Only for The Curious

The ₹50 That Decides Everything: Why Quick Commerce Works Only in India!

Deepak Jain — Sun, 19 Apr 2026 09:32:55 GMT

10-minute grocery delivery has failed in every geography in the world.

Gorillas — dead. Getir — collapsed. GoPuff — struggling. Jiffy, Fridge No More, Buyk — all shut down.

Billions of dollars in venture capital, burned through in the pursuit of delivering milk and bread in minutes.

And yet, in India, quick commerce is a $7 billion market growing at 40% CAGR. Blinkit, Zepto, and Swiggy Instamart are processing millions of orders daily. Zepto alone did ₹11,110 crore in revenue in FY25 — a 150% jump from the previous year. Blinkit crossed 50% market share. Zepto is preparing for a $7-8 billion IPO.

What’s going on? Why does this model work in India when it has failed everywhere else?

The answer isn’t some grand strategic insight. It’s one number: ₹50

The ₹50 delivery cost advantage

That’s what it costs to deliver a single order in India.

A delivery rider in India earns roughly ₹1,000 per day and completes 20 deliveries. That works out to ₹50 per delivery.

In the US, the equivalent cost is $7 — that’s ₹600. In Europe, it’s €5 — roughly ₹450.

This single cost difference is why the quick commerce model breathes in India and suffocates everywhere else. When your delivery cost per order is ₹600, you need an average order value of ₹3,000+ just to break even on the per order variable costs. At ₹50 delivery cost, the math starts working at ₹500-600 AOV — which is achievable for a weekly grocery restock in urban India.

But low delivery cost alone isn’t enough. To understand why, you need to open up the full P&L of a dark store.

The fixed cost structure of a dark store

A dark store is essentially a mini-warehouse — no customers walk in, no shelves to browse. Just racks of inventory, a team of pickers and packers, and a fleet of delivery riders parked outside. The typical dark store is about 4,000 sq ft, located on the ground floor of a residential area, with parking space for 50+ bikes.

Here’s what it costs to run one every month:

Rent: ₹2-4 lakh, depending on the city. Mumbai and Delhi NCR are at the higher end. Tier-2 cities are cheaper, but they also generate fewer orders.

Staff: 1 store manager, 3-5 pickers/packers, and 6-10 delivery riders. Fully loaded cost: ₹2-4 lakh per month.

Utilities: Electricity (especially for cold storage and freezers), security, maintenance. Another ₹50,000 to ₹1 lakh.

Total fixed cost per dark store: ₹5-10 lakh per month.

Setting up a new dark store costs ₹30-60 lakh upfront — security deposits, interior fit-out, racking, technology setup, and initial working capital.

These are relatively modest numbers. The challenge isn’t the fixed cost per store — it’s what happens at the order level.

The variable cost per order — where the model lives or dies

Let’s break down what happens every time someone orders groceries on Zepto or Blinkit:

Gross margin: Groceries are a low-margin business. The platform buys goods and sells them at roughly a 20% markup. So on a ₹500 order, the gross margin is about ₹100.

Packaging: ₹10 per order. Bags, wrapping for fresh produce, insulation for cold items.

Delivery: ₹50 per order. The rider picks up the packed order and delivers it within the 2-3 km catchment area.

Total variable cost per order: ~₹60 (packaging + delivery).

Now here’s where the AOV becomes the single most important number in this business:

On a ₹300 basket (impulse buy — someone ordering milk, bread, and chips):
- Gross margin: ₹60
- Variable cost: ₹60
- Contribution margin: ₹0

The order makes zero money. Every impulse purchase is essentially a free service.

On a ₹600 basket (weekly restock — groceries, personal care, household items):
- Gross margin: ₹120
- Variable cost: ₹60
- Contribution margin: ₹60

Now the order starts generating value.

This is why every quick commerce app pushes combos, suggests add-ons, shows “frequently bought together” prompts, and has recently started selling electronics, perfumes, and even iPhones. Higher AOV = higher contribution margin per order. It’s not cross-selling for the sake of it — it’s survival math.

And this is precisely why the model dies outside India. When delivery cost alone is ₹450-600 (as in the US and Europe), the variable cost floor is so high that you’d need ₹1,000+ AOV just to get a positive contribution margin. For groceries, that’s an unrealistic basket size for a quick, impulse-driven purchase.

The 500-600 orders/day threshold

So at ₹60 contribution margin per order, how many orders does a dark store need to cover its fixed costs?

If the fixed cost is ₹10 lakh per month:

₹10,00,000 ÷ ₹60 = ~16,667 orders per month = ~550 orders per day

That’s the first threshold. At 550 orders per day, the dark store breaks even on its own costs — rent, staff, utilities are covered.

This is achievable in dense metro areas. Blinkit’s mature stores in Mumbai and Bangalore already cross this comfortably. Zepto claims that 70% of its dark stores are now EBITDA positive at the store level.

But here’s the thing — store-level profitability is not company-level profitability. And the gap between the two is where the real story lies.

The corporate overhead problem

Who pays for the 6,000 engineers? The product and design teams? The advertising and customer acquisition? The CEO’s salary? The AWS bill? The legal and compliance teams?

Zepto’s corporate overhead — employee costs, technology, advertising, and other central expenses — runs at roughly ₹800-900 crore per year. This is the cost of running the business above and beyond individual dark stores.

Spread across approximately 1,000 dark stores, that’s about ₹8 lakh per store per month in corporate overhead allocation.

At ₹60 contribution margin per order, each store needs to generate another ~13,000 orders per month — roughly 450-500 additional orders per day — just to cover its share of corporate costs.

Add the two layers together:

- Store-level break-even: ~550 orders/day
- Corporate overhead coverage: ~450 orders/day
- Total for true profitability: ~1,000-1,500 orders per day

That is the magic number. If a dark store consistently does 1,000-1,500 orders per day, it covers both its own costs and its fair share of the company’s overhead.

Can a dark store actually do 1,500 orders per day?

This is the question that separates optimists from skeptics.

Consider what 1,500 orders per day means in practice. A dark store operates roughly 16 hours a day (7 AM to 11 PM). That’s about 94 orders per hour, or more than one order every 40 seconds — sustained throughout the day.

Peak hours (7-10 PM) account for 40-50% of daily orders. So during the evening rush, you’re looking at 200+ orders per hour from a single 4,000 sq ft warehouse serving a 2-3 km radius.

In Mumbai’s Andheri or Bangalore’s Koramangala, with population densities of 20,000+ per sq km, this is achievable. Blinkit’s top-performing stores already hit these numbers.

But in a Tier-2 city like Jaipur or Lucknow? Or even in a less dense part of Delhi NCR? Getting to 1,500 orders per day from a 2-3 km catchment becomes significantly harder.

This is why quick commerce may ultimately be a metro-only business — and that puts a natural ceiling on the total addressable market.

The three-player problem

Even in dense metros where 1,500 orders per day is theoretically possible, there’s a complication: three well-funded players are fighting for the same orders from the same catchment area.

Blinkit (backed by Zomato’s public market resources), Zepto (with $2.3 billion in venture funding), and Swiggy Instamart (backed by Swiggy’s public listing) — all three have dark stores within overlapping catchment zones in every major metro.

If a catchment area generates 2,000 potential orders per day and three players split it roughly equally, each gets ~650 orders — well below the 1,500 needed for full profitability.

So what do they do? They burn cash on discounts, ₹1 delivery fees, and aggressive promotions to steal orders from each other. This inflates the potential order pool temporarily but destroys the very unit economics that make the model work.

The unit economics work beautifully in theory — and in a monopoly. They break in a three-player war.

The hidden lever: retail media

There is one revenue stream that could change the math entirely — and it’s not about selling more groceries.

Retail media — essentially, brands paying for visibility on the platform. Promoted listings, banner ads, sponsored search results. When a consumer opens Blinkit and sees a particular brand of chips featured at the top, that brand has paid for that placement.

This revenue is nearly 100% margin. There’s no COGS, no delivery cost, no packaging. It’s pure profit.

Amazon’s advertising business generates over $40 billion annually — more profitable than AWS. If quick commerce platforms can build even a fraction of this, it fundamentally changes the contribution margin per order.

Instead of ₹60 contribution from product margins alone, add ₹15-20 per order from advertising revenue, and suddenly the break-even threshold drops from 1,500 orders/day to 1,000 orders/day. That’s a very different business.

This is the bet that all three players are making. The question is whether they survive long enough — and achieve enough scale — for the advertising flywheel to kick in.

So who survives?

My take: quick commerce will be profitable in India — but not for three players.

The math is clear. The ₹50 delivery cost is India’s structural advantage. Dense urban populations provide the order density. The model works at the store level — 70% of Zepto’s stores prove it.

But company-level profitability requires either massive scale (to spread corporate costs thin enough) or consolidation (to reduce the competitive burn). Probably both.

One of the three will either be acquired, merge, or scale back significantly. The surviving two will gradually raise prices, reduce discounts, and let the unit economics breathe. Add retail media revenue on top, and you have a genuinely profitable business.

The question isn’t whether quick commerce can make money. It can. The ₹60 contribution margin math proves it.

The question is whether three players can survive long enough — burning billions in a war of attrition — for that math to play out.

My bet: two survive. One doesn’t. And the two that remain will build businesses that look less like grocery delivery companies and more like advertising platforms that happen to deliver groceries.

What do you think?

How Tanishq is changing the Indian Jewellery Market!

Deepak Jain — Thu, 23 Oct 2025 17:44:59 GMT

Tanishq operates in the market where trust is REALLY REALLY IMPORTANT - Jewellery. Traditionally, we have seen our grandparents and parents going to the same jeweller - generation after generation as you need to have complete faith in your jeweller. It is very easy for anyone to sell you a lower carat gold and charge you higher.

Tanishq has leveraged the TATA brand name like no other business could ever do.

NUMBERS

Total Stores - 582 (Tanishq, Zoya, Mia and Caratlane). These stores are located across a whopping 250 cities.

Revenue - 23,000 Cr

EBIT - 3000 Cr (~13% Margin)

Company’s focus is now on Tier 2/3/4 towns where there is a huge value addition possible by making high quality finishes available to the customers in a transparent manner without any fear of getting cheated by the unscrupulous jeweller. The company also has very very transparent exchange/return policies.

Total Gold Demand in India

Total gold sold in India was 774 Tonnes during 2022 which would be around ~4 Lakh crore in value. With a revenue of Rs. 23,000 Cr - Tanishq already controls around 5% of the overall Bullion demand in India and more importantly - this market share is growing rapidly.

Masterstroke

One masterstroke that Tanishq has made is that it is now exchanging gold purchased from other jewellers as well. Why is this a masterstroke - because now it is tapping into the next market which is people who are not looking to buy new gold but want to use the existing gold to buy new jewellery.

Why is his a masterstroke:

Two main reasons

This is a big big market. As per estimates, Indian households hold gold worth USD 3.8 Trillion (34600 tonnes). Tanishq exchanging this gold gives it access to this huge market. This is 40 times the annual Gold demand
Tanishq’s main value proposition (in addition to beautiful designs) is 100% correct caratage. Once, the exchanging users checks the purity of gold purchased from their other jeweller - he would get to understand how she has been defrauded by that jeweller for generations. And then Tanishq would have a customer for life.

I got my own gold exchanged at one of the Tanishq’s store. The experience was a bit intimidating initially.

Firstly, we are going for exchange and not to buy. Are we poor? How would Tanishq staff treat us? Would they treat us differently

Secondly, how would they value our Gold. During the process, they would melt the metal - What if they siphon out some Gold. How would I even know. Also, what if they under report the purity.

I had all these questions - which I think anyone who is going for the Gold exchange for the first time would face.

Here, Tanishq might make good growth but to take it to the masses, these customer apprehensions need to be solved for. But the question is, how would it be solved.

Now onto the actual experience:

Staff treated us the same as when we are going for fresh purchase so the first problem was not a problem at all.

After that comes the valuation part -

The way Tanishq deals with this issue is very simple - It gives a rough estimate initially - which is given without melting the jewellery. This gives us a ballpark of how much we are going to get.

After that, we selected the pieces of jewellery.

Post this, we went for the actual valuation. There was an actual electrical furnace. The Kaarigar showed us the actual cylinder in the furnace where the Gold would be melted and asked us to confirm that it was empty. Post this, he put the jewellery in the furnace. After a few minutes, he took out the molten gold which got solidified instantly. Then, he washed it in water and then put the solid metal into the machine which checks its purity.

Post this, the actual valuation is received. In our case, the actual valuation was better than the rough estimate.

So Tanishq is slowly capturing more and more market from New Gold sale. In addition, it is also now sneakily capturing Gold exchange market. And both of these markets would be built on the most important metric “High retention”.

It is Tanishq’s market to conquer unless it commits some huge mistake.

How World's biggest Networked product was born?

Deepak Jain — Wed, 15 Oct 2025 16:43:32 GMT

We look at a problem and think that it is too difficult to be solved. Let me take you through a problem which in hind sight looks really really difficult to solve. I recently got to read the story of how VISA was born. Its maiden name was BankAmericard.

This is a two sided problem -

We need to have enough and more credit card users to create demand
We need to have enough merchants accepting the credit card for the demand to be catered

Once, we have liquidity on both sides then we have a well oiled machine wherein all the participants are extracting value from the system.

But similar to any marketplace/platform - It is a chicken and egg problem. If we get demand first (issue credit cards) then they wont have any supply (shops accepting cards) and wont get any value.

And without demand - how do we get supply on board.

Lets see how Bank of America solved this problem

Credit Cards were invented by Bank of America. But they also faced the same problem. How to get the network kickstarted?

So, how did they achieve the same.

They were a big bank so they already had a big customer base so what did they do. They chose a market (Fresco in California) where they had the highest penetration of customers (density of network matters). They had a 45% penetration there so every 1 in 2 adults in Fresco was a customer of BoFA.

Step 1:

There were 60K customers in the city and they sent an unsolicited credit card offering 300 USD credit to each one of the customer through mail.

What matters here:

BoFA’s penetration was 45% in that city so 45% of the city’s population had a credit card
And all of these people got access to the credit card on the same day.
Card was offering 300 USD credit so it was very useful if a sizable number of merchants accepted it

Step 2:

Now, how did they build supply on the merchant’s side:

Here, also they played smart - they knew that 45% of the population would have a credit card in next N days. So what did they do about it?

They went to the local merchants in the most Shopping dense area in the town - downtown. BoFA did not reach out to big brands/stores like Sears as there would be a lot of bureaucracy there. They went to mom and pop stores and onboarded them.

Positive: Easier to convince

Negative: Need to mobilize a large number of shops, But then BoFA had muscle

Stores got onboarded to get access to this big user base who can now buy items worth up to USD 300 on credit

So in a nutshell, what happened

On demand side - everyone got access to Credit at once. You and your neighbors, Your family, your friends - and everyone is talking about the same

And more importantly, wherever you are going to shop - this credit is being extended to you there.

And hence the loop began.

BoFA saw huge traction on this model and it was replicated to more cities within the next year.

Credit cards turned profitable by 1961 and in 1977 this Netowrk was rebranded as “VISA”

And this is how - it was born

Out of the lowly “Cold Mailing” :)

Is Saiyaara movie a Masterclass in Audience Targeting and Viral Marketing!

Deepak Jain — Fri, 19 Sep 2025 14:43:59 GMT

First thing first - Saiyaara movie has done exceptionally well in spite of having a limited target audience due to its “Romantic Genre”. Generally, the audience for Romantic Genre is limited as full families do not go for such movies and the viewing is restricted to young couples.

How many people have actually Viewed Saiyaara?

In theaters - It has done over 570 Cr worth of business and has been watched by around 27 Mn viewers in India in theatres over its 5-6 weeks of running on Box Office. It has been recently released on the Steaming Partner - Netflix where it is making huge waves. It has been watched by 5.5 Mn viewers in the first few days and is already on 9th Spot in “Global Viewership Charts” and Number 1 in “Non English” movies.

Success Mantra

The movie did not cater to all the audiences. It did not intend to become a mass entertainer and identified a smaller target segment and then created content which resonated really really well with that audience.

Its main audience segment was:

GenZ and young Millennials (which is ~40% of India’s movie going audience) and this audience is highly active on social media platforms

What was served to this audience:

Top notch Romantic songs: Its top song Saiyaara has over 400 Mn views on Youtube and people just loved it. Top two comments on the song clearly establish that audience wanted this kind of music content. These songs sparked off thousands of reels from smaller and bigger influencers alike.

