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August 14, 2013

Why Canaan Partners wants to back more Online Classifieds ventures

Canaan has already invested in Indian online classifieds firms like Bharatmatrimony, Cartrade and Indiaproperty and is hungry for more investments in the segment. Alok Mittal who heads the US headquartered venture firm's operations in India explains why and the dynamics of the sector in an interview to BusinessLine. Extracts (emphasis mine):

Exits have been attractive both in India and globally. In fact, in India, online classifieds has been the only Internet segment to have thriving public companies in form of InfoEdge and Justdial. 
...Globally, this has been borne out with listed online classified businesses trading at 6-7 times revenue on an average, and commanding around 25 per cent operating profits. Within the Indian context, classified businesses such as and have demonstrated similar profitability, defensibility and valuation multiples.
...Amongst Indian online classified sectors, jobs, local and matrimony have been demonstrated to be highly profitable, with clear leaders emerging in each segment. Other segments such as auto, property and B2B classifieds have demonstrated market fit and monetisation, but it’s relatively early to show high levels of profitability.

...Online classifieds is a low-barrier mechanism to enable e-commerce. As against bringing goods and services online, and solving logistical and payment issues, online classifieds enable a mechanism where providers are brought online and the transactions can take place offline. It is for this reason that online classifieds has led the market, as against other models such as online retailing or service marketplaces. The growth in online classifieds remains strong, with mature listed players still growing at 20 per cent or more.
Alok has also made a followup post on VentureWoods highlighting the new trends in the segment:
We have also been seeing a distinct evolution in classified products, around the following elements:
  • Quality of content – Traditionally, classified businesses have relied on the sellers putting up the content, without much support for authenticity of information. New classified businesses are innovating to improve quality of content
    - (a la Cartrade) – by building automation around content generation, through connectivity with ERP systems
    - (a la Zomato, Indiaproperty) – by making the content richer, including maps and audio visual content
    - (a la Bharatmatrimony) – by verifying 100% of the listings
  • Relevance of content – Traditionally, classified business have relied on search as a method of generating relevance of results. New classified businesses are using social graphs to
    - increase relevance by leveraging the social graph (a la Shine, Tripadvisor)
    - augment content from social graph to make content richer and relevant (a la Bharatmatrimony)
  • Actionability – Traditionally, users are left to their own device as far as responding to ads is concerned. New classified businesses are enabling immediate and always-on connect (a la justdial mobile/ premium)
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