This weekend, every startup person in India (or maybe just Bengaluru?) had only one question — “Did you read the Blume Ventures report?” And we didn’t want you to feel any FOMO. So we read the 125-page ‘Indus Valley’ report prepared by the venture capital firm and picked out some really cool things. By the way, it’s not just data from Blume, but we’ve peppered our observations into this as well.

Let’s dive in.

The Story

1) What does internet penetration mean for e-commerce?

3 things changed the face of digital India.

When Reliance Jio launched in 2016, the dirt-cheap tariffs meant that many Indians went online for the first time in their lives. Then, the launch of UPI made digital payments easier. And of course, demonetisation gave it a boost. Finally, when Covid struck, people took to online shopping and activities like fish to water.

All this meant that mobile internet subscribers in India soared. From 400 million users in 2016, it doubled to 800 million in 2020. Startups piggybacked on this. And the ones who pitched saying, “My industry is underpenetrated. Digital will solve everything,” raised lots of money.

But…there’s a problem now.

Especially for e-commerce. Because everyone’s an e-commerce user these days. Okay, not everyone. But the penetration levels are already quite high. 19% of India’s households shop online. If you dissect the numbers, you’ll see that in the high-income category (greater than ₹6 lakhs), the e-commerce penetration is already at 37%. Or as Blume put it, e-commerce has already captured the low-hanging fruit.

That means if they want to go after the rest of the market, especially the rural side where penetration is around 19%, it’ll be hard work. Because if e-commerce companies want to acquire and retain a new shopping household, they might have to shell out anywhere between ₹5,000 to ₹12,000. That’s what Credit Suisse pegs the costs to be. So if they want 30 million new households in their kitty, they’re going to have to spend between $1.8 billion to $4.5 billion to acquire them.

Will companies want to spend that kind of money?

Maybe not. Especially if you think about the return on investment. While people in metros spend $500 annually per shopper, the folks in Tier 2 and smaller cities spend just less than half of that sum — $220.

The economics may just not work for companies.

But there’s another roadblock too.

You see, there’s been a slowdown in mobile internet subscribers of late. Since hitting the 800 million mark in 2020, growth has been lacklustre. We are at about 837 million internet users today.

Even smartphone sales are going through a tough time — it fell by 9% in 2022. And that’s because entry-level smartphones aren’t as cheap as they used to be. Prices have gone up. Combine that with the fact that 750 million people already use smartphones in India and it’s hard to see where the growth will come from.

The pie isn’t expanding. And you need smartphone users to drive sales. It seems like we might have just reached a plateau for e-commerce. Makes you think, doesn’t it?

2) Is hyperlocal content the future of OTT?

Sometime last year, we wrote about how startup funding works. We said:

“Great entrepreneurs start as great storytellers. They can weave the most compelling narrative and get even the most reluctant Venture Capitalists on the cap table. But this assessment is only partially true. Sure, VCs love good storytellers. But they only like a very specific kind of story — the one where you tell them ‘the world is your oyster’.”

Essentially, VCs like to hear a fabulous story about how they can 1000x their money. And for that, they like hearing that the Total Addressable Market (TAM) in a country like India is massive. They want all 1.4 billion people on board.

But what if you’re launching a media startup that’s going to have a very niche audience? Maybe you’re creating video content (OTT) for a regional audience — in a specific dialect.

Most VCs won’t like this initially. You might find a select few who’ll help you get things up and moving, but the biggies might stay away. They’ll worry about how much revenue you can snag. They might say, “Sure, people pay for Netflix and it has 6 million subscribers in India. Sure, Disney Hotstar has 60 million subscribers too. But getting people to pay for content in local dialects…will that work?”

Well, maybe it will.

Blume points to an OTT platform called Stage which caters specifically to Haryana and Rajasthan for now. In July 2021, Stage had 10,000 paying subscribers. Less than 2 years later, it already has 235,000 viewers who pay.

These viewers might be people who already own other OTT subscriptions and decided to get a regional one too. Or it could be those who scoff at the content on Netflix and say that it doesn’t reflect the true India or Bharat as everyone likes to call it. That hyper-localised content is the way to go. That they’ll pay money for it.

Either way, Stage can show the VCs that they’ve achieved their Product Market Fit. That subscriptions work. That they can replicate this model across the length and breadth of India. That with nearly 20,000 dialects across India, the opportunity is immense. People will pay.

Then, the VC money will come in too.

And here’s the other thing. So far, OTT platforms haven’t really opened up for advertisements yet. They’ve stuck to subscriptions. That’s why you see data which says that only 1% of the $7 billion digital ad market goes towards OTT. Companies haven’t had the chance to advertise on OTT.

But platforms like Netflix are already experimenting with an ad-supported subscription model. Cheaper versions that’ll attract more people. And if regional OTT platforms can help companies target extremely specific audiences, then advertising could also blow up, no?

That means more VC money?

3) Can the e-commerce duopoly of Amazon and Flipkart be broken?

If you’re a startup selling products directly to customers (D2C), how do you attract them?

You could build your own website. And advertise heavily on social media to draw people’s attention. But it could cost a truckload of money.

You could choose to list your products on Amazon and Flipkart. Let them distribute it for you. You pay a listing fee and share some commission. But their massive user base could supercharge sales.

What if we tell you there’s a third option emerging stealthily?

We’re talking about Cred.

Yup, the ‘pay your credit card bills and earn coins’ company has something called the Cred store within its app. It curates a selection of brands and lists them. People can burn their stash of Cred coins and get sweet deals on the products. And going by what Cred said when it launched the store, it doesn’t charge any fees or commissions from the brands either.

Now there are a couple of interesting things about Cred’s e-commerce venture.

First, Cred is a play on discovery commerce.

Have you ever, when bored, simply popped up the Cred app and started browsing through the store? I have. And that’s thanks to its discovery commerce features — A personalized feed of products. Perfectly searchable categories. And even in-app games like addictive casino-like ‘spin the wheel’ deals and ‘bidding’ for products. It’s entertaining.

So while you’ll only fire up Amazon when you need to buy something specific, Cred’s store is scroll-worthy when bored. It’s an alternative social media feed. Just for shopping.

And this trend is catching on quickly. In fact, the most downloaded app recently in the US, across both Apple and Google, has been an obscure discovery commerce platform called Temu. Sales on the platform are through the roof.

Secondly, there’s Cred’s target market.

India has a creamy layer at the top. They’re the ones who contribute the bulk of e-commerce sales. As per Blume, this is approximately 120 million people who have a per capita income greater than $12,000.

And if you think about it, a subset of this is probably the same folks that are on Cred too. That’s because Cred gatekeeps its users by using the credit score as a filter.

The end result?

While Cred only has less than 5% of Amazon’s user base, it’s generating massive sales for some of the brands listed on its platform — anywhere between 30–50% of sales these days is thanks to Cred.

A discovery platform with gated access to the top earners seems to have done wonders so far for some D2C brands. And while this strategy may not break the Amazon-Flipkart duopoly, Cred’s emerging as an e-commerce force in its own right.

So yeah, there are lots of cool bits in the Blume Ventures report. But that’s all we could pack in for now. What did you think?

Until then…

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