Story of Unconditional and Pure love: This is the kind of love that everyone would give their hands and legs for. GenZ audience’s concept of love is very different and they are seeing this kind of Pure Love story for the first time so it was very unique concept for them. This sparked off those “crying reels” which made the movie go viral.

The movie achieved both Point 1 and 2 to perfection leading to highly positive commentary, word of mouth and online content.

Of course, they chose to go overboard on both and this led to antagonization of a certain portion of the audience which trolled the movie.

So they achieved the Holy Grail - everybody had a Strong Opinion on the movie - Good or Bad. And wanted to express it.

This is exactly what we should aspire from every product.

Social Media Buzz

Approximately 200,000+ reels and shorts related to Saiyaara were created on platforms like Instagram and TikTok fueled by emotional scenes and popular songs from the movie.
Estimated overall reach - 1 Billion Views
(would have costed Rs. 20-30 Crore if it was Paid for).
75-80% of the content was positive, and 20-25% negative

Estimated Reach of Trolling Reels

Approximately 25,000 to 30,000 trolling reels were created about Saiyaara on social media platforms, mainly focusing on mocking emotional reactions and fanfare surrounding the movie.
Average reach per trolling reel can vary widely, but a conservative estimate would be around 1,000 to 3,000 viewers per reel, given that some gained moderate virality while others had limited viewership.
Using a midpoint of about 2,000 viewers per trolling reel, total reach is estimated at roughly 50 to 60 million viewers across platforms like Instagram, TikTok, and YouTube.

In summary, the trolling reels numbered in the tens of thousands and reached tens of millions, representing a smaller but impactful segment of the overall social media conversation about Saiyaara.

Audience Segments Who Loved Saiyaara

Gen Z and Young Millennials: This segment, active on social media platforms like Instagram and TikTok, embraced the movie for its emotional potency and shareable content, making Saiyaara a cultural moment in their circles.
Romantic Drama Enthusiasts: Viewers traditionally drawn to Bollywood love stories found Saiyaara’s earnest narrative and music deeply satisfying, renewing interest in the genre.
Family Audiences: The movie’s relatively wholesome romantic theme and emotional depth made it popular for family viewing occasions.
Music Lovers: Saiyaara’s soundtrack became a significant pull, with several songs becoming anthems for youth, driving both streaming and viral user content.

Audience Segments Who Disliked Saiyaara

Viewers Preferring Realistic or Grittier Content: Some viewers found Saiyaara’s highly melodramatic and emotional storyline overly sentimental or unrealistic, especially those accustomed to intense or socially driven cinema.
Critics of Predictability and Remake Aspects: A section of critics and viewers criticized the film for its predictable plot and perceived similarities to the Korean film "A Moment to Remember," leading to claims of lack of originality.
Skeptics of Social Media Hype: Some audience members and industry watchers expressed skepticism about the viral emotional reactions circulating online, alleging that some scenes and fan reactions were staged or amplified by clever PR tactics.
Viewers Expecting High Production Values: Those seeking grand production scale or intense action elements were often disappointed by Saiyaara’s simpler, emotional narrative style.

Reviews across different platforms

The movie has 6883 ratings on Google. Some standout facts:

Strong Polarization in 5 star and 1 star reviews: 1500+ One star reviews and 4500+ Five star reviews
Very high percentage of users (36%) have written a review

Saiyaara has received the following ratings on Netflix and related platforms:

Netflix User Ratings: While exact Netflix-specific rating data isn't publicly detailed, the film has garnered widespread positive user reactions on Netflix since its streaming debut, consistently placing in the top 10 global viewership charts.
IMDb: Saiyaara holds a solid audience score of around 6.5/10 on IMDb, reflecting generally favorable viewer opinions and debut performances praised.
Rotten Tomatoes:
- Tomatometer (Critics score): 67% (Fresh)
- Audience score: 90% (Highly positive reception among viewers) with over 250 verified ratings.
Additional Audience Feedback:
Many reviews and social media comments echo a strong emotional connection to the film's music, performances, and story, with fans appreciating its classic Bollywood romantic drama style.

Learning

It is never good to have a neutral reaction on your product. The audience/user base should be either VERY happy with the product even if there is another segment which is really unhappy with the product. The Happy segment can be very small (even in Hundreds) to start with but can be increased slowly.
What matters initially is feedback on the product so that it can be improved. And users who like the product OKish would never give enough feeedback. Playing safe is never an option and we should never keep that as an option.
Here, in Saiyaara’s case - the love and hate was so much that both sides of the audience created a lot of content for the product. This movie did not have a lot of buzz initially but it was able to sustain the numbers into next few weeks basis the content circulating across other social media channels.

Key Learnings for a Tech Product Person

Leverage Emotional Engagement: Saiyaara’s success showed that deeply emotional content resonates powerfully with users. Tech products should focus on creating meaningful emotional connections to drive engagement and loyalty, whether through storytelling, design, or user experience.
Harness Organic and Viral Growth: The movie thrived largely on user-generated social media content like reels and memes rather than traditional heavy marketing. Tech products can similarly benefit from fostering organic viral growth by enabling easy sharing and community-driven promotion.
Target Core User Segments Precisely: Saiyaara’s focused appeal to Gen Z and romantic drama fans highlights the power of tailored messaging and feature sets that deeply connect with defined user personas rather than trying to be everything to everyone.
Minimal but Smart Marketing: Minimalistic yet creative marketing that leverages digital platforms and emotional storytelling can outperform large-budget campaigns. Tech products should invest intelligently in marketing efforts that amplify authentic user stories rather than generic ads.
Embrace Nostalgia & Familiarity: The film’s nostalgic return to classic Bollywood romance tapped into unmet user desires. Similarly, tech products can innovate by blending new features with familiar, trusted patterns to create comfort and delight for users.
Iterate and Build on User Feedback: The movie’s social media buzz created feedback loops that helped sustain interest through content iterations (fan edits, memes, etc.). Tech products should actively listen to user feedback and encourage community participation to evolve the product dynamically.

Facebook/Meta is the Biggest AI company globally. Surprising but True!

Deepak Jain — Sun, 30 Apr 2023 03:43:56 GMT

Meta released their quarterly results a few days back. The results were better than analysts’ expectations so the stock popped 12%.

Good for Zuck and Meta shareholders.

But what piqued my interest was the fact that the whole earning call was mainly about Zuck convincing the investors that AI remains Meta’s singular focus FOR NOW.

63% of Zuck’s speech was about JUST AI while 15% was on metaverse and remaining was on overall business.

And Zuck’s AI statements were not just forward looking futuristic statements. What Meta has been able to accomplish for its user engagement and advertiser ROI through AI is commendable to say the least.

There are a lot of companies doing phenomenal and potentially life altering work using AI (all in the future though) - But what Meta has been able to achieve through inducting AI in their current business is equally path breaking and I doubt if anyone else has been able to reap such benefits from AI.

At the least, nobody else is devoting their whole earnings call to AI so in their mind - they have not accomplished much through AI.

Lets start with the dissection of their earnings call and quarterly results:

Overall top of the funnel numbers remain really really STRONG

NUMBER OF USERS USING META APPS

The company boasts of 3 Billion Daily Active Users across all the Apps (3.8 Bn used one of the apps at least once in a month - MAU). Facebook alone sees 2 Billion Daily Active users.

To put this in perspective, these are DAUs for some of the other largest apps:

Tiktok: 600 Mn | Twitter: 230 Mn | Wechat: 450 Mn | Youtube - 122 Mn (Looks really low compared to their MAU of 2.6 Billion meaning that users are not coming to YT daily).

So, the user numbers that Meta is clocking is really really high. It’s like almost all of the internet connected world logs into Meta apps on a daily basis.

However, Meta is seeing plateaued user numbers

Essentially, all of the internet connected world is already using Meta apps (Facebook/Insta/Whatsapp/FB Messenger) daily so what else can Zuck do?

DAU across all the apps has grown from 2.72 Bn to 3.02 Bn in last 8 quarters which is a growth of 1.3% growth per quarter. Essentially, there is not much which can be done here. These numbers would grow as more people get connected to internet and Meta apps are the first apps that they use.

However, for sustaining these DAUs - Meta has had to rely on reels format which has been detrimental to its ad revenue (More on this later in this article).

Now let’s come back to what Zuck said during the earning conference.

As per Zuck, Meta is investing in two major technology waves

Mark’s favourite Tech wave but Universe is not aligning there - METAVERSE

Universe’s favourite and now Zuck also pushing more resources behind the same - AI

AI Wave

Meta has been using AI for two major use cases - Recommendation/Ranking of content and for driving results for advertisers already.

AI powers feeds and reels within FB, Instagram. In addition, it is the magic which drives ads ROI. Discovery engine, reels and ads all rely significantly on the recommendation infrastructure for its phenomenal performance.

Improved engagement in Apps through AI: 40% of the content that we see in Instagram is driven by AI and AI has increased the time spent in Instagram app by over 24%.

ROI on ads is improving: AI based targeting of users within Meta ecosystem has improved the RoI for advertisers leading to stronger demand from advertisers. In fact, Meta ads on open audiences (relying on AI to reach the right set of audiences) consistently outperform targeted ads.

This means that AI is working well on identifying the right set of audiences for ads.

In the future, Zuck is looking to double down on these use cases + also looking at creating new product experiences using generative foundational AI models. These would drive new products and experiences but frankly, Meta does not have much clue on the same (or so it seems basis the communication in the earnings call).

Metaverse

Reality Labs/Metaverse unit revenue was ~300 Mn$ (down 50% from last quarter) on account of lower Quest 2 Sales. The cost of running Reality labs, though, was 4.3 Bn$. The business unit, thus, incurred a loss of 4 Bn$ during the quarter.

Zuck’s Metaverse dream seems to be fading away and is really really expensive for Meta shareholders.

Reasons for Huge Layoffs at Meta

The above graph is singlehandedly responsible for all of the layoffs happening at Meta. Company’s quarterly profits have more than halved from ~10 Bn$ to ~5 Bn$.

Simply put, Revenue seems to have topped out at 30 Bn USD per quarter in the current scheme of things while company’s costs have been ballooning on account of big teams working on 1) Reality Labs 2) R&D for innovation in experiences.

Meta has already laid off 20K employees in two layoff rounds and 1 more layoff round is expected in May. After these layoffs, the company is expected to have 70K odd employees.

But why is advertising revenue stagnant?

During Q1 2023 - Total number of ad impressions increased by 26% but the Price per ad impression reduced by 17%. Growth in ad impressions was mainly from the regions which have lower monetization like Asia Pacific which reduced the cost per ad impression.

US/Canada monetize at ~50 USD per quarter per user (~200 USD per year which is more than Netflix Subscription cost) while Asia and Rest of World (outside Europe) monetizes at ~USD 4 per quarter (5-10% of US monetization numbers).

Reel Monetisation remains a challenge for Meta

Majority of engagement growth at Meta has been delivered by Reels (which Meta has picked up directly from Tiktok).

However, reel monetization has been really challenging for the company. For Per unit time spent in the app - Reel monetization is much lower compared to Feed and Stories as Reels are longer in duration and the opportunities to show ads is limited.

The company needs to figure out the correct ad formats for reels so that the monetization efficiency increases without harming the engagement and user experience

Biggest Bets for Meta in the near future

Automation of advertiser experience

AI based advertiser experience (Advantage+ shopping) is doing well for Meta. The company is planning to introduce AI based Visual creation tools for Insta and Facebook posts and ads.

Idea is to use AI to discover the right audience for the ad and to initially optimise the creative through AI and eventually AI controlling the whole experience including creative.

End goal is for the advertiser to just tell the objective and system doing everything.

Continued improvement in user engagement in reels and better monetisation of reels

Meta is looking for leveraging AI further to help users discover the best reels to increase time in app and is also looking to improve reel monetisation.

Messaging ads are growing well for Meta

Click to message ads have reached a 10 Bn $ annual revenue run rate and are scaling well. Currently, the messaging ads need a lot of intervention from advertiser staff and reporting is also unstructured. The product, thus, is used by mainly small advertisers. Meta is planning to automate all of this so that the product can be used at scale by bigger advertisers as well.

Metaverse

Zuck continues to bet on Metaverse in spite of tepid response from the market. He is spending 4Bn$ per quarter on the same (half of Meta’s overall profit).

New user experiences through AI

Zuck mentioned working on AI based Chat experiences in Messenger and Whatsapp This is another long bet but nothing concrete as of now.

SUMMARY

Whatever is happening - Zuck has been able to get Meta out of the hole. The stock has climbed from its low at ~100$ to almost ~250$ in a span of just 6 months.

AS THEY SAY - NEVER BET AGAINST ZUCK!!

What Truth do you Know which Nobody agrees with!

Deepak Jain — Tue, 07 Mar 2023 05:30:32 GMT

This is not an easy question to answer. Ponder for a minute and check if you are able to come up with an answer for yourself.

Paul Graham and Peter Thiel ask this question regularly to their potential investments to gauge the long term valuation of any company and it is, perhaps, the most important question that you can ask any startup founder.

I have thought long and hard. And one answer that I have been able to come up with is that:

“First 20-25 years of a Kid’s life should not be spent in School but in some worthwhile activities”

Now - Why should you answer this question. Your own answer to this question helps you uncover the contrarian belief that you have learnt from your own life and you know every single detail about that belief. If you work on this contrarian belief then there is a good chance that you would be on to something which very few people would understand as of today. You can either keep that idea shut in your mind or you can try to use that INSIGHT to start a business.

When Investors say that “We fund founders who created the product to solve their own problem”. Essentially, what they mean is that the founder was able to unearth a contrarian truth which very few people have understood. Why? It’s a truth because the founder knows it from his own life and it is contrarian because if a lot of people understood that truth then they would have already captured that market.

How to use the Secret

Now, that you have access to the contrarian idea. Don’t go out and try to compete in a big market. Instead, what you need to do is that you need to go after a market which is seemingly very very small so that you can create a monopoly in that market.

This is What Facebook did with Harvard and then successively more colleges. Ditto for PinDuoDuo which started going after Tier 4 towns for their grocery needs and for Pinterest when Ben went after designers in early years. You need to, at all times, try and maintain a monopoly in whatever markets you are in.

The opposite of this philosophy is to foolishly go after a big market of 200 Bn$ (Example Indian Horizontal E-commerce) and assuming that even if the business manages to take a 1% share of that market - It would become a Unicorn. The only problem with that argument is “Why would those 1% people jump ship to your product and why would competition not do anything about the same?”.

The perfect market for a new product is a niche segment which is not served by anyone. Capture that market and then move on the adjacent markets without disrupting anyone. The sequencing of the markets is an art which all the successful entrepreneurs have mastered.

Why would users use your product?

For the users to try your product, the product has to be 10X better than the other products in the market. If your product is only 2X better (in your communication) - it would already be discarded by the potential users as marketing pitch. So it has to be 10X better for you to be able to transparently claim superiority and build a WOW level user experience.

The biggest issue is for your users to leave the comfort of the existing solution and try something new. Try using Bing instead of Google Search and Zee5 instead of Netflix and you would know how difficult it is.

Jumping products leads to a significant cognitive load on the human brain which all humans try and avoid. Why? Because Most of our life is run on auto pilot through strong neuron paths built through doing the same thing multiple times. Try closing your eyes right now and answer “What is the color of wall in front of you/behind you?”

Why do we run on auto pilot? Because Human Brain is an energy guzzler - At 3% of Body weight - it consumes 25% of our total energy needs. It, thus, tries and relegate everything to the subconscious to save every ounce of energy.

How can we make our product 10X better than the current solution

Four ways for your solution to be 10X Better:

Proprietary Tech: Example - Google
Network Effects: Facebook
Economies of Scale: Amazon
Brand: Coca Cola

Before starting to work on your contrarian idea - answer these Seven questions:

1. The Engineering Question

Can you create breakthrough technology instead of incremental improvements?

2. The Timing Question

Is now the right time to start your particular business?

3. The Monopoly Question

Are you starting with a big share of a small market?

4. The People Question

Do you have the right team?

5. The Distribution Question

Do you have a way to not just create but deliver your product?

6. The Durability Question

Will your market position be defensible 10 and 20 years into the future?

7. The Secret Question

Have you identified a unique opportunity that others don’t see?

