We are seeing growing discussion on the business models of new-age startups. How they are spending money without any plans to become operationally profitable? Some analysts are questioning the business models of these companies and wondering how these companies will survive once the flow of funds is stopped. These companies are coming under scrutiny from investors, media and pundits for their business models, customer acquisition strategy and the media spend.
However, this kind of scrutiny was never shown to the old age business in the same sectors in which these companies are operating. No one questioned the lack of innovation and customer focus in the old age business in India. This includes the public listed companies who failed badly in improving the offerings and developing new products, customer service and showed no intention to increase the customer base. I am not saying that the new age companies are following a right path, but they are here to do things in a new way, and certainly do not have the luxury of time with them to build the business slowly.
As we know almost 80-90% of these startups will fail, but those who will survive will change the face of the sectors in which they are operating and many of them have already changed the rules of the games.
Some key sectors in which we can see clearly the lack of innovation in all fronts lead to the sudden rise of startups
- Yellow Page: Justdial was launched in 1996 and went for an IPO in 2013. The company did a little to improve the product, even when they are seeing the increasing penetration of smartphones in India and launched a mobile app in September 2015. They never took note of the customer feedback about the vendors and the idea to check the quality. It was just making the old age yellow book more accessible by making it more accessible through call center agents.
This lack of focus on customer requirements and innovation lead to the rise of new age companies like UrbanClap, LocalOye, Zimmber, Taskbob and many more providing customers the ease of booking and helping in standardizing the pricing in certain areas. It would be great if the investors of Justdial raise few questions during the quarterly earnings release other than going through the financial numbers about the long-term product pipeline for Justdial.
- Economy Hotels: Shortage of hotel rooms and especially good economic hotel rooms was always been a problem for India. We have seen players like Tata entering in this area through Ginger hotels, but not been able to penetrate further due to the need of capital requirement. There was no standardization of hotel room amenities when it comes to cities expect for metros and unbranded hotels. New age startups like Oyo Rooms are solving this problem by using the existing inventory and investing in improving them instead of making fresh hotel rooms. Oyo still has to answer the questions about its long-term plans and sustainability, but they have done something which no one from the old age business thought of.
- App based Taxi: A lot is written about this segment already. The reason why customers moved swiftly to these app-based taxis from Meru and Kali Peeli is simply because of its convenience and price. Meru entered the market of radio taxi, and it was like a fresh breath in a country like India where booking taxi over the phone was just like a miracle in those days.
However, Meru failed in areas where customers wanted more convenience and that too on a cheaper price. Cab at 25-30/KM was always expensive and the company never thought of decreasing the price and increasing the user base. Apart from this, as the demand of cabs has increased, booking a Meru gradually become difficult for customers due to non -availability of cabs for short trips. Same was the case with Autos and Kali Peeli taxi. They took customers for granted from a long time and failed in moving toward improving the customer experience. Hence, as soon as Uber and Ola launched in India customers moved to them at a rapid pace.