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.

WhatsApp Payments Controversy in India

I mentioned WhatsApp Business in passing while writing about Paytm in my first ever attempt to write about India’s tech ecosystem. My analysis was short-sighted in so far that my understanding of India’s payment landscape was limited. To put in another way I wasn’t aware of UPI. UPI stands for Unified Payment Interface. It’s a payment protocol specifically designed for India to make peer-peer money transfer as easy as sending an email. Almost all banks in India comply with it. Which means regardless of the bank you maintain an account with, you will have a unique UPI ID just like an email address. You can use this UPI ID only to send/receive money to/from whomever you want.

The benefits of such a level playing field for startups, looking to venture into payments, are enormous. From The Ken (paywall):

Startups would need to go through the software development kits (SDKs), made by banks, that acted as ‘wrappers’ on top of UPI’s core technology (APIs). Only banks would be allowed to directly access UPI’s APIs directly, so startups would need to find a bank willing to license it an SDK.

It was a payment system created specifically for India by the National Payments Corporation of India (which manages various payment standards in the country). It was imagined to be a payment system that works just like sending an email, complete with the person having a unique address. It is the closest thing to a one-size-fits-all payment solution as it can be used for peer-to-peer payments, peer-to-merchant payments, both online and offline. Its one limitation is that it can be used only through a smartphone.

The first company to adopt UPI was PhonePe. PhonePe is now owned by Flipkart. To make UPI more mainstream Indian government has its own implementation of the protocol called BHIM. Google came up with their own i.e. Google Tez last year. And then there is Paytm. WhatsApp’s entry is recent albeit most controversial one. The reasons are:

1. There is no username and password. If you can access your WhatsApp you can send and receive money. The reason behind this is WhatsApp, unlike other players, is not operating as a wallet. They are letting ICICI, their partner bank, take care of this.

2. Barcode implementation is missing which is a requirement for any UPI implementation.

3. You can’t send money to someone who is not using WhatsApp if you have an iPhone. You can do it on Android but the option is hidden deep in settings.

One person is particularly unhappy about this.

He is more unhappy then what’s apparent from his tweet. Listen to his interview with Bloomberg for a glimpse.

In WhatsApp defense, the Payments feature is still in beta—only available to selected 1M users of its massive 270M base. And NPCI (governing body controlling UPI) has clarified that WhatsApp will have to meet full requirements for their eventual public launch. With that said I don’t think Vijay is pissed off for some arbitrary reasons. He understands what WhatsApp is trying to do here. With all the goodness that comes with an open platform like UPI, there also comes a less so ideal customer experience. First, you have to download an app i.e. Paytm, Tez, PhonePe etc. On top of that, you need username/password and enter verification pins etc for the individual transactions.

Now imagine an app that you already use the most in your daily life. There is no username/password to it. And you don’t have to enter obscure UPI IDs and confirmation codes while you are sending money. A caveat here is that WhatsApp only lets you use Payments feature if your mobile number is same with both the bank and WhatsApp. This and by maintaining a closed garden approach for now (payments only between WhatsApp users on iPhone), WhatsApp is showing how seamless sending money can be. To the surprise of no one people are raving about it on social media.

It will be interesting to see how they manage to maintain the same user experience for someone who wants to send money to a person not using WhatsApp. Or maybe they don’t have to. They need to be interoperable with other players to comply with the regulations. But there is no regulation for an equal user experience. What Paytm, PhonePe and other have been able to do is phenomenal. To use them, however, requires a certain level of tech savviness. The same is not true for WhatsApp. Your grandma can send and receive money if you help her set it up for once. And that might be instrumental in doubling down on an already powerful network effect of 270M people.

Vijay Shekhar is right in saying that Facebook is bending the rules. But they are not breaking them. And that’s an important difference.