Over the last few years, we have seen a new crop of attention harvesters spreading across Tier 2 and 3 India spurred by cheap smartphones and cheaper bandwidth. These are all mobile apps, some Indian-born such as Sharechat, Clip, and Roposo and some Chinese including Helo, TikTok, Vigo, Bigo, Kwai, and others. But all of them try to fashion an addictive feed built on cheap clickbait, typically a mix of sourced and user-generated content aimed at new internet users. Between these and other older players, I feel about $300 million, or Rs 2,000 crore, has been invested in the online vernacular short video content space in India.

This isn’t much really compared to say what is invested across early-stage logistics or even ed-tech. But in the context of the undersized Indian media and entertainment industry – ~$20 billion, or Rs 1.43 lakh crore, in size per the FICCI-KPMG report – this is not a small sum.

Unlike in the past, where investments lagged business model viability, i.e., corporates investing their funds did so only after they saw a clear path to profitability, presently venture firms are investing even though there isn’t a clear business model. This isn’t surprising. Historically, the venture capital industry has taken aggressive bets on companies meeting some unmet consumer need, leaving it to figure out the monetisation model, typically advertising, as we saw with Google and Facebook.

And so, too, with vernacular content models, it looks like.

Content platforms for the wallet-thin

But there is one difference. Historically, all such free content models harvested premium audiences. That made it easy to sell the harvested attention to advertisers. But, vernacular apps are aggregating largely India2 audiences (shorthand for less affluent, non-English speaking audiences, typically in Tier 2 and 3 India cities, new to the internet). While they certainly will aggregate large numbers of these, when it comes to monetising, there is a risk that advertisers will shy away from backing these platforms. These platforms run the risk of being seen by advertisers as social networks and content platforms for the wallet-thin.

Here is where you will ask me to pause and remind me of Mercedes sales in Ludhiana and Aurangabad, and the errors of conflating the English language with affluence and purchase; and I would agree with you. I too believe that English as an exclusive proxy or filter for purchasing power is a logical error. But the fact is, that ‘fluency in English reading’ is still a good enough proxy for affluence in India, despite recent and rising small town prosperity.

There is a reason I put those four words – fluency in English reading – in single inverted commas. I want to dwell on that a bit. But first a diversion.

BEDUM and the vernacular discount

A popular acronym at the Times of India Group, a company where I spent a considerable part of my career, is BEDUM. It stood for Broadsheet English Daily Urban Morning, the most ad-friendly segment of the print market. For the Group’s leadership, BEDUM was as much an organising principle as it was the market segment to focus on. It was the cornerstone of the strategy that governed the transition of the Group’s cash cow Bennett, Coleman & Co. Ltd. (BCCL), which housed the print entities, from a merely well-respected, traditional publisher of newspapers and magazines into the humongously profitable entity it is today.

Samir Jain, the reclusive elder brother of Vineet Jain and the strategist behind this transformation, conceived BEDUM to help the Group focus on the segment which attracted the most well-heeled readers and, in turn, harvest their attention for ad dollars. Let us understand this better. The Total Readership (those who read at least once a month) for English dailies is only 28 million (per Indian Readership Survey 2017), out of a Total Readership base of 385 million newspaper readers. However, these 7% English readers account for a third of the Rs 22,000 crore print ad market. English readers are thus about 7x valuable as vernacular readers. In fact, this ratio has actually improved in the favour of vernacular readers. I remember conversations in the early ‘00s when it was more like 12x.

It is interesting how this vernacular discount in print has carried over into digital as well. The entire category of digital vernacular news generates only about Rs 750 crore1 in advertising, despite having as many as 106 million consumers (KPMG & Google, ’16) or even 180 million if you go by Reverie Inc, a B2B startup that provides translation tools. Anywhere from Rs 40 to Rs 60 per reader! Mind you, this isn’t ‘all digital content’. This leaves out a fair bit of non-news digital vernacular content such as YouTube videos, OTT channels etc., which generate much larger revenues (YouTube India alone would be over Rs 1,000 crore though this includes some English content as well). Still, I highlighted it to show how little revenue an average vernacular language reader brings online.