These seven questions have been mentioned by Peter Thiel in his wonderful book - Zero to One. According to me, Q3 and Q7 are mostly neglected even in theory by most of us. We always want to start big which makes us susceptible to all the competition early on.

However, the secret question appearing last in the above list is the one which starts the whole chain reaction and is worth discussing in detail. There are two kinds of secrets - Secrets about Physical world or Secrets about People.

Nature’s secrets are all around us and are begging for someone to look deeply. However, secrets about people are interesting since people themselves don’t know these secrets about themselves

So while building a company - You need to ask two questions: 1) Which secrets is Nature hiding from you 2) Which secrets are people not telling you.

The best place to look for secrets is where no one else is looking. Most people think only in terms of what they’ve been taught; schooling itself aims to impart conventional wisdom. So you might ask: are there any fields that matter but haven’t been standardised and institutionalised at Universities? Some examples of such fields are Nutrition and Consumer Research.

So which secret are you holding on it. Reveal those in the comments and I am sure we would have an awesome discussion on the same even if we don’t end up building a Billion dollar company through the same.

Sayo Nara till next week!

This Girl has drunk 2 Coca Cola Bottles daily for last 4011 days - What can Brands learn?

Deepak Jain — Tue, 01 Nov 2022 10:27:14 GMT

Brands give us shortcuts for making buying decisions quickly by being the top of mind/obvious choice. Want to buy Mobile Phone - Buy Apple, Wanna buy Floor Tiles - Buy Kajaria, Wanna buy a Scooty - Buy Activa and so on. But, the speed of decision making is determined by the power of brand over the individual in question.

For example: I still remember buying Asus laptop for my college because it was endorsed by my favorite “Hrithik Roshan”. I did not look at the laptop company’s reviews even when I have a technical background - Just think about what branding can do to influence a non-technical person buying a technical product.

In the case of this girl, lets call her D, she has been choosing Coca Cola (not sure if she has any free will in this matter, though) for her soft drinks requirements EVERY SINGLE DAY for last 4011 (Four Thousand and Eleven) days without flinching an eyelid. Do you know how long is this period - It is equivalent to over 133 months and over 11 years. CAN YOU BEAT THAT!!

This girl might be an extreme example - but all of us save a lot of time by just choosing a brand while purchasing a product in a certain category. In essence, we don’t need to answer any of these questions:

How good is the product?
How many other people are buying this company’s products?
What are the key benefits of the product?
What is the mission and vision of the company which is selling this product?
Should I buy this product?

And if the brand is a true blue market leader then the brand becomes synonymous with the category - like we get Xerox done (and not photocopy) and I still remember asking for Pepsodent wala Colgate.

But how powerful are Brands exactly - Can we quantify that?

Brand power can be subjectively measured by their relevance in the cultural zeitgeist and objectively by various studies done every year by a number of agencies such as Forbes and Kantar. These annual studies value each brand in dollars and publish the list of top brands every year.

Check out the list of top 10 global brands for 2022 as per Kantar’s study. Not surprisingly - this list is dominated by Big Tech. The total valuation of these 10 Brands is over 4 Trillion USD.

Closer home - the list of top 10 Indian brands as per Kantar along with their brand valuation is given below.

The total valuation of the top 10 Brands is 200 Billion USD.

How does a brand drive value for a company?

Now, we know that brands command a lot of value but how are they useful and how do they drive value for the company.

They drive value in three ways for a company -

Helping a potential customer cross the chasm and become a customer - A potential customer is looking at multiple products and a popular brand name would take care of the customer’s doubt.
Helping the brand in charging premium for good quality - It is next to impossible for a company (without brand) to charge a premium even if the product is of best quality in the world.
Get loyal customers - Brand means that the customer would not even look at the other options available in the market irrespective of their quality/price and always go for their Dear Brand.
Keep new companies from entering the market - With the current customers so loyal to a particular brand - it is an uphill task for a new company to make inroads - requiring much higher investment and risk.

The holy grail for any business is to have customers come back to buy again because in those transactions - there is ZERO marketing cost and these repeat transaction account for bulk of profit for any business.

Now - lets look at D’s journey with Coca Cola

D has been drinking 2 bottles of Coca Cola (500 ml each) for over 4000 days straight. You won’t believe but drinking Coca Cola is the first thing that she does every single day.

What is her exact routine?

She drinks Coca Cola first thing in the morning - even before she drinks water. She does not take breakfast so Coca Cola is, in a sense, breakfast for her. Through the day, she sips through two 500 ml bottles of the drink (without fail).

But this Coca Cola does not replace her water intake. She ensures a 4 litres of daily water intake alongside the 1 litre intake of Coca Cola.

She starts her day with Coca Cola and ends it with Coca Cola.

How did she end up in love with Coca Cola?

She has, of course, tried other soft drinks available in the market at some or the other time. However, what has worked for her at a broad level is “Black color”. Non black carbonated drinks don’t taste great to her.

However, within the black also - she has three major options in the Indian market - Thumsup, Pepsi and Coca Cola. Pepsi is too sweet for her (tastes like Saunf to her) while Thumsup is too strong. Coca Cola hits the jackpot in terms of just being the right taste for her taste palette.

Learning: Getting the perfect product (for a particular segment of customers) is the first step to customer loyalty

How loyal is she to Coca Cola?

In her own words, If she can't find coca cola.. then she goes for Mojito.. then Pepsi and then water in that order But the preference for Coca Cola remains really really strong.

In fact, her loyalty is so strong that when Dominos replaced Coca Cola with Pepsi at their outlets - she stopped visiting the fast food chain.

Is she still enticed to pick other brands?

Generally speaking, Coca Cola is available everywhere so there is no need to look at an alternative. In fact, she has never faced the situation that Coca Cola is not available somewhere. This speaks so strongly about the brand’s distribution - wherein the product is available everywhere and the customer does not need to move to competition just because the product is not available.

Learning: Even a strong brand needs to ensure that its products are EASILY available to the customers (across channels) else even the most loyal customers would be tempted to shift.

Do other family members also drink the same brand?

The other family members are not that much into soft drinks - however since Coca Cola is available at home at all times - there is a tendency for others to also drink Coca Cola on a daily basis even though in smaller quantities as compared to D.

Learning: A loyal customer inevitably gives a brand many more customers.

What is the competition to Coca Cola in her daily life?

The competition is NONE but she replaces Coca Cola with Mojito and Pepsi in that order in case Coca Cola is not available - even though this seldom happens.

Learning: Brand loyalty means that the competition ceases to exist for the customer - how so ever good their product might have become over the period.

Whats is her overall view on Coca Cola as a brand?

D is so enamored with everything Coca Cola that the brand holds a very special space in her life.

You wont believe but when Coca Cola launched their Water brand - “Kinley” in India - it was the obvious choice for her. Essentially, she has become so enamored with Coca Cola that she loves watching Coca Cola ads as well.

She, in fact, always wanted to work at coca cola due to her love with the product even though, she has never applied at the company. But if any Coca Cola executives are reading this - then pls drop me a line and I would get you in touch with D.

Summary

Brand Loyalty is one of the biggest moats that you can create and might be the best bet for any company from the “7 Powers as per Hamilton Helmer”. Always think about why your customers would come back and how would your brand help your marketing/sales in the same.

There are only three ways to Grow your startup - Yes Just Three - Wanna know - Read on!

Deepak Jain — Fri, 30 Sep 2022 07:36:46 GMT

All of us want to grow our businesses. Essentially any startup/business has two components at the most fundamental level:

Product: Create a product which would solve a “painful” problem for a “certain” segment of users.
Distribution: Make sure that the product is put in front of the “target segment” in a “clear and concise” manner.

If a startup is able to identify a strong problem for a certain user segment and creates a genuine solution which is 10x better than the current solution being used and is then able to make the target segment aware of the solution then it creates MAGIC called the Product Market Fit (PMF)!

In this post, we would talk about the Point 2 listed above which is “How you can grow your distribution and what are the systematic ways of doing the same” once you have the PMF.

Most of us are pretty good in creating products (well - thats our core competence - isn’t it :)) but we feel that once we build the product - people would come (that too in crowds). But that alas is almost never the case unless you already have a huge community of followers who already engage with you in a continuous manner .

I have looked at my Google Analytics real time dashboards for weeks with just one blip (that was me)!

So without further ado - lets address this monster in the room. So, you have launched a new product and are staring on Zero Real Time Traffic like this - So what do you do.

Summary: There are essentially just three ways to structurally look at this problem and drive some good traffic to your website.
— Buying Ads
— SEO
— Product Virality

Now let’s look at them one by one. Specifically we would talk about

Basics of the channel
Who should use this channel
What are the Pros and Cons of using the channel

1. Buying Ads

This is the easiest way of driving traffic to your website/app. You just need to pay a website owner to buy ad inventory. Looks intimidating? How would you find the websites - contact their owners - negotiate the rates - enter into an agreement and then run the ads.

Darling - It’s really simple actually. There are two behemoths that control 80%+ Ad inventory on the internet. And those giants are called Facebook and Google. They obviously have their own ad inventory but they have also aggregated ad inventory of the internet through their “Google Adsense” and “Facebook Audience Network” programs. And essentially, both of them operate a self serve platform. You just need to sign up for the platform - choose an audience - create an ad copy/creative and punch in your Credit Card and voila - you see your Google Analytics Javascript code being fired and the Real Time Google Analytics blips coming and going. This would feel like Orgasm - when it happens for the first time :)

So, the idea is fairly simple.

However, who should use this channel? The answer to this question, inexplicably is more art than science or may be more science than art - Fuckk I don’t know whether it is more art or science. But here it is -

In a pure Baniya language - You are paying Rs. X for every visitor who is coming to your platform - the whole thing makes sense only if you make a profit of Rs. X + Delta from that visitor (this is hard Baniyagiri and comes to fore only during Funding winters). Otherwise, we pay Rs. X per visitor to the ad platform in the hope that the user would stick to the platform and we would make a profit of Rs. X + Delta over the lifetime of the visitor (And nobody generally knows the lifetime value of their customers so these promotions keep going until - you guess it right - the funding winters).

Summary: The holy grail of Paid Marketing channel is to figure out your unit economics such that you make more in profits than what you pay in Customer Acquisition Cost (CAC). Better if you can make that much profit in the Paid session only. If that is not true, then you need to have a very clear understanding of customer LTV and LTV must be 2-3X of CAC.

Pros of Paid Marketing Channel:

You can start getting traffic the same day you decide to explore this channel
It is highly customisable and self serve so you do not need anyone’s help except for setting up the landing pages
You can test out a lot of your hypothesis through multiple ads and tracking results on these different ads so this can be really useful pre PMF as well

Cons of Paid Marketing Channel:

A lot of other advertisers are also bidding for the same ad inventory so it is not easy to make the economics work (bacause there are a lot of fools burning VC money)
It requires a hell lot of iterations for the channel to start making economic sense
People end up burning a lot of money on this channel
The biggest issue is that the traffic dries up as soon as you stop the ad campaigns

Summary: Paid Ads are a great way to drive traffic to your website. There are mainly two use cases: One is Pre Product Market Fit (PMF) to test the product/marketing copy etc through actual users and iterate on your proposition basis that. Second is to scale up your product post PMF when you have the value prop and unit economics figured out. However, people generally scale up before PMF which is DANGEROUS!!

If you have nailed your unit economics and are making money for every new user who is coming through Paid Ads then by all means scale the whole FUCKING thing up else SHUT UP and keep iterating on small budgets.

There are consumer companies which have scaled heavily basis Paid Ads - these companies have very strong CTRs on Ads and strong conversion rates on Website/App (due to their highly differentiated/ridiculously low priced product) and/or strong customer retention. For example - Grammarly, Canva and Wish have all killed it through Paid Ads. The LTVs for those companies are very, very high. They're kind of average LTVs for B2B companies. Most consumer subscription companies that are $5 to $7 a month. Their LTVs typically cap out at 50 to 60 bucks. However, both Canva and Grammarly have few hundred dollars as their LTV. Now imagine competing with them for ad slots on FB/Google.

2. SEO Strategy

The next archetype for building strong traffic is leaning into SEO heavily. There are two ways of looking at the SEO strategy - two lens essentially - One is creating high value content where there are gaps in the current search results and the second is a long tail programmatic angle.

All media houses essentially follow Strategy#1 as they have big teams churning high quality content day in and day out.

SEO, in general, takes some time before your GA code starts firing through SEO visitors. For Strategy#1 - its one content piece at a time

SEO Strategy#1 - Need to figure out Keywords very very smartly - Initially, you wont have any domain authority so you need to start with keywords where we have a clear gap in the search results with none of the big domains ranking and you would be able to 10X the results quality for Google

One way of practically doing this is to look at keywords where programmatic pages of User Generated Content (UGC) from sites such as Pinterest and Quora are ranking at the top. You just need to take a bet on whether your content would be 10X the Pinterest/Quora content or not.

SEO Strategy#2 - Programmatic Angle - The funda is fairly simple - there are thousands/millions/billions of long tail keywords which you can target through programmatically created pages. Think “Doctors in Delhi/Mumbai etc” keywords for Practo. There would be thousands of such pages created by the platform but these pages are not being written by anyone. These are being created through the backend database of Doctors that Practo has.

Take Canva for instance, their biggest initial growth loop was their long tail SEO strategy where they dominated two categories of long tail keywords, “make keywords” and “template keywords”. So if you're searching for a template of any kind, say searching for “template for a wedding invitation”, Canva would show up. They had incredibly strong SEO and they were just capitalising on all the long tail traffic. Not every product is going to lend itself to this programmatic SEO angle but if it can be exploited then it is like magic.

We capitalised the same in our first startup - Baggout - and were driving north of one million monthly sessions through this same strategy. Pls comment below if you want me to write a detailed post on Baggout strategy.

3. Product Virality

What is Product Virality and how do you leverage that?

The third and final channel for building distribution is Product Virality/Network Effects. Essentially, a product has network effects if the value of the product increases for a user as more people start using the product.

If there are inherent network effects then we can start thinking in terms of viral loops and referral loops to quickly grow the product. But mind you - these network effects are either available in the product from the starting or they are not there. It’s very difficult to manufacture them.

Think Facebook.

The product itself was viral and users were hopping on through crazy amount of Word of Mouth and referrals as everyone wanted to befriend the hot people on their campus.

Think Marketplaces like Amazon

As, more sellers join in - the platform has more value for the customers as they get wider selection. Similarly, as more customers join - sellers get an opportunity to be discovered by more customers and grow their business.

Think Hotmail

As more users started using Hotmail, it had more value for the existing set of users using the service as they could reach out to more and more people through Hotmail.

Awesome. So if you have network effects, AKA if the product becomes more useful with more people or there's amazing word of mouth already, or there's collaboration between users, probably a good sign that you could lean into virality or maybe referrals.

However, the story does not end here. The question is how do you bootstrap this network and how do you grow it to the minimum viable number so that the network effects start moving the flywheel.

I was hearing a podcast the other day which featured Discord’s founder - Jason. Now Discord is a product with very strong network effects (essentially it started as a communication channel amongst gamers and is now a communication channel for many many more use cases). So the podcast guy asked him - how did you grow your product - How much word of Mouth helped Discord grow in the initial days. and Jason replied - If you have 10 users on your product - Word of Mouth does not play much role. You need to bootstrap the product to a reasonable number and only then these flywheels start acting. In his case, he was deeply entrenched in the gaming community because he was a gamer himself so he leaned into a number of his friends who had sizable gaming communities within Reddit and it was through this channel that Discord was actually bootstrapped.

So, essentially even if the product is highly viral - you need to bootstrap the product usage to a minimum level and then you need to consciously create a number of viral/referral loops so that the existing users bring more users in.

Think of the Dropbox example - Drew Houston used a beautiful viral loop which is sorta part of startup folklore - They gave away 30 GB free space to the existing user for every new referral and guess what people bought in a LOT OF their friends.

Pros of Viral Marketing

It is mostly free or very cheap
It acquires new users along with retention of existing users at the same time
It creates a flywheel and feeds on itself making it arguably the fastest growth channel.

Cons of Viral marketing

It is either there in the product or not. Almost impossible to manufacture
Its not as automated as people generally think - Right viral and referral loops need to be identified after bootstrapping the product to a sufficiently large number of users

Which strategy to focus upon?

So these are the three ways to grow your startup. How should we go about it - Should we do it all. Get someone on SEO, someone on paid and a third team on virality."

Or is it smart to focus on one and then expand down the road or try them all and see which one works best?

