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Kumar Shah Contributor Share on Twitter Kumar Shah is the founder of Transit Capital, a cross-border VC firm that partners with growth-stage entrepreneurs building global champions.

At the start of recruiting season in business school, a top-tier consulting firm sent an invite to the entire class: “over your career, you will either be sitting with us or across from us. We would like to get to know you.”

If you’re building a large-scale technology startup, sooner or later, you should be having a conversation about the Indian market. India’s growth is often compared to China’s, but the big difference between these two markets is that India has an open internet infrastructure, where the best product wins.

In the last decade, Indian consumers have enjoyed the trifecta of cheap smartphones (courtesy of Android), some of the lowest data rates on the planet (courtesy of Mukesh Ambani’s telecom firm Jio) and rising disposable income. Most consumer startups from the U.S., Europe and China have already seen a large number of users organically adopt their product as hundreds of millions of Indians have come online.

Some examples:

  • for most of 2018 and 2019, Tinder was the highest grossing app in India
  • Quora and Pinterest are consistently in the top 30 most visited websites
  • India is the largest or second-largest user base for Facebook, WhatsApp, YouTube, Linkedin, Twitter, Snapchat and many other platforms

Snapchat, in particular, has seen tremendous growth in the Indian market. In March 2019, Snap launched eight new languages — five of which are spoken in India. Consequently, the company reported in Q3 2019 that 6 million out of the 7 million new Daily Active Users added were from outside the U.S. Snapchat’s stock is up almost 3x in the last year, well ahead of Nasdaq’s performance in the same period.

As a cross-border investment firm investing in U.S. and European companies to help them grow in India, we thought it would be useful to share our conversations with growth-stage entrepreneurs about the Indian market. In this article, we will focus on consumer-facing (B2C and B2B2C) companies.

What segment of India do you want to target first? 

While everyone thinks of India as a singular 1.3 billion-consumer market, there are, in fact, multiple sub-segments that have their own characteristics and are acquired differently. The India 1 segment, arguably the most lucrative, constitutes the 25+ million Indians who have credit cards, form the 10 million iPhone install base and were Netflix’s first 500,000 users in the country. The India 2 segment requires products that work in languages other than English and potentially different product features (such as voice input). Snapchat is now focused on acquiring India 2 users with its new language strategy.

What are the best ways to acquire users in this segment?

The short answer is — it depends. If you are in a category (such as gaming) that appeals to a broad demographic and geography, strategic partnerships with mobile OEMs or unicorns building super apps (Paytm and PhonePe for example) will give you a high-volume distribution channel. If you are a wellness app that is focused on India 1 users only, then it makes sense to prioritize channels or partnerships, such as hospital chains in Tier 1 cities, to acquire that segment of users. If you already have organic traction in the country, look at your analytics (for example, cities where your users are based, price range of phone models being used and so on) to understand your initial set of power users.

What is your monetization and pricing strategy? 

The monetization strategy that worked in your existing market(s) may not work in the Indian market. From both an addressable base of paying customers (see the install base of credit cards above) to the ARPU, Asian markets have significantly lagged their western counterparts.

The good news is that with the strong adoption of Unified Payments Interface (UPI), a first-of-its-kind payments protocol that can be implemented by third-party applications, there is almost no friction (or costs) to receive payment amounts as small as two cents. When in India, you should be using UPI.

While Tinder found success with subscription billing at U.S. prices, Netflix entered India with a ~$7/month billing plan in line with their global rates but realized that growth would only come through innovations such as mobile-only plans at $2.80/month. Apple and Spotify have been clear that they want to target the mass market and launched with plans that are close to $1.50/month, a significant discount to their U.S. and European plans.

While these companies have found success with subscription billing, more likely monetization models are advertising led (YouTube) or freemium. Are there features in your product that you can charge a premium for while still offering a subset of the product for free (and cover your direct costs through advertising)? Are there partnerships (such as the ones that Netflix and Amazon Video have signed with Indian telcos) where you can get paid indirectly for your core product?

Build your costs in line with your target segment and pricing

Now that you have a better idea of your target market size and expected pricing, you should build a cost structure that is in line with expected revenues. Most of the companies we track have acquired their first five million customers (or more) in India with an initial team of one to three people on the ground. From both a team build out as well as customer acquisition cost point of view, most companies have been disappointed that they have invested in resources well ahead of understanding the size of their target market and expected revenues.

Find a local partner

If you aren’t setting up a local team in the near term, we recommend having a local partner/shareholder that is aligned with your business and plans. From regular follow-ups on strategic conversations to keeping tabs on changes in regulations, having someone local who understands your business is critical to your entry and expansion plans. Similar to the scrutiny that internet companies face in other countries, India is also drafting regulations for localized data storage and mandating a local point of contact for companies that have more than 5 million users.

For entrepreneurs building global champions, having an India strategy is essential and can form the beachhead to expand into Southeast Asia and the Middle East. As Mary Meeker has repeatedly noted in her annual report, India and Indonesia will be the first and third-largest open internet markets in the world.

What excites our team is that India is already home to significant user bases for early and growth-stage private companies such as Truecaller (100 million daily users), Quora (second largest market), Duolingo (10 million users), Brainly (20 million users), Wattpad (3 million users) and Vyng (14 million installs), while others such as FlixBus are actively setting up operations.

We hope you found the above information helpful. And if you are building a global technology company, we would like to get to know you.


https://techcrunch.com/2020/01/27/adding-india-to-your-business/