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June 08, 2015

IIT-ians and the Disruptive Power of Errand Apps

From elephants and snake charmers to software coders/coolies to app-toting delivery boys/dabba-walahs, the image of what's "happening" in India keeps morphing. And IIT-ians get added to the mix somewhere.

"India is becoming the land of the errand app." declared a recent Bloomberg News article that got featured in various international publications. Extracts:
“People today want to do as much as possible with their phones,” said TinyOwl co-founder (Harsh Vardhan) Mandad, who graduated from Mumbai’s Indian Institute of Technology in 2012. “It is a friction just to go out – there’s the heavy traffic, pollution and waiting involved for a cab.”
The startups are carving out niches by serving certain neighborhoods or parts of cities, realizing the “hyper-local” strategy long envisioned in more developed countries including the U.S. Larger e-commerce companies such as Flipkart and Snapdeal dominate online sales of more traditional goods, including books, apparel and electronic goods.
Sure enough, there has been a rush of Venture Capital into the local services segment - especially the mobile enabled variety - over the last 12 months. According to the Venture Intelligence Private Equity / Venture Capital Deals database, about $200 million has gotten deployed (across 25 transactions) in the segment. Including various flavors of food ordering services - led by TinyOwl - that have raised almost $50 million (across 12 transactions). 

Cab & Courier Country

The hyper local / errand apps phenomenon has got the attention of media executive-turned-Private Equity investor Haresh Chawla. In his essay for Founding Fuel titled "Making money off the lazy economy," Chawla asks readers to "Imagine a day when all you will see on the roads are smartly-uniformed courier boys and smart-cabs. A country of cabs and courier boys!". More from Chawla's analysis:
This serve-the-lazy-Indian economy will impact our entire society--from the people who work at minimum wages, to professionals who sell their skills; from the smallest kirana store to the large corporates. It will unleash an irreversible shift in consumer behaviour and how we transact with service providers and merchants. It has the power to create new vectors of growth for our economy, as we overcome the limitations of infrastructure and under-utilized capacity with the friction-reducing power of technology.
The on-demand economy has already changed the lives of smart-cab drivers, as some of them take home more than Rs 80-90,000 a month. New marketplaces are forming which will change the size and shape of several sectors, and will direct a transfer of wealth from the well-heeled lazy ones to the hardworking willing-to-serve workers. It will give birth to millions of jobs in the process and cause a structural shift in our labour market. We shall herald the rise of the smart-worker--all they will need is a smartphone and a willingness to do a good job. 
New Wave of Disruption

Interestingly, the mushrooming of mobile enabled local services start-ups seems to be disrupting their poster child peer from the Internet-era: "local search" firm Just Dial. NextBigWhat has a chart showing how various startups are "unbundling Justdial" and crediting them to the 34% fall in Just Dial's stock value (over six months).

Indeed, less than two years after a very successful public listing, Justdial has announced a buyback of its stock. And Tiger Global, which had invested over INR 100 crores in Justdial prior to its IPO, has completely sold off its stake (with an over 13 times return) and is now among the most aggressive investors in the mobile-enabled disruptors.

Speed Bumps Ahead?

Chawla warns that it might not be all smooth sailing for the lazy economy start-ups.
No one is charging the real cost of these services. So, one should check whether there is enough room in those business models in India. A plumber in India costs Rs 200 a job versus $200 in the US and may not have the same service ethic as his counterpart in the US (who is probably professionally qualified as well). The margin you may earn on his services may not be enough to sustain the cost of the team of IITians!
Will the disruption caused by the venture capital-backed startups fizzle out when the funding tap shuts (as it did in 2000-01)?

How will that impact the Uber earnings of today's smart cabbies?

And (of course) where will IIT-ians, who are currently hungry to launch "serve-the-lazy" apps, turn to then?

Questions typical of interesting times.

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