I would say focus paired with rapid iterations is the way to go. With limited resources, you need to ruthlessly prioritise as there are only a finite number of tries that you have at finding what works, right? So the middle path of Buddha works best here. Don’t be extremely focus only on one area - neither spread yourself thin by trying all out at once. The approach of iterations is the best here.

So, which approach are you going to try. What are your next steps steps to start growing your startup. Lemme know in the comments.

I have created a template which can help you plan these rapid experiments. Just subscribe in the below box and I would send you the template in your mail box.

Will Jiomart Whatsapp Partnership create first 100 Billion dollar startup from India?

Deepak Jain — Tue, 20 Sep 2022 04:47:23 GMT

Do you know that you can buy groceries from Jiomart’s Whatsapp handle within Whatsapp App. Shocked!!

You should not be surprised by the close integration as Meta has ~10% stake in Jio. Also, both Jiomart and Whatsapp are struggling in their respective markets. Jiomart has not been able to make much dent in the Indian grocery market while Meta is struggling big time to monetise their prized asset aka Whatsapp.

So what do they do - two of the top 10 richest men in the world combine forces in the potentially biggest online grocery market of the future. In fact, this partnership is so important for Reliance that Isha Ambani showcased this user experience in the last held Reliance’s AGM.

But first thing first - Why are two of richest men in the world targeting Indian online grocery market?

Online Grocery is attractive for a number of reasons including:

1) Huge Market: Grocery is the biggest market by far in India (2/3 of Retail and ~ USD 600 Billion). With the onset of the Indian e-Commerce revolution, online groceries have been gaining prominence. Indian eGrocery market is set to reach $20-25 Bn by 2025 (from ~4-5 Bn USD in 2021) , growing at a CAGR of 50-55%.

2) Good Online penetration is possible in Grocery: So this is not a market which would forever be saddled with low online penetration. But, we can actually have very strong online penetration here. US already has a 10%+ online penetration in the Grocery market. China has a very big Online Grocery market - its size is already topping USD 200 Billion with a 20% online penetration. In fact, as per a number of reports - online Grocery would account for over 50% of the overall online commerce market in India by 2029.

3) Offline Grocery is BORING: Grocery shopping is something which cannot be compared to the joys of offline Fashion shopping. It is boring and induces a sense of boredom in the minds of most sane people like me. So, if given a choice of buying grocery online vs buying grocery in a supermarket or your neighbourhood Kirana store - Most of us would choose online (if we trust the online retailer and delivery timelines are short).

4) Strong Repeat rates: Consumers shop for Grocery at least once a week so the frequency of purchase is the highest which makes a few things possible - 1) High repeat transactions leading to higher LTV 2) Having a lot of user data leading to better personalisation and experience

So All in all, it’s a really really attractive market.

Online Grocery is not just big but has great moats as well - Similar to Indian Telecom market - Does it ring a bell - Jio Jio Jio !!

Groceries are a big chunk of any retail market but it is not easy to set up online due to the inherent challenges with the supply chain and it requires a lot of investment in back end infrastructure. These challenges are more pronounced in India as the supply chain problems have not been solved for the physical retail as well. All of us have read newspaper articles pegging that 35-40% of fruits and vegetables get wasted due to lack of proper supply chain.

There is a large upfront investment required to setup this supply chain. However, once the supply chain is setup and the consumer trust is established on quality + we are able to provide convenience through a large selection at lowest prices then there is no looking back.

Enough of the Background Story - What exactly is the user experience here and How good is it?

This is what Jiomart says on their first message within the Whatsapp interface

Now shop from JioMart directly on WhatsApp. Enjoy lowest prices, no minimum order value, free home delivery.

So basically the core value proposition for the users is that you would get lowest prices and free home delivery (for any size of the order).

In the next step - the platform offers these two options -

View Top Deals
View Categories

DEALS FOR TODAY

When I browsed the top deals, I saw 30 deals on the platform.

Ghee, Butter, Oil - 8 | Detergent and Soaps - 5 | Kitchen Items - 10 | Others - 7

Checked prices for all of these products and compared with Amazon Fresh. Some of the items were at the same price while some were at slightly lower prices.

However, there was no deal which was truly exceptional inducing a strong reaction from the users. And mind you - this would not work unless the deals are mouth-licking good

Essentially, the experience is definitely not good enough at the current stage.

This takes us to the second question - Who exactly are the potential customers for Jiomart?

There are the following three set of users in the market:

Regular Buyers: Users who are already buying regularly from other grocery apps aka - BigBasket, Amazon Fresh, Instamart, BlinkIt, Zepto etc.
Exposed to Grocery shopping but not buying - But have not turned regular due to a variety of reasons
Have never bought grocery online

So which of these user segments would JioMart get a potential Product Market Fit in

User Set 1: Frequent Buyers - The first set of users who are already buying grocery online are the most competed for and are already happy with one of the current services. Jiomart would need to do something drastic to win over these guys. Essentially - it would boil down to taking losses to subsidise quality and winning over the customer. It’s anybody’s guess if Jio would do that. However, given that it is a small number currently and a much bigger user base is ready to be tapped - means that Jio might want to focus on segment 2 and 3 to start with.

Segment 2 - Exposed to Grocery shopping but not buying - These users have been exposed to Grocery shopping - but they have not crossed the chasm. Might have bought also once/twice but they don’t see value in the proposition or don’t trust the apps for giving them a good quality product at a reasonable price.

Segment 3: Not exposed to online Grocery Shopping - This is the prime segment for Jiomart to explore through this Whatsapp integration. More so because, they would already have Whatsapp installed and Jiomart/Meta might be able to push Grocery shopping proposition.

For this set of users, who do not want a lot of apps in their mobile - it makes a lot of sense to have the whole grocery buying experience within the walled garden of Whatsapp. So, there would be a mechanism employed to make these users know about the availability of groceries online and then a strong offer would be given to them which the users would not be able to say no to. Similar to the offer that Jio launched with (Free Services for X months) and the ones that Jiomart was running when they launched

“Get Onions for Rs. 9/kg”.

Indian consumers would go to any lengths to redeem such an offer and in case, they are happy with the quality of onions and the servicing of the platform then they might, in fact, stick with the Grocery service giving them more and more share of their wallet.

Kunal Shah of Cred shared a beautiful framework to decide whether the online version of a particular service/product would work or not.

If we rate both the new experience and old experience from 1 to 10 then the difference in experience rating should be at least 4 after taking away the subsidies and all the short term subsidies.

Grocery shopping definitely comes as a sustainable service for a big population. In terms of which segment Jiomart would go after - Segment 3 is the largest and gives them the most leverage due to their integration with Whatsapp so they might want to try targeting that segment to start with.

What are the other benefits for Jiomart of being on Whatsapp from user experience angle:

What exactly can Jiomart offer to the users through its Whatsapp Integration. These are some of the few options that are available to Jio:

Community angle of shopping: In case, they introduce a community angle to shopping like PinDuoDuo then integration would have made a lot of sense. (For the uninitiated PinDuoDuo is a Chinese app which helps you get deep discount on groceries and similar essential goods by buying together with friends). PinDuoDuo gained a lot through being available on WeChat.
Better Payment experience: With Whatsapp Pay getting scaled - this can lead to strong buying experience
Better Personalisation: Can user’s Whatsapp data be used to create a more personalised user experience. Currently not being done. But can it be done in the future - Maybe.

Distribution Benefits for Jiomart through Whatsapp Integration

For Jiomart - the biggest theoretical benefit is widespread distribution. Whatsapp has 400 Mn+ Monthly Active Users in India - majority of which spend over an hour daily in the app. However, the usage is on chat which is a really personal experience and difficult to add ads in the same.

Now, the question is - how would Whatsapp push JioMart Shop within Whatsapp. Not a straightforward task - However, if cracked then - it would save the biggest cost (User acquisition and user re-engagement) which every other grocery player is facing.

If customer acquisition and customer re-engagement cost is saved and passed to the user then it would clearly create a strong sustainable advantage for Jiomart.

Whatsapp may introduce new features for the businesses and Jiomart integration might be the window to test them in India at scale before opening it up to other advertisers. This time window itself can create a systematic advantage for Jiomart.

Can Meta help Jiomart reach the ideal target customer. Meta has the customer data in terms of the users which are buying grocery online through various apps on back of the FB pixel which is installed by almost all apps. However, can they and would they want to use this data to target users for Jiomart. Can they do it - yes they can. Would they want to do it - Not sure as this has a potential of rocking their advertising machine which is trusted by all the millions of advertisers + their might be privacy issues related to sharing this data with another app.

Does Whatsapp Benefit as a Product through this Integration

Facebook has been struggling to monetise Whatsapp. In fact, as per the acquisition terms - Meta was not supposed to monetise Whatsapp at all. But now that Whatsapp Founders have left Meta in not so amicable manner. Zuck is looking to monetise Whatsapp. However, even though the platform has huge user base engaging at a daily level and spending significant amount of time within the app, Meta has not been able to come up monetization models unlike WeChat in China.

The only monetization model which is being used on Whatsapp is opening Whatsapp APIs to business wherein they can communicate with their existing user base through a pre approved template. Example: MakeMyTrip would send across the flight details on Whatsapp (in addition to other channels) once you have completed a flight booking. And in case, you abandoned midway - then you might receive a nudge to complete the transaction.

Lets see the potential of this monetization model. In India - Whatsapp has 400 Mn MAUs - Now there are two use cases for the businesses -

Post Transaction Servicing: In India, we have around 10 Million transactions a day. Say there are max 5 messages per transaction. This means that there would be 10X5X365 Mn messages a year ~20 Bn Messages. Each 1000 messages cost 7 USD so the total market size for this currently is ~150 Mn USD. One sidenote: The pricing in India is much lesser compared to other markets like Europe and Asia. On an average the pricing is 10X that of India so if we look at this monetization in other countries - It would be much higher than that in India. In fact, the pricing is really low in India and US (US is 14 USD per 1000 messages) compared to say France which is 140 USD per 1000 messages.

This monetization is a good monetization trick as the user experience is not getting deteriorated as the whole experience is being driven by user actions and the user is getting the Whatsapp messages only on transactions. However, this limits the overall monetization for Whatsapp.

We estimated the current Indian market potential to be USD 140 Mn (if all the businesses start using Whatsapp channel for their post order communication). What about the market sizing in other countries.

India is by far the biggest market in terms of users with 400 Mn users - the second largest market is Brazil with 120 Mn and then the number of users fizzle out but even then if we look at top 8 countries outside of Brazil and India - the user base is 400 Mn+. The overall user base for Whatsapp is 2 Billion which essentially is in a way representation of world’s online population. Around 70% of Facebook’s global user base lives in Developing countries so assuming the same - Whatsapp’s third world user base is 1.4 Bn and first world user base is 0.6 Bn.

Using this to estimate the overall market - Market size for developing countries would be similar to India @ 140 Mn per 400 Mn user base so developing country market size is ~0.5 Bn USD

Developed country monetization would be roughly 5-10X. Assuming 5X - The overall market size would be ~1 Bn.

So, in total the revenue from this service would be USD 1.5 Bn which is a start but thats what it is for a service of Whatsapp’s size.

Let businesses run normal ads like Facebook/Instagram

Whatsapp’s user experience is vastly different from that of Facebook (even though the Status feature is very similar to Stories Feature in Instagram and opens up an ad inventory on Whatsapp). While FB employs a feed to aggregate the updates from your network and is not really really personal because it would feature updates from your family, your friends but it would also have updates from the businesses and publications that you follow in addition to the various content creators that you follow so when Facebook started pushing ads within the feed - it worked.

Even though, it looks easy in the hindsight - at that point of time - it was not super clear that this inclusion of ads in the main product (feed) is not going to significantly deteriorate the user experience. But, here we are today - FB has an advertising revenue of USD 100 Bn. One main component which has helped Facebook scale these numbers is that FB has not just been able to get the branding dollars but is also getting significant percentage of Performance marketing budgets from SMEs and big brands alike. Which has been done on back of all the data that FB system has (think putting in updates n your age, city, gender, spouse’s name etc etc and following brands + think all the FB pixels which have been installed on almost websites on the internet). Because FB has all this data - it is able to convert well from Impression to Purchase which is even better than the conversion on Google for, at least, ecommerce in India.

Now, the question is where would Whatsapp inject the ads and how would it ensure that the user experience does not deteriorate significantly. In addition, what data does Whatsapp has which can be used by the app to match the businesses with users.

One issue with this mode of monetisation is that as we increase the number of ads - there is a significant chance of user experience deterioration which Whatsapp needs to guard against. The CTRs that we are seeing on Whatsapp currentlky are upward of 10-15% and if they can maintain this or keep it in the same of order of magnitude - it is going to be a goldmine for businesses.

Lets ballpark the market size here - Total users 2 Bn - say on an average they are doing 5 sessions a day - 10 bn sessions a day and say we are able to show 3 ads per session on an average then total 30 Bn Ad Impressions per day.

70% from developing countries - say at USD 1 per 1000 impressions and 30% from developed countries say at USD 5 per 1000 impressions.

Developing countries - 21 Mn USD per day Rev

Developed countries - 45 Mn USD per Dsy Rev

Total per day - 66 Mn Rev

Annual Advertising Revenue from advertising model for Whatsapp- 25 Bn Fucking USD

Now, this is something in the ballpark of what FB is doing. Question, here is whether this can be achieved without pushing users out of Whatsapp and deteriorating the whiole experience and unknowingly pushing the app into negative flywheel.

Everything depends on the user experience in these ads and Jiomart might give them an option

What are the other monetization options for Whatsapp

Broadly speaking - the playbook remains very similar to Facebook in terms of their monetization.

Either can help businesses market their products on Whatsapp similar to Facebook
Help businesses acquire users by integrating the businesses within Whatsapp - Similar to how WeChat did in China

Embed other apps into Whatsapp - Wechat Playbook

Whatsapp has 2 Bn usersbase doing on an average 10 sessions per day - 300 sessions a month → 600 Billion Sessions a month.

And let’s say that the user can be exposed to N number of services and help these companies acquire new users while staying within the app. This is the winning strategy that Wechat has very very successfully employed in China and which is something which has a good chance of working for Whatsapp as well.

But whether, they would be able to pull it off is another question.

Summary

So, all in all, this partnership gives JioMart a fair stab at targeting India’s burgeoning online Grocery market while also giving Meta an option to look at other options to monetise Whatsapp. Whether, it would create a 100 Bn USD behemoth - thats anybody’s guess. Let’s wait for 6 months and we would know directionally.

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10 Lessons that I learnt from growing my site from 0 to 20 Mn Monthly Visits!

Deepak Jain — Sat, 03 Sep 2022 15:55:51 GMT

Hey Buddy - So you also fell for the tagline - just like 20 Mn people used to do every month while I was running my website - cultnuts.com.

We launched the website in May 2015 and we were already clocking 16 Mn monthly visits in July 2015 and we were ranking 81 in India as per Alexa . Numbers look too good to be true? Read on!

And BTW - we fell to 1-2 Mn Monthly visits after Dec 2015. It was a helluva ride and today you also get to ride it - even though only passively. So here it goes:

It was all going great at our startup “baggout.com” which I was running with my friend. We had cracked some SEO and were raking in a million visits a month on long tail keywords. However, we were not able to grow it further on SEO (because ranking on head keywords in ecommerce is TOUGH) and since our business model was affiliates - we were looking for more traffic sources.

The other channel which looked promising to us was Facebook and we were getting good traction on our Baggout FB page (even though it amounted to nothing since the traffic that we were able to drive off platform to our website was negligible - like 100-200 users a day).

Serendipity

We, however, were seeing that a lot of people were killing it on Facebook so we started collating a list of Facebook pages (would have collated 100+) and started sending messages to those Page Admins (all of them had at least 500K Page followers as a minimum criteria) - offering to pay them per post and in turn posting affiliate marketing links on their pages.

I sent messages to all of those page owners and some of them actually replied (very few though ~ 10). I discussed the proposition with them.

Proposition: I would pay Rs. X for posting every post on their page

One of the page Owners agreed and I started posting affiliate links for Mobile Phones on the page.

Lesson 1: You need to go really really deep in the weeds. You identify new niches - new opportunities - new ideas by working hard and not working smart.

Working smart helps only in capitalising on the identified opportunity but working hard helps you in identifying a new opportunity. As Paul Graham says - You need to do non-scalable things at first. Everybody in this world is trying to work smart so you cannot identify new opportunities just by working smart (unless you are really really lucky). But very few people are willing to work their butts off and there is little crowd on that side of the world.

