to two sources with knowledge of the matter.

No deal has been reached yet, and the timing of any such deal is uncertain.

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.

Below remarks from Dara (Uber CEO) while talking to Goldman Sachs Technology and Internet Conference the week before suggest this is clearly part of the strategy. And not another bump on the road. From the same CNBC piece:

I think the team ran through an inventory of where we competed, and if we compete on let’s say even on a dollar-for-dollar basis against the local player, paying the same amount to drivers, collecting the same amount from riders, in general where we are now is, if both players are kind of spending equally we tend to win share. We’ve got a better brand, we’ve got better technology, better network, etc. Whatever it is, we tend to win share. There’s certain markets, China and Russia, where that wasn’t true. And if your only competitive advantage, or the only reason you can be in a market is because you can spend money, that’s not exactly a reasonable proposition.