As you know, The Outline is our members-only newsletter and we only send out free versions on special occasions. Well, today is one of those days for us — it’s the launch day of our very first virtual event, The Product Summit, where we are bringing together 3,000 product leaders and enthusiasts to talk about the art of building high growth products for India. Hope you are all set with your event pass because we can’t wait to meet our readers. If you haven’t registered yet, GRAB YOUR PASS HERE.
Have you ever wondered who these next billion users are that everyone keeps talking about? Is it the first-time internet user like my grandmother living in the massive metropolis that is Mumbai or is it a teenager in coastal Gujarat who has just received his first smartphone?
Some research firms define the next billion users as the Indians whose household income is between INR 1.6 Lakh to INR 5.6 Lakh. By that metric, most entry level educated workers in metros will also fall in the bracket of the next billion users. If we define them by city of residence, Zoho’s Sridhar Vembu, who is primarily working from his native village in Tamil Nadu these days and many other workers in India’s booming tech industry, may not be counted.
So who are these next billion users and where do they live?
As with most things in India, it is hard to define a clear boundary. But there’s a high probability that a large portion of the next billion users come from India’s Tier 2/3/4 cities and smaller towns, mostly because that’s where 92% of India’s population lives. And that’s where startups and their products are heading too. So is this the moment when product development in India forks into India and Bharat, as many have proclaimed in the past?
There may be no need for such hard forks. Not even when it comes to the all-important question of monetisation. Simply put, Bharat is just as willing to pay and ‘monetisable’ as India is and the struggle is in creating the right products.
Ritesh Banglani, of Stellaris Venture Partners, told us, “I do not consider India to be two separate markets, I think there is a continuum in India from extremely well off consumers to not so well off consumers.”
Our point is for all the noise from tech giants and startups about reaching the next billion users, there isn’t a single parameter that can differentiate consumers in a Tier 2 or 3 geography from their metropolitan counterparts. Even when it comes to income, geography is not an indicator. A jeweller in small town India is rich enough to afford digital services and is a user that can be monetised, but often tech services don’t reach them due to language barriers.
While an English-speaking fresher in a large city may be the ideal user for many startups, but may not have the same bank balance as the jeweller. Both of these can be called part of the next billion set, but they are quite distinct. So it’s really not about the market, but boils down to the product.
Payal Arora, a professor and chair in technology, values, and global media cultures at Erasmus University Rotterdam, wrote a book on what defines the next billion users in India and what drives them. She told Inc42, “The next billion users are conspicuous consumers, meaning that they are willing to spend more for a product or service (than the middle class for instance) if given added safety nets and quality services, which they have for the longest time been denied.”
Healthtech startup Medcords’ cofounder Shreyans Mehta supported her statement. Mehta claims to have seen more paying subscribers and users in Tier 2 and smaller cities as compared to Tier 1 and metros. Medcords has observed a 30% conversion rate among users from Tier 2 and beyond cities, whereas only 1% of users in Tier 1 and metro cities actually paid for teleconsultations. That could well be explained by easier access to healthcare services in cities, but it also shows that the ‘next billion users’ can be monetised with the right products.
“Even though Tier 1 users are easy to onboard, it is hard to retain these users who have become habituated with free consultations and discounted services,” added Mehta.
Plus, there are hundreds of teleconsultation companies in India and most have free first consultation — a tech-savvy user in a metro can easily get 100 consultations without ever paying for the service. But the use-case in smaller towns is built around trust and confidence in the doctor and the service, which is why the propensity to pay is higher.
Consumer behaviour also tends to change with different sectors and products and sometimes smaller towns drive business value. According to Anuj Kacker, cofounder of consumer lending company MoneyTap, the larger a city, the higher the number of transactions, but the average transaction value is lower in big cities, while in small towns, the average transaction value is higher, which is great for the assets under management metric that lending companies prize.
Is Trust The Secret?
So what exactly works when it comes to revenue in the untapped market?
Most founders and VCs told us the first step is the need for building trust and offline support for these new users. For Medcords, it was about building a chain of pharmacies which can act as product evangelists in respective towns and villages.
In the case of a test prep startup Testbook, the company built a wide offline reach through local channel partners. This helped Testbook to establish a brand presence in Tier 2 and beyond cities which also acted as local support systems for users and direct points of sale. A whopping 65% of Testbook users are from Tier 2 and beyond cities and around 8-9% of them are said to have converted into paid users.
For content and media startups, the trust factor is seen in engagement times. “Our audiences are extremely value-conscious so they need to believe there is enough value while investing their money in us,” said Vinay Singhal, cofounder of Indore-based vernacular OTT platform, STAGE and Nukkad, formerly known as WittyFeed.
Josh Talks has also spent five years in builidng a brand that the next billion users trust before launching its upskilling app Josh Skills which has gained 1 Lakh paying customers in the span of 10 months.
Josh cofounder Supriya Paul said that when creating content for these users, it is important to build something that is emotionally binding. A lot of these new internet users are hesitant about trying new things because they have been ripped off so many times in the past by fraudulent schemes or placement agencies etc.
Josh leverages its existing bond with these users to overcome this resistance in users. All the course creators on Josh Skills are people who users already recognise from Josh Talks and have an emotional loyalty towards them. “They look up to us for direction and that kind of trust is basically what’s helping us to monetise and build a product that’s actually benefiting our target audience,” Paul said.
Sachetisation Of Product
“Most of Bharat (next billion users) while using online products are not transacting online yet. They might not buy products worth INR 2,000- INR 3,000 upfront but maybe you can extract something that costs INR 10 or INR 50 from them through micropayments,” Lightspeed Venture Partners’ Harsha Kumar, who will be speaking at The Product Summit, told us.
