A recent Fast Company article discusses the millions of India’s microentrepreneurs and consumers who are able to distribute and access products and services due to an increase in digital marketing. Companies that had primarily used physical marketing (e.g. billboards) before are now increasing their digital marketing through the internet and mobile phone technology. This has allowed them to better reach low-income consumers who cannot easily access important infrastructure and networks. In this excerpt from her new book Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos, author Sarah Lacy examines the unique market that has emerged in India, where the poor spend money to buy minute amounts of luxury and forgo physical bank accounts for mobile banking.
With fewer than 1 percent of Indians living the high-paid services dream, building a big consumer company in India isn’t easy. How do you reach a fragmented, poor market? Think small and talk to someone like Lakhan Lal.
It’s not hard to find him–or hundreds of thousands like him– throughout India. He’s everywhere from the busy street corner in the largest city to the side of the road in the most remote village. A guy like Lal sells the most in those grungy urban neighborhoods that Indians describe as places where “you can’t tell if the sewer drain is in the street or the street is in the sewer drain.”
Lal is a man of few words, which may have something to do with the constant flow of traffic coming in and out of his shop. It would need a revolving door if it had a door at all. As is, the shop’s facade is either wide open for business or locked tight by a pull-down garage door. That door protects a mini-empire. In a working-class Delhi neighborhood where migrant workers earn less than 3,000 rupees a month doing everything from delivering food to building the new airport, Lal’s tiny shop has huge traffic. And all those people come there every day to buy tiny things: mobile airtime by the second, one pill, a day’s worth of shampoo.
Some of the things Lal sells, like mobile minutes, require a passport photo in India, nevermind that most Indians never leave their cities, much less the country. No problem: Lal has a blue backdrop on the wall and a digital camera. He pulls it out–with a totally deadpan face–and snaps a photo of me as I’m asking him questions. I’m not sure if this is defensive or mischievous, but the picture can’t be pretty. It’s a hot, sticky day, I’ve been vomiting for 48 hours, and we’re only standing a few feet from each other. There’s little room in the store for much beyond the counter that Lal is crowded behind with a sulky-looking teen who is blaring a Bollywood video on YouTube, playing on the Acer computer that catalogs Lal’s microworld. It’s a cheap computer, but it’s likely the most expensive thing in the store. Lal seems to know everyone who comes in and what they want the second he sees them. A customer barely leans in the store, mutters a word or two in Hindi, plunks down a few rupees, and Lal tosses the customer the desired, tiny treasure.
Over the course of a month, Lal makes thousands of rupees per item. A big seller is Pantene, which offers “sachets” of shampoo and conditioner, just enough for a day’s use and typically reserved for a special occasion. Strings of these sachets are hung on wires in every cornerstore and ramshackle kiosk in the country, looking like condoms or packets of ketchup from afar. During religious festivals or the auspicious Hindu months for weddings, these sachets practically fly off the wires.
This isn’t a poor thing–this is an aspirational market thing. On a per-drop basis, this shampoo is outrageously priced, but in such small volumes, it’s affordable as a splurge. This micro-aspirational culture was illustrated by an Airtel commercial running constantly in late 2009 that showed a well-dressed, pretty Indian woman walking by a fancy bakery and admiring an elaborate cake. She walks in and the grumpy baker takes the cake out of the counter and shows her the price tag. She mimes that she would like a tiny slice. He frowns. She makes a pleading face. And in the next scene she’s walking out beaming and eating a microscopic slice of cake.
This amuse-bouche market is the most sure-fire way that companies have found to make huge money on India’s 1.1 billion-person but unequal market. It’s the perfect bite-sized chunk for a country where an urban crush and a flood of multinational jobs have conspired to make everyone want the city, Zippo-flipping lifestyle, even if only a small percentage can afford it. The woman in the Airtel ad isn’t depicted as poor or cheap; she simply wants a tiny slice.