And guess what - Every time we posted - we were generating much more in affiliate commission (compared to what we paid) but of course - we could not post more than 1 link every day otherwise it would have ruined the experience for the page followers which was a big priority for page owners and us.

So this went on for some months and then the page admin & I decided to meet. I was anyways, generally, mind boggled by the amount of activity on the Facebook page that I could see in the Page analytics. And was also seeing the traction various other links were getting on the page.

As a data nerd, I was calculating the hits that a link was getting from the page - there was a lot of variability but even the lowest performing links were getting 5K+ link clicks while the best ones were getting 100K+ hits. I saw clearly that a business can be built on this amounts of insane traffic.

We finally met in Rohini, Delhi and we definitely liked each other. We had an over 3 hour conversation in Adventure Island and I still remember one question that I asked - “You have so much traffic at your disposal so why don’t we start something on our own rather than sending traffic to third parties for a paltry sum”. And voila - we both agreed.

Lesson 2: Serendipity is undervalued. You, however, need to hustle hard to churn the reality into giving you positive ROI opportunities. As they say - luck happens when you have opportunity meeting preparation.

So thats how Cultuts (an acronym for Cultural Nuts) was born.

We met a few more times and finalised the plan. We needed to do a few things

Get the website up and running - Registered the domain - setup the website and servers (we used Rack space so that we never go down). We already had an inkling that it would be something big.
Get content team in place - We had to get some writers on board. I was the first writer and we got two interns.
Put monetisation in place - We already had an adsense account for Baggout so that was not a problem and we started with that.

So, we went ahead and got the website up and running. Got two writers + I was always there to write. And put monetisation in place.

Off to a great start

We launched the website and started pushing Cultnuts links on our Facebook pages and guess what - Zuck was willing to send a lot of traffic our way. The content selection was working awesome and we were able to publish any new trending topic onto our website within 15-20 minutes max. All these things combined - we started killing it. And we were doing it with 5-6 daily articles compared to others who were publishing 15-20 daily stories to achieve the same traffic. This meant that we were on the positive flywheel within FB’s algorithms. Every time, our link was getting strong CTR and good traffic - our page’s quality score was going up. Also, we were pushing money into Page Like campaigns to grow our audience like crazy.

Now, we set out to do two more things -

We wanted more traffic - There were three routes to the same on FB - we could start publishing more on our pages but that had an upper limit. So, we explored two more routes - we started reaching out to more FB pages and offered them deals on revenue per 1000 visits and we started running Facebook Ads.
Improve Monetisation - We had access to just three ads per page through adsense so we were already breaking any article into multiple pages. But, still there were more avenues for adding more ads. We reached out to Outbrain, Taboola and Revconent (all native content recommendation platforms - aka - pushing shady products and services with High CTR imagery) and finally added Revcontent to the platform since they were the fastest in their execution and helping us get it live ASAP.

LESSON 3 - In business, you need to respect the highest priorities of your client over everything else - even your processes or lack of processes.

If your client is losing money for every single day you are delaying then you better execute on the same day and help them take that money off the table. Think about them vs thinking about your processes. Tweak everything at your end to make sure that you are catering to your client’s North Star Metric and whatever they are struggling with. Revcontent was definitely shittier than others - But they made it work for us in the lowest amount of time. And guess what - they went live (even though we replaced them with Taboola later due to their highly questionable ads in banned niches).

Scaling to the next level

Reaching out to more FB pages - this was the best hack that we could have cracked. Essentially, we were doing 5-6 articles a day and then pushing them on our one page -whatever worked was being pushed to our other pages and we were sending it to other page admins who were pushing it on their pages. And we made it a point to pay them on time (every week) even though we were getting paid on a monthly cycle by Google. This helped us engender a lot of trust with Page admins and we were able to scale this side of the distribution fairly quickly.

Lesson 4: Trust is the most important aspect of any business operations so you need to give your vendors and customers every reason to trust you.

In addition, we were killing it on FB ads - we were getting the click for 5-10 p per click. We were testing aggressively and whatever link was getting lowest CPC was being scaled like crazy. We also noticed that whenever we were scaling ads by increasing the budget of an ad set from Min of Rs. 100 to Rs. X then FB was trying to spend that money quickly leading to higher CPC for first few days so we decided to never increase the budget for any ad set above Rs. 100. So what do we do if we want to spend Rs. 10K on an ad. We would, of course, run 100 copies of the ad @ Rs. 100 each.

Lesson 5: Working hard is so undervalued that sometimes people feel ashamed in accepting the same. But, at the end of the day - it is hard work all the way to the glory.

We figured out a bunch of other important things -

What kind of articles do well - The best format for us was “X Mistakes in Movie Y that you did not notice. Best performing article was - “10 mistakes in PK that you did not notice”
What placements do well - For us the ads on right side of the feed on Desktop were the killer
What is the arbitrage - We were able to get the traffic at XX p per click and were able to make more money through monetization on those pageviews.

But we did not know what we did not know.

The Mistakes

We were figuring out things on the job. We figured out traffic - then figured out adsense - then Revcontent - then more distribution. But we did not know that the best way to monetize is through Sponsored Branded content and we did not have any connects in corporates or ad agencies to sail through and this was going to become one of the reasons for starting our downfall.

Lesson 6: If you are not an expert in any industry and you are learning on the job - Great. However, always talk to multiple experts - it would be obvious to them - but for you - it would save many months/years of yours from going down the drain.

But, now coming back to our story. We were raking in hundreds of thousands of daily users by pushing viral stories on Facebook and the monetization was also in place. We were now looking to scale content side as well and started hiring more writers and started building a strong content team. It was not easy to attract good people to our not so posh office in Rajouri Garden, Delhi but we somehow managed to get some good writers in addition to the few interns that we had started with.

In terms of Technology - we had the same tenet as Zuck - our servers never go down and guess what - we used Rackspace servers which might be the most expensive servers on mother earth. We were spending 10% of our revenues on serving - and that too when we had a static website where in everything was being served from cache. Again - you dont know what you dont know.

Lesson 7 - Always AB test your biggest business variables or get some expert in. Else - you might be spending an invariabty high cost (eating your margins) without getting any commensurate benefits in return.

How does a downhill ride looks like

One day, when I logged into GA - I saw that the real time traffic was over 12000 - I thought some story might have gone viral and did not think about it. Checked back GA after a few hours - which was kind of a ritual for me those days. Traffic was still 10K-15K real time - I decided to dig deeper to find that bulk of the traffic was coming in from South Korea. Seemed like some influencer in Korea has shared our link leading to the deluge of traffic. But this traffic was just bouncing off from the website because Alas our website was in English.

But we were in shock of our life when 3-4 days later - our Taboola account was blocked and the reason given was that “we were sending in Bot traffic to Taboola Network” which their system might have concluded from the heavy bouncing traffic. Not only did they block us - they also withheld last two months of payment which was a sizeable sum. We reached out to our Taboola’s account manager and convinced him hard. After a few suspenseful days - our Taboola account was reinstated and we had a sigh of relief.

Our FB Ads account was also doing well. We were getting 10% CTRs on most of our scaled ads. But, we were living on the edge in terms of clickbaiting. More clickbaity - the article was - higher was the CTR - lower was CPC - and higher was the margin. We started getting some of our ads rejected but still majority of our ads were being run successfully. But the rejection ratio was increasing and we started getting fidgety. Because, it meant that our Ad account quality was reducing day by day. And then one day - suddenly - our ad account was blocked. We stopped getting any more traffic from our FB ads account. But, we still had our biggest source of traffic in tact. Which was our own facebook pages as well as the network of pages that we were working with.

The Sucker Punch

The traffic from our pages went out just like our FB ads traffic went. Seemed like our domain got low quality score leading to lower distribution and low absolute traffic. And just like that - our traffic went down from 1 Mn daily to 1 Mn per month and we were more or less out of business.

Lesson 8 - Never ever put all your eggs in one single distribution channel. That channel can just pull the rug from under your feet and you would die from the shock. Think: Zynga

The Journey as a whole

So, all in all, we made some good money in the business. But, we could have created long term media asset out of this experiment.

However, what we got from this is more than financial - I got a friend for life and learnt a lot.

Signing off for now! Lemme know what you think of the story. In case, you want any more details - would be happy to share.

I have created a template which can help you plan these rapid experiments. Just subscribe in the below box and I would send you the template in your mail box.

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Want to Get Rich Fast? Sell on Amazon! Seriously?

Deepak Jain — Wed, 22 Jun 2022 04:17:25 GMT

You must have heard of Amazon and its third party seller program if you are not living under a rock. In fact, becoming an Amazon Dropship seller is one of the biggest “Get Rich Fast” schemes which are being peddled on the internet right now (being fuelled by the fact that Amazon has created a platform where any creative and hard working person can become a millionaire). In fact, Amazon has created tens of thousands of US Internet entrepreneurs who are millionaires (similar to what Shopify has done by arming the Rebels).

But is it easy? Is it for Everyone? Is it for You, in particular?

I would try to answer these questions in this post - So tighten your seat belt and get ready for a 10 minutes flight into the Amazon ecosystem.

How popular is Amazon drop shipping?

I just searched for “How to Dropship on Amazon” and it popped up over 350K Videos (Yes Videos!!) in addition to 42 Million search results. This clearly points towards the general interest of people wanting to start an Amazon Dropship business.

There are Facebook pages and Instagram handles solely dedicated to helping/ motivating people to start a Dropship business like Drop Ship Lifestyle (250K+ Likes).

What is the current scale of Dropship Sellers?

The current scale of these sellers is USD 300 Bn GMV (in US market) spread across 2 Mn+ sellers. The EBIDTA on GMV is around 20-25% so ~ the US third party seller ecosystem has a 60 Bn USD EBIDTA currently.

In India, the total ecommerce sales for 2021 are estimated to be around USD 50-60 Bn USD. Assuming 40% on Dropship through third party sellers (mostly on Amazon and Flipkart) - We get the total Dropship market in India @ USD 20-25 Bn.

What are the growth prospects?

Source: MarketplacePulse

The above chart shows Amazon’s GMV split between first party and third party sales. Amazon’s third party sales worldwide has grown from USD 160 Bn in 2018 to USD 390 Bn in 2021 and is growing at a much faster clip than the first party sales (CAGR of 35% for third party sellers vs 21% for first party sales ). This has, in fact, led to third party sellers’ share in GMV increasing from ~58% in 2018 to ~65% in 2021. Amazon’s third party sales in US is expected to grow to USD 500 Bn GMV and USD 100 Bn EBIDTA over next 2 years.

Indian ecommerce market is also growing at a fast clip and this growth needs to be enabled through third party sellers as both Flipkart and Amazon are operating mainly on Dropship model (Amazon learnt this from its experience in US and Flipkart learny after burning their hands in Inventory model).

Why would Marketplace Behemoths allow third party sellers to grow?

This is definitely the elephant in the room!! Why would Amazon allow third party sellers to compete with its own products.

Actually, Amazon’s policy is completely different from the policy of most of the other marketplaces which guard their customers closely. Amazon, on the other hand, lets third party sellers compete fairly for the attention from customers. Main reason for the same is that Amazon is optimising for user experience and user wants to have the best selection at great price along with great post buying experience.

Once, Amazon lets sellers sell fairly on its platform - it is ensuring that the forces of free markets are working in Amazon’s favour and making the user experience better which would have been difficult for Amazon - because it is only as many SKUs that you can design & produce as a company.

The fact that third party sellers are experiencing higher growth on Amazon compared to the first party sales and 2/3 of sale on Amazon is through third party sellers establishes the fact that Amazon is enjoying third party sellers trying to plug demand supply gap in every possible category niche.

But what if Amazon decides to shut down Third Party sellers

Now, compare this to the situation if Amazon decides to compete with these sellers. Firstly, it would not be humanly possible for them to give so much selection to the customer. It would also lead to big risks on their balance sheet.

1. Product Risk: Currently, the third party sellers go through the product iterations to arrive at the perfect product and most of them perish during these experiments. Amazon does not have any downside from these failures but participates in the upside if and when the products succeed. Essentially, it is akin to Amazon holding a call option on all the innovators in the world.

2. Inventory Risk: The second biggest risk would be the inventory holding risk since some portion of the inventory would always need to be liquidated.

There is always news circulating that Amazon is cloning successful third party products and launching them under its own labels. However, if we look at the actual numbers - private label sales represent just 1-2% of Amazon’s overall sales.

In addition, Amazon’s advertising revenue is USD 31 Bn for 2021 which is a lot of money and already represents 7% of Amazon’s overall revenue. Best thing about this revenue is that it is a very high Gross margin (~80-90%) business line (akin to pure software GMs like Facebook) as compared to Amazon’s core retail business revenue which has high cost of sales (GM here is ~40-50%). It is, therefore, in Amazon’s best self interest that it keeps on creating a free market on its platform leading to a super-duper fantabulous experience for the customers (making the flywheel stronger with more and more customers coming directly to Amazon and searching there) and create a high margin business by charging commission and advertising dollars from sellers.

So what exactly are the economics of Drop ship business for Amazon

On an average - Amazon ends up charging ~40% of the sale from the sellers (including commission, logistics cost, warehousing etc) which is a pretty steep margin.

In return Amazon needs to spend on logistics and warehousing + gets customers for the seller (which are more or less all organic).

Biggest costs for Amazon are Warehousing and Shipping which are highly optimised. The order density for Amazon is amazingly high so they are operating at a completely different level.

For example: We have 3000 odd families living in our Condo and Amazon delivery personnel are spending their entire day there delivering orders. I wont be surprised if one personnel is delivering 100 orders a day here which reduces their last mile cost significantly (Rs. 400 per day cost for the delivery boy amortising over 100 orders ~ Rs. 4 per order last mile cost) compared to amortising over 25 orders (~Rs. 16 per order).

Generally, shipping cost is 10-15% of GMV for most players - however, this number should be much lower at 7-8% for Amazon.

Similarly, Warehousing cost would also be pretty low for Amazon since it is stocking bestsellers in their warehouses. The Inventory turnaround time (average number of days for which a unit is stored in the warehouse before it is dispatched to the customer) is very low leading to less warehousing cost per order. Let’s take an example to understand that.

To keep it simple - let’s assume there is only one product sold on Amazon. It rents a warehouse for Rs. 1 lakh per month and there is another Rs. 1 lakh cost for salaries of people working in the warehouse so total cost is Rs. 2 lakh. At any time - the warehouse has enough storage for 5,000 units of the product.

Now, let’s take two scenarios - In first scenario - Amazon is selling 5,000 units a month so an item is lying in the warehouse for a month. In this case warehousing cost for each item is [2 lakh/5000 = Rs. 40 per order].

In second scenario - Amazon is selling 50,000 products per month so an item is lying in the warehouse for just 3 days. Here, the warehousing cost per order is [2 lakh/50,000 = Rs. 4 per order].

In a nutshell - since Amazon is operating its own warehouses and own delivery services - it has converted both these costs into fixed costs which gives significant operating leverage to Amazon.

In total, my guesstimate would be that Amazon is spending 10% of its GMV on Shipping and Warehousing and other seller services and is netting 30% Operating margin on the seller sales while fuelling its customer experience flywheel where customers get the best selection on earth leading to Amazon becoming the de facto destination whenever they want to buy something online (this flywheel is not seen in Fashion - I reserve this story for another article :P).

If Amazon is making so much money here - Are Sellers going to the dogs?

What are the unit economics for an Amazon seller. Let’s go through some indicative numbers.

An Amazon seller has a net margin of around 20%. The cost structure has three main components - Cost of Goods (COGS), Amazon Fee and Fixed Overheads. COGS for any private label is around 30% while Amazon Fee is a publically available data and it hovers between 35-45% depending on the category. Since shipping and warehousing/storage form a big chunk of Amazon Fee - product weight and volume impact it significantly as a bulkier product would need more storage space in warehouse and would be costlier to ship.

Net margin of ~20% is definitely not bad especially if you also take the business asset being created by the seller. The Amazon real estate controlled by the seller on back of its high number of ratings and reviews gives it a moat and ensures that the user demand diverted towards the seller is sustainable. This 20% margin also gives a cushion to invest into Amazon marketing and grow inorganically and fasten the whole thing.

Now that we know that being an Amazon seller is a profitable business - Next question is - How to go about doing it and whether it is for YOU?

