Washington is not a place to live in. The rents are high, the food is bad, the dust is disgusting and the morals are deplorable. Go West, young man, go West and grow up with the country. — Horace Greeley
The context maybe different, but the theme — that the fight is simply not worth it here, aim for the Western market — is a recurring one in the digital entrepreneurial space in India. The difficulties in starting up in India are well known and documented. The most recent notable one was Dev Khare‘s ‘The Silent Killers of Startup Growth‘.
The popular thesis seems to be that it is better not to build a product specifically aimed at the Indian market, but at the global one. This thesis is backed by the two kinds of proof – the first being the success story of Wingify and the second being stories like Linea, which, reportedly, has raised $4 million recently. An app like that would not stand any chance in India, no matter how well executed it may be.
The problem has different parts:
1. Lack of funding.
2. Lack of an existing market.
3. Lack of exits, M&A activity.
4. Product DNA that’s not tailored to the Indian audience.
Most of these factors actually compound each other, so the effect is rather drastic on both activity and perception of the market.
But, Hold That Thought
The story is not all of gloom and doom, as shown by the SAIF Partners’ story. The fund, apparently, made 4x returns on their first fund and are on course to do a 5x return on their second fund. Not bad for a country that seems to be a bad bet for entrepreneurs, eh?
The devil, though, in any story (positive and negative) is always in the details. SAIF’s portfolio is not limited to digital and it is spread across different domains. They also struck out with iStream, which recently shut shop and the prospects for the e-commerce plays are not too bright at the moment (Zovi maybe an exception due to their manufacturing background).
Even then, their willingness to make big bets across sectors and have more hits than misses in a market like ours is remarkable. And, having met the team couple of times, I have to say that they are very approachable and low key.
Let us be honest. The Indian story is not a straight forward one. As pointed out rightly by Archit Gupta on a Hacker News thread, success here can often be about having the right connections. A good product and a great team addressing a potentially huge market opportunity is absolutely no guarantee of success here. Connections, above everything else, matters.
Even when corruption and regulation are not determining factors, who you know in a company and how much you can influence them is more critical to closing a sale here often than having an excellent product. Unfortunately, it is also reality that we cannot choose to ignore if we have to grow in the market.
The way out of this morass is neither simple nor easy. There are some really excellent people in every part of the ecosystem who are good and who are looking to good, but they are nowhere close to being empowered to do it. For all of us who care enough, it is imperative to make all the changes we can make, even if it looks hopeless. It is even more important for those who are in influential positions to make this change.
It will take time, it will be hard, but we can break this wall down, one brick at a time.
Please Don’t Stop The Music
And just like that Flipkart announced the demise of the Flyte, their digital music offering. And the numbers are pretty damning. 100K paying customers is not a great number, when you consider that even a single track purchase at Rs.5 can be considered as a paying customer and we don’t know the detailed breakup of the numbers.
The biggest downside of this development is that it will now set a sort of benchmark at 100K users for any paid digital content product in India, at a really low ARPU. This will have a pretty damning effect on anyone who is looking to get into this segment as Flipkart’s failure will loom large for a long time to come; at least until the fundamentals of the market changes.
While it is hard to figure out what exactly caused Flipkart to shut Flyte down within a year (sorry, no insider info), from the outside, it would seem that the company miscalculated the market size and costs. The product probably made sense two-years-ago when it was critical for the company to widen its base of offerings and topline; much has changed (drastically) since that time.
Even when you keep aside the licensing costs (the minimum guarantee mess), it still costs a lot to deliver the product. Going by NBW’s 2.5 million downloads/100K users number and Medianama’s Rs 9-12 ARPU, the revenue barely touches Rs. 1.5 crore. Another, slightly more liberal, calculation does not push the revenue over Rs. 3 crore for the same time period. Even the most optimistic scenario barely covers the licensing cost, in a segment rife with issues in hitting hyper growth.
None of this should have come as a surprise to the company, as these are well known facts about the digital goods market in India. What has changed is the outlook in the primary business Flipkart is in and the bleak prospects there. With their road ahead firmly set (grow massively big or die quick), they can’t afford to be in niches that won’t enable hyper growth. Flyte seems to be the first casualty of that.
And, oh, incidentally, if you think the Spotify clones are doing any better out here, you are mistaken. They have to pay per stream (at least the cases I know of), monetization is scant and some are already looking for more money to sustain themselves in the long run.