Smart entrepreneurs in India are taking this microconcept and pushing it further. Increasingly things aren’t marketed in a physical packet, they’re marketed virtually over the most mundane, prepaid cell phone. After all, telecommunications is one of the only parts of India’s modern infrastructure that works, and part of that is because it exploits this microeconomy with network plans that sell airtime by the paisa, which is worth less than the value of one penny.
A company called redBus.in aggregates and sells bus tickets. It’s a huge market in India, with some 750,000 tickets sold daily through 3,000 different agents. The company only took off once the founders accepted that they weren’t a Web company; rather, they were a company that sold bus tickets over any medium. More than half of the thousands of tickets redBus sells every day are sold over cell phones. It’s such an important delivery channel that redBus’ co-founder and CEO Phanindra Sama insists on building regional call centers throughout the country to make sure the operators know the local routes, language, and slang. (In a nod to the earlier chapter’s point about how well India uses connections, redBus got this advice through a mentor in the TiE network and was funded by Pravin Gandhi’s venture fund.)
A company called SMS GupShup is building something that’s a cross between a social network, Twitter, and the Yahoo! Groups application, all for basic mobile phones. The founder, Beerud Sheth, was ranked first when he took the IIT exam and got his pick of schools and majors. He went to IIT Mumbai, and the next logical step was MIT in the United States for grad school. He went to Wall Street instead, and in the late 1990s, he cofounded an online talent marketplace called eLance and moved to Silicon Valley, his team wearing orange eLance shirts and popping champagne bottles on the flight.
Sheth has put those Valley connections to good use. SMS GupShup has raised an impressive $37 million in Silicon Valley venture capital and has 32 million users. But that’s nothing compared to the opportunity. While the Web has 1.5 billion users worldwide, mobile has more than double that. In the emerging world, even those who have Web access only get it an hour or two per day, versus 24-hour access with a phone and a far better connection. But most mobile versions of Web sites don’t work on basic phones, making users hungry for more interactive functionality. The more functionality they get over their mobile, the less incentive they have to switch to computers, Sheth says.
The money is there, too–the same way it is for Pantene, in micro-aspirational chunks. The good and bad of text messages is that they cost money. That means a company like SMS GupShup– which is sending hundreds of millions of messages per month–is expensive to build out, but people are used to being charged to send a message, as opposed to the Web, where the expectation is that everything is free. Low-tech, pooh-poohed SMS generates about $100 billion in annual revenues, where the consumer Web generates just $75 billion, and $25 billion of that goes to Google, Sheth argues.
The ambitious Sheth looks at this situation and sees the opportunity to build the Yahoo! of mobile. Even with its slumping stock price, Yahoo! is still one of the largest media properties ever created, with half a billion unique users coming to its homepage every month. “We could be the world’s largest social phenomenon in a way you can’t on the Web,” Sheth says. “When societies adopt media that becomes the standard, it’s hard to switch. There’s a Valley-centric view that mobile is a second-class experience, but SMS is the social glue of the emerging world.”
Several miles south of Sheth’s offices in Mumbai, a company called Justdial is the Google equivalent for the mobile phone nation. People think of something they are looking for–a phone number, a restaurant, a category like “doctor”–and call Justdial as automatically as someone online would enter a word in Google. It promises an answer within 30 seconds, and you can be connected, texted, or e-mailed the information for free. The company generates more than $30 million in annual revenues for the audio equivalent of Google’s paid search ads. That is small on a global scale, but Justdial’s reach is huge in India, answering close to 100 million calls per year, growing at a rate of 40 percent annually. Said one woman who has never used a computer: “Before I can think of what I’m looking for, I’m calling them.”
The company was started by an entrepreneur named VSS Mani, who dropped out of school, which is downright shocking in education-centric India. He first tried to start this company in the late 1980s, at least a decade too early and well before India’s telecom explosion. Years later, when he tried again, he had to apply for a landline and wait several years before he could open the business. After years of fits and starts, he could only afford a 300-square-foot office in downtown Mumbai. “I didn’t care as long as I had the address on my business card,” he says. When the late 1990s hit, everyone argued that the Internet was the new thing, not phone calls, and Mani changed his business under pressure. But the Internet didn’t take off broadly in India, and mobile adoption soared. He’d been right all along and pulled the business back to its roots.