Companies do not necessarily need to change their user experience (UX) for Tier 2 and beyond users as compared to the Tier 1 segment but there has to be customisations in terms of ticket sizes, onboarding and go-to-market strategies.
Most startups operating in these regions agree that these users are price sensitive or value conscious. And hence, startups have had to customise their monetisation models to convert them into paying customers. Gaming startup WinZO Games pivoted its monetisation model from subscriptions to microtransactions based gameplays which allows users to pay an entry fee as low as INR 2, said cofounder Saumya Singh Rathore.
Similarly vernacular OTT platform, STAGE is also planning to launch a hybrid of subscription and a Patreon-like tipping model, where viewers can tip their favorite creators on the platform. “We have realised that our audience doesn’t like obligations, which is why the tipping model is the most optimised business model. Also, the average revenue per user and paying audience both are higher in case of the tipping model,” added cofounder Singhal.
Fintech companies have also resorted to this sachetisation approach in lending. Digital lenders and fintech companies have launched sachet loan products such as buy-now-pay-later plans, cardless EMI, instant cash loans, EMI cards and peer-to-peer loans that offer minor amounts — sometimes as low as INR 500-INR 3000.
Lenders such as MoneyTap, ZestMoney, MoneyView, Navi, BharatPe, Shubh Loans, Lendingkart, Capital Float among others are customising credit products for consumers and SMBs with greater frequency.
In the case of agritech, customisation of monetisation models is not just limited to smaller ticket sizes. Rajamanohar Somasundaram, founder of Aquaconnect, which operates in Tier 2 towns and rural markets, told us that across Southeast Asia, farmers are not willing to pay for technology intervention. Startups have to subsidise their upstream intervention so that there can be monetisation in the downstream — essentially spend money to earn money.
Aquaconnect’s AI tool helps shrimp farmers make smarter decisions about their farms and the company includes access to bank loans and insurance along with its SaaS product. It claims to be connected with 20,000 Indian farmers currently.
Stellaris’ Banglani believes that any business, irrespective of whether it is more affluent customer-oriented or focussed on small ticket products, needs to prove its scalability and the value proposition for the customer. For this reason, the fundamental tenets of evaluating monetisation models don’t change depending on whether one is catering to one segment of consumers or another.
Trust and product awareness are basic drivers for any business whether it focuses on Tier 1 city users or the ones beyond that. The resistance to pay higher ticket sizes for tech products can be found across Indian users, he added. “Entrepreneurs who tend to easily lump their customers into a huge bucket called Bharat, do not understand their consumer well, which is why they make these sort of easy assumptions,” Banglani said.
It’s All About Consumers
Big tech companies like Google and Amazon have time and again called India an important growth market for their products and a key player in the future of tech. After the recent outcry of Indian tech startups against Google Play Store’s updated billing policy, Google reiterated that it is deeply committed to the success of the Indian ecosystem and postponed the enforcement of the Play Store billing policy in India. It is not surprising given India’s consumer might in the Android scheme of things.
Of course, this has not ended the discontent for all startups with the Apple App Store and Google Play Store ‘duopoly’. An association of nearly 150 Indian entrepreneurs has planned to approach the Coalition For App Fairness, a US-based organisation to learn lessons from their fight against Apple.
Meanwhile, fintech major Paytm has recently announced the launch of Google Spot competitor “Paytm Mini App Store” to allow free listing and distribution of the so-called mini apps, which are simply custom-built mobile websites.
Speaking at a Paytm conference for app developers, Sharma said that his company would also be looking to make equity investments to help mini app developers launch their mobile applications on the Paytm Mini App Store, or scale their existing mobile applications. And if that was not a clear enough challenge to Google, on the day Paytm First Games made a comeback on Google Play Store, founder Vijay Shekhar Sharma called the tech giant a “toll collector.”
It’s All About Lending
While the Covid outbreak was catastrophic for most small businesses in India, there have been a few segments that actually benefited because of the ground-level conditions. Beyond the obvious boom in healthcare and SaaS for digitisation, the kirana segment boomed in most cities and towns as hyperlocal demand delivered sustained growth.
“We saw demand spike at a customer at a kirana level going above 80% to 160% on an average. So there is a huge demand that has built up over this period for the kirana business and in turn for the credit that the kirana is now demanding. So that way, it’s been a very, very positive trend both of these things,” said Uday Somayajula, cofounder of lending tech startup ePayLater.
After a detailed analysis of India’s D2C rush, the healthtech boom, and more through our member-exclusive Playbooks, Inc42 Plus is now diving into the most topical issue in the financial services market with a 360-degree coverage of the lending market and the state of the Indian credit ecosystem.
The India’s Digital Lending Reset Playbook will delve into the shifting revenue and risk models, the moratorium impact on the credit supply chain, the future of digital B2B lending, the lukewarm reception to the account aggregator system, and a whole lot more. With the pandemic changing everything and no certainty even in the face of the so-called ‘unlocking’, how will lending products adapt to the transformed market?
It’s not just lending, of course, the future of Indian tech startups lies in creating the right products for the right niches in the market. The beauty of India is that the market has such a diversity — the challenges are so rich in their intricacy that there’s room for any number of tech products to solve them. And this weekend, we are honouring some of the products that have already shown the way — but this is no awards show. It’s a learning experience for India’s product community from the product community. Here’s hoping we see you later at The Product Summit!
PS: If you loved reading this, become a part of our community at Inc42 Plus. So that we can keep writing to you every Saturday 🙂
Excited to host you,
Yatti Soni and Team Inc42