How to go about becoming an Amazon Seller?

Anyone who has a good product to offer can become an Amazon seller and profit from the same.

Steps:

1. Choose a good niche - Identify a niche on Amazon where there is some demand and it is growing at a fast clip - These kinds of niches are summarily ignored by the bigger companies since its scale does not excite them. You start selling in that niche and slowly build your authority on the back of your “Good Product”. As you sell more, you get more ratings and reviews which pushes your product Up in various listing pages enabling you to sell more and get even more ratings. Slowly, you have thousands of ratings on your star product(s) making you a clear winner in the category and making it difficult for other companies to catch you in terms of number of ratings and satisfaction score. At some point of time, big companies see that the market has now grown to their minimum threshold justifying entry in the market. And they start pushing advertisement dollars but by that time you have already built a strong authority so you are in a position to be a relevant threat to even much bigger companies.

2. Identify good products - One you have identified a niche then the next step is to plan for products to sell in that niche. Assumption is that you either have a good understanding of that niche on either “Sell” side or the “Buy side”. Sell side meaning that you have worked in that industry and understand the nuts and bolts of that industry and “Buy side” means that you are a customer of that product and understand what exactly people want. Essentially, you have to have some kind of competitive advantage while trying to fill in the void that exist in that niche. This is called the Founder market fit and you need to have some kind of a fit there.

3. Design/Source Products - Now, you have two choices - either you can import the product from China/elsewhere or you can design the product and then get it manufactured. Both of these options work but the seller needs to ensure that the quality is topnotch and the pricing is more than competitive because that is something which would lead to traction on the product.

4.. Scale up the operations - Once the products start getting traction, the seller needs to have a bigger manufacturing setup/tieup and service the growing demand.

What are the long term moats that the Amazon Seller has?

At the end of the day, seller is totally dependent on Amazon for discovery from customers and does not own the customer.

The biggest moat that the seller has is the ratings and reviews on the products as these ratings are a significant variable in Amazon’s algorithms. Generally, a seller chooses a niche which is not being served well on Amazon - market size is small so big players are not attracted to it. Seller launches a good product filling in a whitespace and slowly the sales ramp up for certain SKUs. With sales, ratings also ramp up for these SKUs and slowly and surely these SKUs start dominating the Amazon listings.

This situation goes on till a big company enters the sub category with big marketing budgets. At which point, the seller SKUs’ discoverability goes low as the new company’s products get precedence on the listing page due to ad slot placements. The game, therefore, is to be able to ramp up the ratings to astronomical numbers before a big daddy comes in with his big wad of cash so that he is pushed to burn through a lot of money (more than what he can acquire you for) to make a dent in the sub category.

What are the risks that an Amazon seller is running?

The sellers are running a number of risks - some of them life threatening for the business.

For one - they need to ensure that they don’t run out of stock which would lead to de-prioritisation of their SKU in the listing in spite of having thousands of reviews on the products. This is definitely the biggest risk but its an outcome of a number of other factors. Lets look at the operational and financial complexity for the seller and the risks therein -

1. Supply chain risk - Sellers generally are working with one manufacturer so any disruption at the manufacturer’s end spells doom. Seller would keep some inventory (~2-3 months worth of sales) but it would not be enough to circumvent any major supply side disruption. It is not financially prudent for the supplier to keep a backup manufacturer ready so its a Catch 22 situation.

2.. Product Concentration Risk - Generally speaking, the seller has majority (meaning 80-90%) sales coming in from a small number of SKUs (meaning <5) even though they might have listed 50-100 SKUs on marketplaces. This is true for almost all sellers and exposes them to huge risk in case the market demand moves away from that niche or if an bigger competitor chooses to target that product and spends big money to topple the incumbent.

3. Financial Risk - Say the seller is making Rs. 2 crore monthly sale meaning that Rs. 40 lakh of EBIDTA is flowing in. However, there are a number of cash flow constraints 1) Tax outflow @ 30% leading to a PAT of Rs. 28 lakh 2) There would be 3 months of sale worth inventory in the warehouse (assuming 30% COGS - this means that 1 month inventory is 30% X 2 crore = Rs. 60 lakh - 3 month inventory is Rs. 1.8 Crore). Now if the seller is growing at 5% MOM then next month projected sale would be Rs. 2.1 crore leading to 3 month Inventory growing to Rs. 1.89 Crore. This means that 9 lakh out of Rs. 28 lakh would flow into Inventory buying leaving the founder with ~ Rs. 20 lakh.

Essentially, for a growing Amazon seller - a lot of EBIDTA gets reinvested into the business leading to a low Take Home Money.

4. Compliance risk - Seller has a small team and is not in a position to properly manage all legal compliances such as Tax Compliance, Product’s certifications etc, compliance to other laws applicable to the business.

5.. Other Operational risks - Seller being a small business is putting his eggs in one basket - Example: Working with a single delivery company, having a small operations team in the warehouse, working with one product designer etc etc. The list goes long. He cannot absorb any redundancies in his business owing to the small scale and any disruptions in any part of the business can create havoc for the seller.

How can an Amazon seller reduce these risks

There are a number of ways for doing the same. Some of them being - Work with multipole marketplaces, Create your own D2C channel, Create a brand so that dependency on the marketplaces reduce through creation of pull demand.

However, one big channel has come up for such sellers with the advent of “THRASIO MODEL” wherein aggregators buy majority of the business. Founder receives part cash out (they translate some of their success into economics and enjoy their life better) and get to keep a part of the upside while having a big team and balance sheet to support the business.

Would talk about these aggregators in detail in another post. Pls write in comments in case you fell it’s an interesting topic for you.

Has Uber driven off the road in India?

Deepak Jain — Fri, 17 Jun 2022 04:57:28 GMT

Uber is the largest ride hailing company in the world and has a presence in 72 countries and 10,000 cities. It is a monopoly or an oligopoly wherever it runs.

Source: Uber Investor Presentation, 2022

What is the scale of their business

In 2021, Uber did over 17 Million trips a day (worldwide) which equals 6.2 Billion rides in the full calendar year which is almost equal to the world’s population :)

What is the room for growth

Even though the scale is pretty steep - the growth or the demand has not tapered off at all. In fact, there is a significant headroom for growth. A good way to look at the headroom for growth is to look at the current penetration in different markets. The best data that I could get on penetration was the weekly active consumers as a % of the 18+ population in the country (which is not a highly efficient metric to check penetration as it assumes that the whole 18+ population is addressable market).

But still if we look at the data - Uber has achieved 4%+ penetration in a number of countries including Developed countries like US and UK and developing countries such as Brazil and Mexico. This provide a significant headroom in big markets especially India.

Source: Uber Investors Day 2022 Presentation

Why do people use Uber (both Supply and Demand)

First lets dive into the raison d'etre for Uber. Essentially, Uber is a two sided marketplace where it matches drivers with passengers.

There are a number of use cases for the passenger:

Corporate intracity travel: Corporate employees use Uber to travel from Home to Office and vice versa or for going to various client meetings. This demand is cramped between a few peak hours during the day (essentially 8 AM to 10 AM and 5 PM to 8 PM in India) and there is no demand on weekends. So, this demand needs to be aggregated with some other demand to keep the driver busy and give them enough trips during the day. However, majority of this demand is paid for by companies so price sensitivity is less.
Airport/Train Drop/Pickups: People going to or coming back from airports and railway stations need a reliable and consistent experience. Uber solves both of these elegantly. This is also a strong use case with good value addition for the users. Competing cheaper alternatives are much less attractive (being dropped/picked up by a family member). Travel (Airport transfers) is also peak hours based (early morning and late night) but it juxtaposes well with Office demand to create a better pipeline of work for the drivers.
Leisure travel: Uber is used by families for going from Point A to Point B or by sub families. An interesting use case (in India at least) is Uber being used by family members who do not know driving (mostly wives, young children and parents) - giving independence to them (which is a great value add till the quality of service remains good) and frees up the driving members of the family (mostly earning male members).

What are the use cases for Drivers

There is essentially one motivation here which is that it would help them earn good money after accounting for the fuel and EMI cost. And mind you - EMI is a fixed cost and would be applicable whether they work with Uber or not.

Uber’s Success metrics

Uber’s success depends on the following metrics:

Driver density in a particular area: For the consumer, it does not matter whether Uber operates in 10,000 cities or is present only in her city or whether it has 1 Million drivers worldwide or only 100 drivers. What matters to the user is - “How much time does an Uber takes to arrive after she has booked a cab” and that solely depends on the number of car icons that she can see in the vicinity of her location (meaning within 2-3 kms of driving distance) when she is booking the cab.

Customer Density in a region: For driver to have enough and more trips during the day, there needs to be enough liquidity of customers looking to hire a cab in driver’s city.

These two above points, essentially, are basic metrics for any two sided marketplace - liquidity on demand and supply side.

The liquidity on both sides, though, lead to the following two metrics which the marketplace participants (driver and passenger) care about.

Profit per day for the driver: Driver is looking to earn a minimum amount of money after deducting the variable costs (fuel cost, Uber commission and maintenance) and the fixed costs (EMI of the car). If the platform enables the driver to earn that minimum daily threshold then he sticks to the platform and contributes to Point 1 (enough driver liquidity in the region). This metric depends on the number of kms driven during the day and amount charged per km to the customer.
Cost per Km for the user: This is mostly a derived metric and depends on the first 2 points. Higher the driver density in an area - lower is the distance travelled by the driver to reach the pickup point and lower is the time wasted for both driver and passenger. Higher the customer density in an area - more are the number of trips done during the day and the fixed costs (aka EMI) amortise over higher trips meaning that the driver can afford to charge a lower cost per km and still make good money. However, cost per km need to be low in addition to customer experience being smooth.

Unit Economics

If we look at Unit Economics - then for 2021, Gross Margins were around 46% and then there are four more costs which are not fully variable. Operations and Support (1.9 Bn USD), General and Administrative (G&A - 2.3 Bn USD), Research & Development (R&D - 2 Bn USD) and Sales and Marketing. Out of these First three - Ops, G&A and R&D are mostly fixed in nature and have stayed constant or reduced during 2021 in spite of a 50%+ increase in revenue. Sales and Marketing is correlated to Revenue to a certain extent. Putting Sales and Marketing also as a % of Revenue - it is around 30% of the revenue.

Now looking at the Unit Economics at a trip level

Average trip is around USD 15 fare for the passenger. Uber’s share of revenue from the trip is around 20%.

If we look at these numbers at a trip level -

So Uber needs to double its current scale to break even and mind you - this growth needs to come from the same cities or else the fixed costs would increase as Uber would need to hire more city specific teams.

Coming to Uber’s India Operations

Uber handled 11 Million rides a week in India in 2018 and claimed to be having over 50% and less than 65% market share in the country (to keep calculations simple - say actual is 55% then the overall market was 20 Million rides a week. With the pandemic in 2019, 2020 and 2021; the numbers are still reeling under COVID so it is safe to assume that India’s ride hailing market is still at a similar level of 20 Mn odd rides per week or ~ 1Billion rides a year.

Uber also claims 0.5% penetration amongst population above 18 years (meaning 0.5% of ~100 crore - 50 lakh). Essentially, Uber is being used by 50 lakh to 1 crore people in India and it is used on an average once a week by these users (actually it is once every 2 weeks as you would end up doing two trips most of the times - coming and going). A chunk of these users would be power users and must be using it even more (like I was before the pandemic - using is 30-40 times a month).

How Uber India built its supply side density

When Uber started out in India - it doled out super normal incentives to the drivers wherein they were given good money for achieving certain targets. For Example: I had heard a number of drivers mentioning that they need to complete X number of Uber trips during the day to get a weekly incentive as high as Rs. 4000-10000. What it essentially did (in addition to burning a hole in Uber’s PnL) was that new drivers signed onto Uber network and also were disincentivized to work for both Uber and Ola at the same time.

That initial time was gala time for the drivers as they were making very good money every month but as they said “There is no free lunch” so Uber ultimately took those incentives away (once it was sure that the network was built and supply side was set). Now, the drivers were still making good money (compared to what they were making in Pre Uber era) but their satisfaction levels with Uber were low.

Pandemic broke the back of drivers as well as Uber as all mobility demand went back to zero for months. And even after the cities were opened up - corporate travel is still very low as Work from Home Concept has taken vogue in all major cities such as Gurgaon, Bangalore and Hydrabad. This has essentially broken the Point No 2 of success metrics (Enough profit per day for the drivers) and kinda leading to falling dominoes on the demand side experience (aka cancelled trips, long wait times and bad driver behaviour | as they don’t care about Uber network as much as they used ti=o value it earlier).

How Uber India built its demand side

Uber’s service always had a demand - it was being fulfilled by the local Taxi operators and Meru also joined in much before Uber.

Uber got some of this demand attracted to its network by giving much better user experience at a lower cost. I still remember calling Meru on their hotline number to book a cab in 2000s. Meru’s cost was much higher than what Uber/Ola offered; in fact, Meru’s cost today is also 15-20% higher than Uber.

So Uber gave a better product at lower cost and spent heavily on alliances, marketing and user discounts to kickstart the demand flywheel which was essential to keep supply engaged.

Most of the user discounts offered during this era were around first few trips - Example “Get Rs. 75 off for first three trips” which essentially meant a zero cost short trip. People used it and some of them sticked to the experience.

This stronger demand fed into the flywheel of getting more and more drivers on board.

Unit Economics in India for Uber

* These are Guesstimates based on my best judgement

Here, 50% Gross Margin has been sourced from Uber’s world wide Gross Margin % number from their annual report and average discount has been taken assuming that Uber has reduced the discounts to max 10% and Driver Incentives have been assumed to be reduced to zero.

What is Unit Economics for the Driver

Unit economics for one trip would look somewhat like this for a long trip:

And a typical short trip would look somewhat like this:

Now, let’s assume that the long trip would take an hour while the short trip would take half an hour. Say, driver works for 10 hours a day then he would end up doing 5 long and 5 short trips (7.5 hours driving and 2.5 hours wait time).

Gross margin for the day would be around Rs. ~1400 and there would be some drive not paid for (say Rs. 100 worth of fuel during the day). This Rs. 1300 per day, thus translates to a monthly income of Rs. 40K. For this he is driving ~200 kms a day (~70K Kms per year). He also would be paying EMI @ INR 12K per month (Rs. 6 lakh loan @8% for 5 years) so his take home is Rs. 28K if he works full day (7 days a week with Uber).

Current State of Uber Operations in India

Uber is going through a rough patch currently due to a number of reasons (Thank God they offloaded their Uber Eats operations to Zomato else they would have been in an even bigger mess. Currently, the company is facing a number of issues. I have summarised the top issues below -

1. Lower Demand in general: Uber has gone through hell in last 2-3 years on account of pandemic and its severe impact on all three demand sources (corporate usage, leisure usage and airport transfers). Reduced demand has weakened the flywheel which gets more supply on board. In fact, a lot of drivers have moved to other work areas plus they are forced to work with a number of cab aggregators in unison.

2. Deterioration of Service: With lower driver density and higher driver dis-satisfaction, the service has deteriorated significantly again weakening the flywheel by diverting the demand to alternatives (and boy the list of alternatives is big and fat - Self Drive, Get a Driver, Ola, Meru and other Cab aggregators like Blusmart).

I have experienced Uber’s service very very closely for a number of years for my own personal use. The service levels from the driver side have fallen drastically which can be felt in any personal conversations that I have with my friends and acquaintances and also on public platforms like Twitter.

Some of recent tweets of complaints regarding Uber Service

This deterioration in service for a number of reasons including lesser number of rides a day, lesser incentives for drivers( read non existent incentives), higher fuel charges - all leading to lower profit for the day and forcing drivers to look at other options for income rather than relying solely on Uber for demand.

3. Higher fuel prices: The biggest variable cost for drivers is fuel cost and its prices have increased significantly in last one year eating into drivers’ profitability.

For example: CNG prices in Delhi have increased from Rs. 45 per kg to over Rs. 75 per kg in the last one year alone (67% growth in fuel prices for Delhi drivers) but the fares remain more or less the same.

4. Price Inelasticity of Indian consumer - Uber needs to compensate drivers for higher input costs and lower utilisation by either burning through their cash bank or by passing higher prices to the customer. However, Indian audience is notoriously fly-by-night demand which vanishes as soon as you increase price.