Mani insists there’s no substitute for a human being answering the phone, armed with powerful software. In 2010, Justdial has pulled what might be an India digital first, expanding into the United States. In March, the company launched 1-800-JUSTDIAL, a direct volley against 411 services, which increasingly use voice recognition software to connect people to businesses. The plan is to launch local call centers in poor areas of the United States. Ironically, an Indian company will be bringing call center jobs to the United States. It may be ambitious, but Mani has raised $46 million from Tiger Ventures, SAIF, and Silicon Valley powerhouse Sequoia Capital, which funded Google early on. The entire sum is still in the bank. Justdial has reached this point off of its own revenues and Mani’s original, paltry $1,000 investment.
With such an emphasis on voice calls, it’s a good thing call centers are a core Indian competency. Like BYD and CK Telecom in China, these companies aren’t outsourcing the tasks their country has excelled at providing; they are using them as endemic advantages. A growing number of Indians are getting call center jobs from Indian companies, not American ones. And, like BYD and CK Telecom, companies like redBus, SMS GupShup, and Justdial are actually building products and services for themselves, not for the West.
Back in Lal’s store, he pulls out a stack of little green booklets and slaps them on the counter in front of Abhishek Sinha, exclaiming something in Hindi. Sinha is starting a company called Eko India Financial Services, and this stack of books full of crossed-out codes is good news. It means Eko’s mobile phone bank accounts– Lal’s newest product in his micro-arsenal–are selling fast.
Eko’s bank accounts don’t try to be everything to everyone. It aims squarely at the unbanked–some 60 percent of India’s huge population. There are no extra bells and whistles with Eko’s service because there’s no room for them, and at the end of the day, probably little need for them. The accounts are actually held by the State Bank of India, which insures up to 100,000 rupees per account, but Eko’s customers don’t ever go into banks. The tellers are grocers like Lal–the benign feudal warlords of every street and village in India. Eko just seeks to give this already trusted, daily-visited vendor one more thing to sell.
Making vendors like Lal the tellers of Eko’s virtual bank is crucial to wide adoption. These vendors are the hub of India’s poorer economies, typically extending credit when even a sachet of shampoo is too expensive, essentially acting like trusted bankers already. Lal has only been opening up Eko bank accounts for about five months, and business is growing. He slides Sinha a handwritten ledger showing the day’s volume–28,000 rupees deposited and 30,000 rupees withdrawn. Lal gets a tiny cut of each transaction, ensuring he’ll keep pushing the accounts. He is looking at Sinha with a self-satisfied, smug grin. And why not? Even for the surging microeconomy, Lal is a “rock star,” says Sinha.
Ironically, by getting intensely local, India is digitally stretching across its unconnected, mostly impoverished, half-illiterate nation the way the British did in colonial times with the railroad, and the impact on people’s lives is no less vivid. As the country signs up millions more mobile users per month, the trend is reaching deeper into the villages.
Finding a way to modernize the villages is key to making life better in India. Unlike China, Indian cities don’t have the infrastructure to support a full-scale migration, nor does India have a powerful, autocratic government that can mold new satellite cities out of nothing. Delhi tried with Gurgaon, a city constructed so haphazardly that most of the companies operating there run off generators. India isn’t 10 years behind China, as many pundits say. What worked for China won’t work in India. India has to find another path to modernity. Even Mahatma Gandhi used to say: If you want to change India, change the villages.
Too high-minded social thinking for greed-based entrepreneurs? Hardly. The villages are where the mass market is in India. And if the country can crack the sachet equivalent of the digital revolution, it will have a leg up on bridging the same divide in Africa, Southeast Asia, and any corner of the world where the Web is experienced over a pay-as-you-go monthly phone.