2018 has been a roller-coaster ride for Indian startup ecosystem. The watershed moment came with Walmart acquiring Indian e-commerce giant Flipkart in May - more dramatised by the eventful exit of founders, Sachin Bansal and later Binny Bansal.
The year also saw a lot of investment pouring from China. India benefited most from China’s ongoing trade war with US as it emerged as a safer and high-potential market for startups. Software as a service (SaaS) dominated as a sector with valuation of startups such as Swiggy and Byju’s going up in leaps and bounds.
Later in the year, the government clamped down on the predatory pricing and deep discounts of e-commerce players to protect the interests of Indian businesses. Here, The Passage cuts the long story short by picking nine standout happenings of the year.
Walmart pockets Flipkart
Arguably, the defining moment in the history of Indian e-commerce. American retail giant Walmart shelled out USD 16 billion for 77% controlling stake in Bengaluru-based Flipkart. Co-founder Sachin Bansal sold his entire 5.5% stake to Walmart. Flipkart has the largest market share in e-commerce. So with this acquisition, Walmart can achieve next leap of growth in India helped by Flipkart’s 175 million registered user base.
The American retail giant’s mega buy would deepen the Amazon vs Flipkart fight for the Indian market.
From 2017 to 2021, online retail in India is expected to grow 141% to more than USD 50 billion. Walmart’s foray will bring fresh funds and revitalise the e-commerce sector in India as more foreign companies and venture capitalists would make a beeline for India. Walmart is looking to extend its supply chain arm through partnerships with around 60 lakhs kiranas.
Government pushes for data localization
India’s data localisation law is sending jitters across IT, ITes and startup ecosystems. The draft data protection bill is likely to impact on how companies use customer data for businesses significantly.
In essence, the law would require data generated in a country to be stored on servers within the boundaries of that country. That would mean, internet giants like Google, Facebook, and Microsoft among others should save their users’ data in India and process on servers physically located in India.
There is a multi-forked move by various agencies in the country. While the government has drafted a data bill which is open for discussions, India’s apex bank, Reserve Bank of India, has issued a circular mandating all payment companies in India to store all user data in the country. A similar requirement was sought in the draft policy on e-commerce by the ministry of commerce and trade after a government committee proposed authorising the State to access critical user data without the consent of the users for public welfare. The push has already delayed the launch of payment services of technology companies like Apple and WhatsApp in India.
Short videos apps go a long way
“Localised content speaking different dialects may bring growth momentum for the short video segment, and short videos can become the next hit for India’s mobile internet industry, ” according to a report by Cheetah Labs.
Chinese video-apps such as Kwai, Vigo Video, TikTok, etc. have launched in India in the past two years. Tencent backed, short-video app Kwai, that claims 15,000 video uploads a day globally, started India operations in April this year. Statistics from Google showed that 87% of Indian netizens watch short videos on phones every day. “These Chinese startups are well aware of the fact that video and short content production is not their core competency for a country like India, primarily due to the cultural barrier and insufficient control of the content industry value chain,” said Hanish Bhatia, senior analyst, IoT and mobility at Counterpoint Research.
In 2017, Bengaluru-based video sharing startup Clip India raised USD 6 million in its Series A round. Shanghai-based VC firm Shunwei Capital, along with Chinese smartphone manufacturer Xiaomi led USD 18 million round of funding in ShareChat, a Bangalore headquartered content creation company. In August 2018, Samosa Labs also raised USD 7 million from Xiaomi and VC firm Sequoia Capital.
Amazon Vs Netflix
Netflix and Amazon Prime Video have increased their market share in India.
Netflix saw its market share grow to 6.3 % till October from a mere 0.5 % as at the beginning of the year while Amazon Prime Video’s share grew more than two and half times to 10.8 % from 4 %, according to KalaGato, a market intelligence firm. Viewership over mobile comprises 83 % of the total video consumption online, according to Comscore.
“There are two to three factors that drive this. One is the range of content and titles they provide owing to their access to deeper and broader content, with them being global players. The second differentiation is technology and user interface: How good their recommendation engines are, how they can anticipate and predict what the consumer wants, and how you present the relevant content to the consumer in an easy-to-search fashion. The third driver is the creation of synergies between the e-commerce and content business, as has been in the case of Amazon. That’s an interesting synergy because ultimately it’s the same target audience that is internet savvy,” Ajay Gupta, a partner at AT Kearney told Business Standard.
Binny Bansal's unceremonious exit
Flipkart CEO Binny Bansal stepped down from his position following allegations of “serious personal misconduct”.
Flikpart, co-founded by Sachin Bansal and Binny Bansal in 2007, is the largest Indian e-commerce company with a 40% market share in Indian online retail industry as of 2017. Sachin Bansal left the company after the US retail giant Walmart acquired 77% stake in May for USD 16 billion as Binny Bansal continued as the Group CEO of Flipkart Group.
