There isn’t a lot of Venture Capital going into pure digital apps in India. But it’s starting to look up. Last week we asked a few fundamental questions about the app ecosystem to Alok Mittal, the Managing Director of Canaan Partners. In the second part of the series, we asked Dev Khare, who has been in the mobile industry for more than 15 years, how the app ecosystem in India is shaping up. “This is the right time to start pure digital concepts,” said Khare, Principal, Lightspeed Venture Partners. The venture firm has invested in companies like Dhingana. Khare in his previous venture firm, was an investor at Slideshare, the company which was acquired by LinkedIn for $119 mn. Here’s why he thinks its going to be a big deal soon.
The consumption story in India is still not that strong for digital, where do you see this going?
This is the right time to start pure digital concepts. The number of smartphones is dramatically rising. Micro-payments are coming along. Last year, you saw Vodafone drop their revenue share to 30% on digital goods. We believe Airtel and Idea might follow. Next year, Reliance might disrupt the whole ecosystem with the 4G launch. Data prices have already gone through 2 price wars in the last 9 months. If you look at 5-10 years, you are looking at a big market. You have to survive till then and build a good product market fit.
How do you look at the app ecosystem in India?
Like you would look at websites in India, there are a couple of ways to look at apps in India. There are a set of sites that connect an online user to an offline experience. That has been the majority of what has happened until now. Examples are Naukri, JustDial, redBus, Olacabs or Zomato. You’ve got offline assets and you find an online buyer. This makes perfect sense in the early stages of Internet and mobile economy in India. E-commerce is also an extension of this thesis.
The second category is purely digital. Facebook is an example from outside India. Nimbuzz, Gupshup and Dhingana are examples in India. You could think of dating services like StepOut. So you’ve got communications, entertainment and increasingly other things like social, gaming and video. That economy is in the early stage.
Where is it all going?
When lot of people ask this question, they are typically referring to digital only concepts. If you think about it that way, Instagram or Snapchat (one of our portfolio companies) is digital only. Lot of digital only concepts in India have analogs or competitors abroad. But unlike in China, which has firewalled the country and produced local startups in each of these categories, the Facebook of India is India. Our investment in Dhingana was based on that perspective. There was a lot of content in India which is “India only.”
Online to offline companies typically have a website, an app and a call center at the same time like JustDial. Mobile is becoming more important for them. Olacabs and Meru Cabs have also started offering mobile apps because its cheaper and a more efficient way of accessing consumers as opposed to phone calls. For us as a firm, online to offline concepts are a big part of what we are looking at and we will see more of that.
How is it different from what you see in the US?
The business model is not going to be the same as you see in the US where a lot of them are consumer paid. Revenues could be from in-app purchases, or for the app itself or ad supported. Here you are seeing that revenue comes from offline merchants. For example, Zomato generates revenue from restaurants. That’s because micro-payments are hard in India– this whole thing about 21 million credit cards and 300 million debit cards where they aren’t used for online transactions. Only 7 mn people have transacted with e-commerce in India. Small businesses are willing to pay if they see value.
We also look if startups have figured out how to acquire paying merchants. We are looking for hard offline problems to be solved.
You also look at pure digital concepts.
Our investment in Dhingana is based on that. We also look at services that instantiate a service. For instance OneAssist that helps you with emergency assistance relating to your phone, credit cards (Read: OneAssist Interview). That’s a service which applies to mobile devices.
Far too many companies think that putting an app out there is distribution. But that’s not what happens. You have to build and then market the app. Above the line marketing is not cheap. Distribution deals are a great way to get around that. For instance it could be JustDial putting their search box inside BookMyShow. For example WebEngage which has its widget on sites with its logo on it. That is marketing. It is a customer who is also providing distribution for them.
Lot of times, it’s important to create the ecosystem by pulling together others. Like the e-commerce guys who put a lot of advertisements on TV. They created the category. The Online Travel Agents did that to just build the market. I’m not saying app companies need to do TV advertising but they have to think smartly by taking initiatives that are bigger than the companies themselves.
Does a big market size matter?
The market needs to be big. It takes a market of more than half a billion dollars to produce a big company. Not all mobile app companies are going after a big market. Many are going after the advertising supported model. In India, mobile advertising last year was $40 mn, this year it might be $80 mn. That is a small market with low CPMs. It’s hard to sell to advertisers as agencies have a grip on the market. How do you make a big company out of this?
Notwithstanding all this, if you look at 50 mn data active smartphones by the end of this year, we can easily see 200-300 mn smartphones out there in a few years. More than that, nearly 500 mn mobile web users are out there. You just have to imagine the future where that’s the case and micro payments on the mobile have been solved and you will see a whole lot of Indian businesses.
But there isn’t always a big market today. So you have to assume that it will be some day.
Mobile app vs Mobile web?
I was an investor in Slideshare in my previous firm. They never had a mobile app and they still don’t have it. Because many people check their e-mail or Twitter feeds on their mobile phones and they click on it and they can view the slide immediately. If an app was required, it would cause a lot of friction.
Dhingana, is the only service in India which can play on the browser. That’s helped them get to millions of users who just have feature phones.
Are a lot of Indian companies clones..
My point there was not that existing companies are good to do. Clones are not good.
Do you see developers go after replicating ideas already out there?
I see a mix of both. There were a lot of Foursquare clones there were launched in India and they didn’t go anywhere. Interacting with local merchants is not so easy here. There people have been bludgeoned by Google long enough that small businesses have started to go to Google and advertise or put up local pages. Here it’s not all that easy.
» If you have an opinion to share on the Indian app ecosystem take our survey: Is The Indian Mobile App Industry A Sexy Mirage?
» If you are an app developer, come over for bigMobilityConf (scheduled for Aug 31st). Lot more insights on app ecosystem will be shared by Industry bigwigs.
* This article has been edited to reflect grammatical changes.