5. Impending higher interest rates - RBI has increased the repo rate from 4% to 4.9% in a span of last one month (May-June 2022). This ~1% increase has been duly passed on to the consumers by various banks. If we assume an average car loan of Rs. 5 lakh then this amounts to an increase interest outlay of ~Rs. 500 per month for the driver. If interest rates increase further - it would be an even bigger blow to Drivers’ monthly incomes leading them to even more dissatisfaction.

So what should Uber do?

Uber needs to get its supply side in order first for it to even attempt putting its demand flywheel in action. For pushing the demand, it has a number of levers in hand - Giving discounts to existing power users so that they come back and re-experience great service or to partner with big consumer apps such as Paytm to get their users to use Uber.

However, the only way for them to redeem this situation is by getting the drivers on their side. That cajoling, however, burnt their cash bank by hundreds of crore a few years back. Uber knows how to do that - but are they willing to take another stab at the Indian market - that is the Question.

How Indian Government earns and spends Money

Deepak Jain — Tue, 07 Jun 2022 13:15:49 GMT

I have always thought about the PnL of Indian Government in terms of where it earns its money from and where does it spend the same. This itching grows every time I see people defending the Govt’s stance of allowing companies to sell liquor/tobacco stating that it is a huge revenue chunk for them or whenever Petrol prices go up. I decided to finally do detailed research on the same to understand the nots and bolts of this and once I did - I thought a lot of people like me would be interested to know about the same. So without any further ado lets dive into this:

How much does Indian Govt Earn

Even before we get into the nitty-gritties of how it earns money and which areas are the big contributors - Let’s look at how much it earns and how it has moved across years. There are two aspects of this question because of Indian Government structure. India has Central Government and multiple state Governments. Some of the income goes in Central Govt’s kitty while the rest goes to various state Governments. For example: Income Tax, IGST and Corporate Tax goes to Central Govt while SGST, Excise on Liquor goes to respective State Governments

What is Central Government’s Earning

Central Government (CG’s) net annual receipts have increased from $210 Billion in FY14 to 483 Bn $ in FY21 which means a CAGR of over 12% over these 7 years.

In FY21, CG’s net receipts were ~500 Billion USD while the GDP (at current USD rates) is expected to be around 2.5-3 Trillion USD.

Where does Central Government get this money from

I went to Union Budget report for 2022-23 and dug for the the actual Central Govt receipts and found the actual data for 2020-21. So, here it goes.

The total net receipts for the year were around Rs. 42 lakh Crore (equivalent to ~ 560 Billion). Out of this $80 Bn was transferred to states as it was their share in Income tax. Breakup of the $560 Bn across different contributors is shown below:

Now, if we look at the breakup of this - First breakup is Revenue and Debt. Out of total receipts of $560 Bn - $260 Bn is loans while $300 Bn is Revenue.

Revenue Receipts is majorly contributed by Tax - Corporation Income Tax (~$60 Bn), Individual Income Tax (~$60 Bn), Excise Duty (~$50 Bn), GST (~$70 Bn) and Custom Duty (~$20 Bn). Out of this total tax collection of ~$270 Bn - around $80Bn is passed onto states. There is Interest and Dividend Income of ~$30 Bn so the Net Revenue Receipts is ~$220 Bn.

Petrol and Diesel Excise Duty contribute to a whopping ~USD 45 Bn and is a major major contributor to Tax receipts and very clearly shows why the successive tax Governments have been increasing the tax levied on fuels.

Essentially, it contributes to as much as the Individual Income Tax collection so even though you as an Indian citizen might not be disclosing your income and might be out of the IT net. The Govt is looking to milk your earnings through - 1) Tax levied on Petrol (which is an essential Good and you cannot dodge this bullet) 2) GST levied on all the Goods and Services that you buy.

These indirect taxes of GST, Excise and Customs is USD 140 Bn USD in comparison to Individual Income Tax of $60 Bn.

In addition to Receipts, Central Govt also finances a big chunk of its receipts with Debt which was around USD 260 Bn for the year 2020-21.

Liquor and Tobacco - Two habit forming substances which are leveraged by the Govt to loosen your purse strings contribute to ~ USD 25 Bn and ~USD 8 Bn (Both in total contribute to more than half of the individual income tax collection). I definitely don’t think that putting the life, lifestyle and productivity of your entire country at risk can be justified by the earnings of a meagre $33 Bn. Although Liquor does not come in the above calculations as the same is levied by states and not the centre which takes us to another question - What is the total budget/receipts of State Governments.

What is State Governments’ Earning

Total Revenue Receipts for all states combined is ~$350 Bn (including the 60 Bn USD passed on by the centre from their tax collection). Remember that $25 Bn is contributed by liquor here.

If we look at the breakup of this money then $200 Bn is their own receipts (majorly tax receipts) while $80 Bn is CG’s tax shared with states (devolution) and remaining $70 Bn is Grants and Aids financed by CG. So 45% is tax revenue, 10% Non Tax Revenue, 23% is Tax Devolution from Centre and remaining 20% odd is Grant from Centre.

Of course these ratios vary widely between states so the breakup for different states is given below -

Where does Govt Spend the money

If we look at the actual numbers of 2019-20 then CG spent a total of ~$350 Bn. Out of this the top 15 areas account for ~50% of the spend while the rest 50% is taken up by other areas.

Defence is definitely an outlier here with India spending 1/6 of its overall spend just on this area and it spent $60 Bn here. Compared to this Education received $12 Bn and Health/Family Welfare received $9 Bn.

This chart very clearly shows the geopolitical mess that India is surrounded with and also talks about the priorities of Indian Govt. I was hoping to see much higher spends on both Education and Health. In fact, I used to think that Govt is earning a lot of money from liquor and tobacco but might be spending a lot of more to manage the after effects on its people’s health. But boy was I wrong - Govt just fills up their coffers and leave their people to the dogs. They earn $33 Bn from Tobacco and Liquor sales and spend just $9 Bn on both health and family welfare combined.

Where do State Governments spend the money

In total, all the states together spent $370 Bn. There are three major contributors to this Social Service Spend, Spend to support Economic Activity and Non Development Spend.

40% of the spend is towards Social Services (major components are Education, Sports, Art and Culture - accounting for $70 Bn), Non Development Spend is mainly towards Interest Payments/Debt Servicing (~$50Bn) and Pensions (~$50 Bn) while Economic Activity spend is mainly towards Agriculture, Energy and Rural Development ($20 Bn each).

Pensions and Interest Payments form a major chunk of spends ($100 Bn) and are in fact, more than the shortfall that states face. In fact, just pensions alone account for over 70% of the deficit. No wonder, all state Govt’s are shying away from the hiring of full time Govt employees and are focusing their efforts on hiring contractual employees where the Govt does not have any long term liabilities.

Summary

To summarize Indian Central and State Govts have a total earning of $600 Bn (300 + 300) while Centre borrows $250 Bn from the market to finance its spends.

Centre’s earnings are from Direct and Indirect taxes mainly while states earn from Tax, Devolution from centre and Grants/Aids from Centre.

Total Govt spend is $720 Bn ($350 Bn Centre and $350 Bn States) across central Govt and all states combined.

E-commerce Visitors - What do they Really Want?

Deepak Jain — Sun, 27 Dec 2020 04:58:59 GMT

Answering this question might not be as valuable as answering “What Women Want” but let’s keep it a topic for another decade for now :) Lets try to answer what E-commerce users want.

E-commerce is growing like crazy in 2020 - thanks to COVID-19. There is an unprecedented demand for online shopping as physical retail has taken a hit.

People are looking to buy online - They are searching on Google, going directly to their favourite e-stores. In fact, they are far more likely to click on your ads on Facebook and Google.

This post is about what the user expects once he has clicked through to your platform and given you his undivided attention for those 5-10 seconds.

What are some of the questions in the users’ mind that you need to answer. There might be thousands of questions that need to be answered for the consumer but all of them, more or less, boil down to these two fundamental questions.

How is this website solving one of my pain points or helping with one of my Jobs to be done (JBTD) - A highly relevant pain point for an Indian user can be buying his coveted brand for 90-100% OFF :)
Can I trust this website with my money.

Answer these two questions clearly and succinctly without putting too much cognitive load on the user and you might end up laughing all the way to the bank.

It’s all about taking anxiety out of the visitor’s mind and thus converting them into a customer.

Once, he becomes a customer then it is upto your customer service and logistics to give him a solid and remarkable first time experience and then the most crucial bit -

The product needs to fulfil the promise on the website 110%.

It is at this point that you also take a customer review from the satisfied customer to create a flywheel effect through an ever improving answer to the second question (Why should they trust you) for more incoming visitors. Airbnb has based their business model on this flywheel in addition to their unique supply and global network effects.

A remarkable 68% of Airbnb guests leave a review

Now, lets dive into both the user questions in depth:

Question 1 - How are these people solving one of my pain points

A lot of entrepreneurs design a solution and then find the problem that their solution can effectively solve. It is actually akin to having a key in your hand and then looking for a lock.

The journey has to, has to, has to start with the consumer pain points/JTBD and how you are going to solve that 10X better than the current solution in the market. This part has to be nailed and this is what takes you across the product market fit chasm.

Myntra has solved the problem of accessing (virtually) all Fashion brands on a single platform and doling out unprecedented discounts on the merchandise 10X better than everyone else

Amazon provides 10X better customer and delivery experience than anybody else in the market (Plus a plethora of other things)

You need to hammer your VALUE PROP for the customer Upfront and very very clearly

And this Value Prop/Mission needs to attack the customer pain point/JTBD at a really emotional level.

Next step is to make this Value Prop more tangible by taking users through the product categories and relating them to users’ pain points/JBTD.

Things to remember here -

Don’t push vanity things about your company because it would just make your internal stakeholders happy but would be useless for the actual person who matters here - THE WEBSITE VISITOR.
List down what info is important for the customer on the Product Detail Page and its priority in the scene of things. Be ruthless in testing here through heat maps and click stream data.

People don’t have a great attention span

This is a huge factor which needs to be taken into account while you are designing the experience on the product detail pages.

Nobody wants to read through reams of text so always be on the lookout to reduce the text on the pages. Higher the cognitive load on the user - lower your conversion rates are going to be.

For God’s sake - we are not playing Sherlock Holmes here whereby the user needs to decipher through the info to get those 3-4-5 nuggets of information which would answer the questions coming to his mind.

Some pointers -

Videos > Images > Bullets > Paragraphs > Nothing

Be specific wherever you can and Show rather then tell
Have bullet points instead of Paragraphs
Have videos wherever you can
Icons to be used for Product USPs
Any badges (from industry bodies) on the grooming/nutritional products
Scarcity or anything which makes user take the decision faster -> to be shown really prominently

Question 2 - Can I trust this website with my money

Unless you are Amazon, Flipkart or Myntra - most of your orders would be coming in through the first time buyers. The user doesn’t yet know whether you are a serious player or a fly by night business being operated from Jamtara.

Even if you are not a fraud, users are worried about the return/refund policies in case the product has sub-par quality or any other similar issue crops up after receiving the product.

The best way to alleviate this user anxiety is through two methods -

Should have a lot of social proof on the website
Provide contact details of multiple channels (phone/email/chat/whatsapp etc etc) upfront

Social Proof

Social Proof from third parties comes in many colours

User reviews
Press
Influencers

User reviews is by far the most robust part of social proof for e commerce companies since they are already selling to customers and happy customers are willing to leave a review if they are reached out through appropriate channels at appropriate timing.

Here, it is important for the e-com companies to focus more on the reviews summary rather than fretting over individual reviews - Nobody has time to go through all the reviews.

What is important for the potential buyer is the average rating of the product across meaningful dimensions - Example - In case of Shirts, these dimensions can be - fabric quality, fit, and value for money. The potential buyer also wants to know that the reviews are genuine and that can be gauged through a number of parameters including number of reviews plus Details like Name of reviewer, Date of review, whether the reviewer is a verified buyer. Having customer photos is like icing on the cake.

Press: Be as detailed as possible when citing Press citations. Use publisher’s logos + also their quotes so that users get a context.

Influencers: Having influencers talk up your product is also a pretty good strategy to get the word out and embedding these videos on the product page gives it an extra edge. These videos can have dual purpose - They provide a third party endorsement and also serve as a practical guide on how to use the product thus giving a real insight into what to expect from the product to the buyer.

Provide Contact Details upfront

Be upfront with content info (phone/email/address/whatsapp) without relegating it to a different page hidden in the sitemap. The user is anxious about making his first purchase from you and want a reassurance that he can talk to some one in case the purchase does not work out.

Summarising it all here -

Summary:

Your website visitor just wants to know - Q1: How you are solving the problem on top of his mind and Q2: why should he trust you with his money
The e-commerce store needs to explicitly answer the first question without putting any cognitive load on the user’s mind. Don’t take him through reams of text and definitely not talk about the features of your product. Instead, talk about his problems and how you are solving them.
Videos are most effective - followed by images and then text in helping the user understand.
Show rather then Tell and provide details wherever available rather than making a fluffy claim
There are three ways to reduce consumer anxiety regarding Q2 - Social Proof (Summarised user reviews, Press Citations and Influencer Videos) and making the contact details really really accessible.

Hope you have liked this week’s article. Have not been writing for last 2-3 months but its a promise to turn up a new post every weekend from now. So, in case you liked this - pls don’t forget to subscribe.

As always, looking for feedback and your personal examples in the comments.

Wishing you guys a Happy New Year in advance. May 2021 Rock for all of us.

Good Product Manager vs Bad Product Manager

Deepak Jain — Mon, 28 Sep 2020 03:54:14 GMT

Do you know what a Product manager does. I am a product manager and I, for one, do not know it well enough at all. I did product management for six years while I was running my startups (none of which BTW were super successful). But, I did not know that I was doing product management at that time; I always introduced myself as the co founder who was looking at all things business at my startup.

I still vividly remember my first year in entrepreneurship where I used to struggle to define my work. It was like manufacturing work for myself (this situation, I would like to point out, was before we hit our product market fit - which alas never happened). I would, go to my office and would invariably, create a hypothesis like “Cashback seems to be working in India - Should we try that” and then it would be a roller coster ride for next few days/weeks/months and then I would come back square to the need to creating another hypothesis.

Now that, I am working in Product team of a large sized company (looking at the e-commerce product similar to that in my start-up), I am getting the same feeling again. Its me who gets to decide what I work upon - Now, this statement in itself is HUGE. It gives you a lot of power but it bestows even more responsibility onto you aka Spiderman).

So, ladies and gentleman, after being in a formal Product management role for 18 months, I get to actually realise that I was indeed doing product management for last 6 years. On paper, I knew it - but in spirit, it has just hit me. May be you felt goosebumps reading the last sentence. May be you did not. Do I care - Actually No - because I can still feel the goosebumps.

And, as serendipity would have it. I was reading Ben Horowitz’s “The Hard Thing about the Hard Things” this exact same moment. And would you believe, I was on this section “Good Product Managers vs Bad Product Managers”.

I, therefore, set out to understand that completely and dissected it for myself. And here, is the analysis:

What are the top five qualities of a Good Product manager:

They have a Solid Foundation: Solid Understanding of their product, market and competition

They define Product Path Clearly: They crisply define the targets, the “WHAT” as opposed to how and manage the delivery of “WHAT”. They define good features which can be executed with some strong execution after taking all the engineering, design and current product’s constraints.

They trust and empower people - They don’t manage other functions so that they all deliver on time. They create such environment for others to collaborate and succeed. They err on the side of clarity while communicating with all the teams.

They create collateral which are used by all functions on a regular basis rather than answering questions from departments all day long and then lamenting.

Take Responsibility: They have a high agency stand and take full responsibility for the success of the product. They never make any excuse: The fault is always theirs. They give directions formally and in writing and take full responsibility for all of their decisions.

They are Disciplined and are awesome at Time Management: Most importantly, they define their job and their success just like an entrepreneur. They send their status report on time every week.

And these are the top 5 qualities of a bad product manager:

Low Agency: They constantly want to be told what to do. Bad product managers voice their opinions verbally and lament that the “powers that be” won’t let it happen. Once bad product managers fail, they point out that they predicted they would fail. Quote Unquote They Don’t want to put their ass on line.

Bad at Communication: Bad product managers never even explain the obvious.

Not good at prioritisation: Bad product managers put out fires all day. Bad product managers complain that they spend all day answering questions for the sales force and are swamped.

Always trying to prove their worth: This is a big bane of the Product management roles where you seem to be the only one in the room with no tangible output. Bad Product managers are always trying to prove their worth.