"While the investigation did not find evidence to corroborate the complainant's assertions against Binny, it did reveal other lapses in judgment, particularly a lack of transparency, related to how Binny responded to the situation," Walmart said. "Because of this, we have accepted his decision to resign."
The statement also disclosed an ongoing succession plan before the incident and Binny’s resignation had expedited the process. Kalyan Krishnamurthy would don the CEO hat of Flipkart. Sameer Nigam, vice president, marketing, Flipkart, will continue at the helm of PhonePe, Flipkart’s mobile payment company. And Ananth Narayanan, who leads Flipkart’s separate retail platforms Myntra and Jabong, will report to Kalyan.
OYO’s global expansion
Gurugram-headquartered Indian hospitality unicorn OYO announced its funding of USD 1 billion, it pledged USD 600 million of it to strengthen its position in China. The rest would go into expansion into other foreign markets and supporting its business in India, it said.
“In an endeavour to deepen our network and commitment as South Asia’s largest hotel chain, we have expanded into Malaysia, Nepal and China, where we have over 5500 assets partners,” said an Oyo spokesperson. In China, Oyo has over 11,000 exclusive rooms in 26 cities including Hangzhou, Xian, Nanjing, Guangzhou, Chengdu, Shenzhen, Xiamen and Kunming among others.
Founded in 2013, OYO is backed by leading investors, including the SoftBank Group, Greenoak Capital, Sequoia India, Lightspeed India, Hero Enterprise and China Lodging Group.
OYO had reported a loss of Rs 330.97 crore (Approx USD 49 million) for fiscal 2017, compared to Rs 496.31 crore (USD 70 million) for the previous financial year.
Quick expansion in overseas market has worked well in achieving towering Oyo’s valuation.
“There is absolute merit in Oyo’s back to back entry into foreign countries. The size of opportunity seems to have driven investors to value Oyo that much,” explains Satish Meena, Senior Forecast analyst, Forrester India.
Byju’s the rainmaker
The poster boy of Indian edtech, Byju’s, started its life as a tuition centre in 2011. Byju’s pivoted to online education in 2015. A Byju spokesperson claimed the company has 1.7 million paid users. In December, BYJU's raised USD 540 million from Naspers and Canada Pension Plan Investment Board (CPPIB) at a valuation of at least USD 3.6 billion.
“I think education as a core segment where technology is just about to intervene not just in India but all over the world. You will see some large education companies coming up in the next one-two decade, and I expect them to come from India and China or other emerging markets, the reason being a large number of students and schools exist. It’s so important that companies solve education problems to scale and will create such a big impact. The real fun is not in creating a billion dollar company but changing the way millions of people think,” Byju Raveendran told The Passage.
Influx of Chinese fintech firms
The Chinese fintech firms first explored the Southeast Asian region before stepping on Indian soil. In 2017, India received the largest share of Asia’s alternative lending deals at 41%. China was second at 32%, and Southeast Asia followed with 17% of total deals.
India may overtake China as the world’s leader in fintech service adoption, according to a report by Ernst & Young. The country is experiencing what China did a decade ago--rising internet and mobile penetration rates. There are 400 million millennials in the country who are driving India's mobile revolution. About half of them lack access to credit services. Stratups are now cashing on this opportunity and disrupting the banking system.
In the past few months, Chinese microfinance company CashBUS has invested in Delhi-based Olly Credit, mobile phone maker Xiaomi has invested in Bangalore-based Krazybee which offers loans to purchase smartphones and laptops, early-stage investor 01VC has put in money in Bangalore-based microlending platform Smartcoin, and lending platform Finup has invested in digital payment platform Slicepay.
Indian startups pique Chinese interest
Alibaba, Baidu, Tencent, WeChat, and Xiaomi have already made strategic investments and are actively scouting for partnerships and large equity investments in India.
KrazyBee.com, run by Bangalore-based Finnovation Tech, has attracted funds from China-based mobile vendor XiaomI. The company has partnered with Xiaomi to offer exclusive credit service to its customers.
Pan, founder and CEO of Qianli Inc, a Hangzhou-based lending startup is looking to partner with an Indian lending firm to expand his business. Pan, along with his Indian partner, plans to disburse around Rs 100 crore (USD 13 million) within a year of Qianli’s operations in India.
Venture Capitalist Shunwei Capital has invested USD 99 million in social app ShareChat and USD 50 million in reselling platform Meesho. Tencent put USD 100 million in gaming company Dream11 and USD 115 million in music platform Gaana. Alibaba’s financial arm heavily invested in Zomato, Paytm Mall and BigBasket in 2018.