Not able to create a strong product roadmap: Bad product managers focus the team on how many features competitors are building. They define good products that can’t be executed or let engineering build whatever they want (that is, solve the hardest problem).

So All in All - a good product Manager has a strong grasp over her product and market, is able to chalk out the future path for product, put the plan in action through empowering teams (giving them direction and not micromanaging them) and finally take the responsibility in case things don’t pan out well.

Check your Score

You can assess your or your peers’ efficacy as a product manager by grading yourself on all of the above 10 points.

For the Good Manager traits - Give yourself a 2 if that quality fits well, 1 if you do it intermittently else zero. For Bad Manager traits - Give yourself a 2 if you never do it, 1 if you intermittently do it and 0 if you always do it.

And you will end up with a score out of 20. My score is currently 9/20 and would now take this test monthly to see how well I am progressing.

Thanks for reading. As always, would love to get your feedback.

What Truth do you Know which Nobody agrees with!

Deepak Jain — Sun, 20 Sep 2020 03:55:21 GMT

This is not an easy question to answer. Ponder for a minute and check if you are able to come up with an answer for yourself.

I have thought long and hard. And one answer that I have been able to come up with is that:

“First 20-25 years of a Kid’s life should not be spent in School but in some worthwhile activities”

Now - Why should you answer this question. Your own answer to this question gives you the contrarian belief that you have learnt from your own life and you know every single detail about that belief. If you work on this contrarian belief then there is a good chance that you would be on to something which very few people would understand as of today. You can either keep that idea shut in your mind or you can try to use that INSIGHT to start a business.

How to use the Secret

The opposite of this philosophy is to foolishly go after a big market of 200 Bn$ (Example Indian Horizontal E-commerce) and assuming that even if the business manages to take a 1% share of that market - It would become a Unicorn. The only problem with that argument is “Why those 1% people jump ship to your product and why would competition not do anything about the same”.

Why would users use your product?

How can we make our product 10X better than the current solution

Four ways for your solution to be 10X Better:

Proprietary Tech: Example - Google
Network Effects: Facebook
Economies of Scale: Amazon
Brand: Coca Cola

Before starting to work on your contrarian idea - answer these Seven questions:

1. The Engineering Question

Can you create breakthrough technology instead of incremental improvements?

2. The Timing Question

Is now the right time to start your particular business?

3. The Monopoly Question

Are you starting with a big share of a small market?

4. The People Question

Do you have the right team?

5. The Distribution Question

Do you have a way to not just create but deliver your product?

6. The Durability Question

Will your market position be defensible 10 and 20 years into the future?

7. The Secret Question

Have you identified a unique opportunity that others don’t see?

Nature’s secrets are all around us and are begging for someone to look deeply. However, secrets about people are interesting since people themselves don’t know these secrets about themselves

So while building a company - You need to ask two questions: 1) Which secrets is Nature hiding from you 2) Which secrets are people not telling you.

If you are in India, pls stay safe - COVID- 19 is growing again so pls stay indoors.

Sayo Nara till next week!

The Single Piece of Advice that You need to Grow Professionally

Deepak Jain — Sun, 13 Sep 2020 03:34:44 GMT

Do you want to advance in your career? Silly question - Yes. All of us want to advance in our careers. We all have read scores of articles and books on the topic and this is, indeed, one of the most important category of Self Help books outside of may be “How to Get Rich”.

There is ton of advice available to help you grow fast in your career boiling down to some of the below mentioned popular pieces of advice -

Get a good mentor
Work Hard
Work Smart
Ta da ta da ta da

I have been following a number of people I admire - on Twitter and there seems to one thing common to all of them.

All of the wildly successful folks got to ride on a rocket ship. I am, defining a Rocket ship as a company which ended up growing multiple times Year on Year for a lot of years.

Think of Facebook of 2006, Amazon of 1995, PayPal of 1999 and closer home - Flipkart of 2009.

To give you some examples:

These are Some of the best Product people globally -

Lenny Rachitsky - Lenny was one of the first employees in Airbnb’s Growth team

Shishir Mehrotra - Grew Youtube after its acquisition by Google

Shreyas Doshi - First PM at Stripe (Worked at Twitter, Google and Yahoo before that)

Julie Zhuo - First Design Intern at Facebook

All of them are wildly successful and can add immense value to any business. They have one thing is common and which is that all of them got to ride a rocket ship early in their career. They bet their careers on fledgling companies by identifying that they are rocketships/or by luck.

Why is riding a rocket ship important

Any business is basically a set of hypothesis which are tested by the executive team by shipping product in the market.

The circle of testing the hypothesis is

1) Create a hypothesis 2) Build product to test the hypothesis 3) Ship the product to the market 4) Get User Feedback 5) Create another Hypothesis

Here, the most valuable part of the exercise is getting User Feedback and altering your hypothesis basis that.

Lets take a concrete example: I am thinking about starting a Fitness blog and the Hypothesis is that “A lot of 18-24 year old boys are interested in Fitness and want advice for the same” (Step 1). I launch the blog with great content (Step 2). I distribute it through Fitness Influencers to their followers (Step 3). I see a lot of users are frequenting the posts related to Body Building (Step 4). I change my hypothesis to “A lot of 18-24 year old users who are following fitness influencers on Instagram are interested in Body Building” (Step 5). Now, my content strategy is going to reflect the new hypothesis as we are going to double down on this sub segment of the whole Fitness market.

Now, when you are on a rocket ship - You are testing tens of such hypothesis and getting tons of user feedback on the same to create new hypothesis.

This tight and fast paced feedback loop from the users is available only in high growth companies. Why not in big companies - you may ask (who have tons of users) - They are not testing a new hypothesis every day. They select one hypothesis and spend months on testing the same hypothesis since they can afford to be slow.

Why not low growth companies - They are not able to get User Feedback.

So - we need all these factors to be working simultaneously -

Willingness to test a lot of hypothesis in a short duration of time
Generating statistically significant user feedback on the hypothesis
Willingness to work on the user feedback to alter the current hypothesis/create new hypothesis

Any one who is working on a high growth company gets to see this loop in action hundreds of times and is privy to the user feedback. She, therefore, understands

Customer needs/idiosyncrasies at a deep level
The solutions which worked or did not work
Why did particular solutions work or did not work

And this is all that matters in your career. Your ability to empathise with the customer needs and your ability to give them a solution to their problems. Riding a rocket ship for a year can potentially give you life learnings worth decades of learning while riding a bullock cart.

So go ahead to ride the next rocket ship which is just around the corner but mind you - it is looking like a bullock cart right now so go look under the hood.

Please share with your friends if you think this is going to be useful for them. And don’t forget to subscribe to my newsletter to get one weekly article right in your inbox.

The Mom Test - Capsule on Customer Research and Validating Ideas

Deepak Jain — Sun, 06 Sep 2020 07:22:58 GMT

I have been meaning to hone my skills in Consumer Research for a long time and a number of people whom I admire including Shreyas Doshi recommended this book. The basic premise of the book is that - Your Mom would always approve of your next business idea.

When we are trying to understand the user and his problem then we end up discussing our idea with the user who in turn feels a compulsion to shower us with compliments as our ego is attached to the conversation and they don’t want to offend us. We, therefore, end up falsely validating our ideas.

The Mom Test is a great book and is a pretty short read at just 126 pages so would highly recommend everyone to read it through. To get you started - these are the insights that I received from the book -

Biggest risks in any business:

Customer risk - Do they want it enough and are there enough of them. Will they pay. We need to be sure that we are building something which the user has a strong need for and would shift to our solution to solve that particular problem.

The way to ascertain this is by understanding if the user cares about the problem enough by checking if they are already looking for a solution/using an inefficient solution. We don’t want to be working on a problem which the user does not care care about enough. Once ascertained, we need to be sure that our solution is 10X better than the existing solution otherwise they again won’t care.

Example: We ask someone why she does not go to gym - She gives a reason that she is short of time and we create a home gym solution for the user but she still does not buy. Why? Physical Fitness was never important enough for her. So before going into specifics of the solution - Always Always find out if the user is already using some kind of solution to solve the problem.

Product risk - Can i build it? Can i grow it?

Example: Say you are building a lead generation engine for an insurance company and do your customer research. All insurance companies tell you that they would definitely be interested If You are able to give a Cost per Conversion of Rs. XXX. You act on the feedback assuming that you have stumbled upon an awesome business idea. However. the risk here is not on Customer End - Its on the Product end. Would you be able to get them leads at their required cost.

Top level To Dos while you are talking to the customers:

Talk to people about their lives and get insights on their daily lives. Understand their goals. Don’t mention your idea to the customers
Talk about past specifics and not about their opinions on past or future. Learn through their actions rather than opinions
Talk less listen more.
Check if users have looked for the solution to the problem in past. If not, then they will not use your solution either.
Every time you talk to someone, ask one question which has the potential to destroy your business
Don’t zoom into a problem unless you are convinced that the problem matters to the customer and they care about it enough to fix. Is he already searching for a solution for the same

User Segmentation

We need to define the customer segment clearly before talking to them. It cannot be too broad initially as it is impossible to make a broad segment happy. You need to define a Niche Segment - Understand their problem and then solve for them.

Constraining the user set helps us have a super clear positioning and communication. It also helps us constrain the number of features to have in our solution since now we are not trying to appease everyone just doing enough number of features so that the niche segment cares.

A good framework for identifying a niche segment is Who and Where. Who is your target customer and where do you find them offline/online. Example: Working Moms who frequent Day Care centres and we are trying to solve the baby nutrition needs for them (Rather than targeting all Moms initally - Of cojurse, you would broaden to all Moms eventually)

If you are not getting to hear consistent problems and feature requests then your target segment is still too broad (Who - Where).

How to prepare and execute your customer research strategy

Preplan three big questions that you want answered in any conversation
What is the commitment of users when they say that they like it - Time, Email, Cash, Reputation risk. If they are giving you one of these currencies then its definitely s positive sign
Keep an eye out for customers who get emotional about your solution - You might be solving a BIG problem for them
Ideal Customer State - Have a problem/Know that they have a problem/Have a budget for the solution/Have already cobbled/used an inefficient solution to solve the problem
How to talk - Vision/Framing/Weakness/Pedestal/Ask - Give your vision - Frame your current situation - Expose your weakness in understanding consumer or market/Put them on a pedestal of expertise/Ask for Help
Keep talking to more customers until you stop getting any new replies

Hope this summary would entice you to give the book a try.

Happy Reading!

Struggling to generate organic traffic through Social Media - Read this!

Deepak Jain — Mon, 24 Aug 2020 16:32:35 GMT

Social Networks are the darlings of today’s internet generation and people are spending increasingly more time on different social networks. To get a clear idea, let’s look at this data from Similarweb.

Above data from Similarweb clearly shows that four out of the top 5 websites in the world are Social Networks viz. Youtube, Facebook, Twitter and Instagram. These social networks are hogging consumer interest as well as time. But they don’t stop there - these social networks drive a lot of traffic to other websites (both paid and organic). Holy grail of social media marketing is to drive tons of free traffic from social media.

How Social Media Networks grow

All social networks exist due to their users and creators sharing awesome content with their followers. The strength of any social network lies in the quality of content shared by its users so whenever a new social network comes into existence; its sole focus is on incentivising the users to create the best content. The users/creators start creating and sharing content on the network due to two reasons - Either they are attracting more followers (to monetise later) or they are able to already make money out of their efforts.

For them to make any money, they need to send traffic from the social media site/app to a third party website which is monetising the incoming traffic either through ads or through affiliate relationships with third party retailers. In either case, the creators tend to push links to their followers on the social network and drive them out. Now, the social network does not mind this as this incentivises the creators to spend more time in creating kickass content for the network. However, slowly and surely the organic reach of the creators gets stifled.

To give you an example - Facebook in 2014-15 was giving an average reach of 1-2 Lakh to any post for a Page with 3 Million Followers meaning that ~5% of the followers were seeing the posts from a page. Assuming a 10% CTR - Almost 10-20K clicks were sent out per post by such a page to their website from Facebook amounting to anywhere between 30-60 USD of revenue (CPM of 1$ and 3 Ads per page view). However, in 2020 - the same page would be able to drive not more than 1000 clicks even for the most viral stories. SO anyone who worked on Facebook in 2016 and before would have made tonnes of money - Same is the case with other social networks.

Timing is the Key!

The holy grail of generating organic traffic through Social media sites is three fold -

Predicting the next big social media site before it breaks through the clutter
Understanding the audience and creating kickass content for them to generate fan base
Monetising the audience before the social network starts reducing the organic reach

This looks easier than it is. The window of generating the fan base and monetising is not more than 2-5 years. So, don’t keep wasting time on the social network of the past. Go out there and identify the next rocket ship and onboard it before others!!

Your start up's success depends completely on this Factor!

Deepak Jain — Sun, 16 Aug 2020 10:02:50 GMT

Lemme start with the Question - What are the different factors which decide the fate of any startup. There are broadly four factors viz. Market, Team, Strategy, and Execution and in terms of their importance Market >> Team > Strategy > Execution.

Let’s try to understand this with an example: Business A is about selling Immunity Boosters. We assembled the best team with the best researchers and business minds and had an awesome product, Go to Market and Communication strategy. The execution was also perfect.

What do you think would be the growth number Pre and Post Covid. There would be a huge difference which would be completely attributable to the changed market conditions. This is the POWER of market. Even with a lesser team/strategy and execution, a company would see far superior results in the Post COVID world.

So, the single most important factor to consider before you launch your startup is to assess the market. The demand for the PRODUCT/SERVICE has to be already there and what you are doing to just catering to that demand rather than creating the demand.

Imagine explaining the importance of immunity in Pre-COVID vs Post-COVID world to a potential customer. In Post-COVID world, there is an ingrained fear in people which makes them receptive to Immunity Booster related communication and in fact, a significant percentage of them are already looking out to buy Immunity Boosters so you are just satisfying a strong demand.

Framework to assess market

Now let’s create a framework to assess the market so that we can apply these rules in practical conditions. Generally, any product/service can be either a painkiller or a vitamin. Painkiller is a product which is actively sought after by a potential customer (as he is in pain) and he would need no convincing for buying that.

Vitamins, on the other hand, need a lot of pushing as it is not a must have and customer does not identify the need for the same. It needs a lot of convincing from strong influencers like doctors for a user to buy a vitamin. Similarly. if you are in a “good to have” market segment then be ready for a lot of delays on the customer end.

Its always better to target a market where your product would be a painkiller and the customer is already primed to buy the same as compared to a Vitamin product market.

Tangible benefits of a Painkiller Product

1. Strong conversion metrics - This factor plays slightly differently in B2B and B2C products. For B2B products, this means much shorter selling cycle. If you have identified the problem as well as the person who faces that problem on a daily basis (within the organization) then he would bat for your products within his company. An insider (whose life would be better after purchasing your product) can any day sell your product much better than a sales person.

For B2C - this leads to higher activations, retention as well as referral growth (within the target segment whose pain is being solved) since the incoming user would already identify with the problem and is more susceptible to sharing the product with his friends.

2. Lower marketing expense - Product claiming to solve a pain point is definitely going to see much higher CTRs (Click through rates) as compared to a product which is a vitamin. Higher CTRs lead to lower CPC (Cost per click) and additionally, the conversions would be higher because - Yes its a painkiller.

In spite of these apparent benefits of a pain killer segment, a lot of good teams devote very little time to assessing the market and end up burning out on a Vitamin product. Its alright to be working on Vitamin segments but we should be cognizant of that fact and the business model and team team needs to take the same into account.

An Example

I will give you one example that I recently came across which exhibits the power of a painkiller product.

Peppa Pig is one of the most beloved Cartoon of recent times and is really famous but since it is created by a British team; it is available only in English. However, there is a huge demand for Peppa Pig in Hindi which was not being catered to. Same is the case with a number of other cartoons and Hindi kids content in general (except for Hindi poems which is a highly penetrated genre).

This Channel - Genevieve’s Playhouse - lapped up all this demand by creating awesome Hindi content using Soft Toys and have raked in 3.5 Bn views. Genevieve has 63 videos translating to ~54 Mn views per video which no marketing can gerner in spite of the highest marketing budgets.

Hope you liked the content - If yes, pls tell me in the comments. Also, dont forget to share more such Painkiller and Vitamin product examples.

And of course, share it with friends who seem to be working on Vitamins/Painkillers. Ciao till next week.