We prefer to read English, but like to speak in Hindi (or Telugu…)

The picture does get better when we look at TV. Advertising spend on TV is around Rs 25,000 crore, and just over 80% of it is garnered by Hindi and regional language channels (FICCI-KPMG). Why is vernacular content on TV able to command a relatively high share of advertising? For one, it has affluent people as its audiences, such as people like you and me, or our family members. For, it is important to remember that we like to read and write in English but we are comfortable speaking in Hindi or a mix of Hindi and English (replace Hindi with any Indian language). It is pertinent to note that our Hindi movies have English credits, which only 1 in 8 people can read clearly.

The above has interesting implications. Thus, in print and digital, English is a reasonable filter for a large part of the wealthy audiences that advertisers crave, but not for radio and TV, i.e. audio and video. What does this dichotomy mean for a Sharechat or a Helo given that at some point they do have to monetise all the attention they are harvesting?

The curious case of why Xiaomi invested in ShareChat

One way to look at this is to stress on the fact that a Sharechat or Helo rely considerably on short-form video. Surely that should help, you say, in attracting advertisers.

That is indeed the reason Xiaomi invested in ShareChat. In fact, the Chinese phone and consumer goods maker has invested twice this year in ShareChat: first as the lead in a $18 million Series B round in January 2018 and then as part of a consortium in a larger $100 million Series C round in September 2018. It is worth noting that fellow investors in the Series C round were Shunwei Capital (promoted by Lei Jun, Xiaomi’s founder) and Morningside Ventures (one of the earliest investors in Xiaomi; relationship similar to Tencent and Naspers); so effectively for Xiaomi, ShareChat is a strategic bet — that mobile advertising will take off, and having a strategic partner in ShareChat will help in expanding access to new audiences and make serving ads easier.

In fact, ShareChat is not the only content business in India that Xiaomi has invested in. They have invested in another local content app called Samosa, and in Hungama, one of the older Indian companies in the online music and video content aggregation space.

Why Xiaomi? Isn’t it a handset maker? Well, it is known for its mobile phones and other hardware (TVs, air purifiers etc.), but also has a sizeable ad business. For 2017, it made $800 million from ads and has already crossed $1 billion in the first three quarters of 2018. The ad business contributes only 5-6% of the revenues but over a third of the profits – and this share is steadily creeping up. Its founder and CEO Lei has promised to cap margins on the handset business at 5%; so guess where the profits have to come from?

Xiaomi is an invisible advertising machine. They are likely to end this year with ~$1.5b in advertising, growing at ~80%. That is a fast-growing ad business, but one that just doesn’t get any press. But that is perhaps another article.

India1: Advertising, and India2: Transactions?/Commerce?

While Xiaomi has plans for ShareChat, I am unsure if we will see a pure ad-led business model emerge in this space. Sure, there will be revenues flowing in through the ad network, but I am not sure if it will cover the costs of operating a large content platform.

ShareChat itself seems sceptical of advertising alone filling the revenue gap and is launching miniapps – a platform for developers to build microprograms each facilitating a limited number of actions such as looking up railway ticket bookings or buying an item etc. The inspiration for this is clearly WeChat’s mini-programs.

My scepticism comes from the fact these apps are really on ramps for the next 100 million to 200 million coming aboard the internet. Culturally, these are unlikely to be consumed by people like us, as opposed to say a program on TV. Minus audiences with higher purchasing power, it will be a challenge for them to attract large sums of advertising.

I recently read an article in The New Yorker about a Chinese granny whose videos went viral and brought her fame and money. The article brought out an interesting dichotomy between Chinese apps that attract affluent city-based users and thereby survive on ads, and apps that cater to smaller town users which survive on gifts, in the form of in-app currencies.

I like to think that a similar two-tier or two-track market is emerging in India.

In India1, the affluent English-fluent parts of India, people like us are acquired by apps and sold to advertisers. This follows the traditional content monetisation model popularised in the West. India2 is likely to be less attractive to advertisers, and a multipronged revenue model combining programmatic ad sales, some branded ad content, and some microtransactions / subscriptions will emerge.

A perfect storm of cheap handsets, fast bandwidth and smooth payments

I recently met a senior executive from a Chinese tech company. He alluded to the possibility for models such as micropayments from followers to livestreamers emerging in India, much as in China. There are three requirements, he said, for microtransaction services to become common – cheap smartphones, fast and cheap bandwidth, and a reliable payment system. Today, thanks to Chinese handsets, Jio, and Paytm/UPI we have all three.

Indians have never been shy to pay where required. The presence of Teen Patti and gambling apps on the top 10 lists, the growth of Bigo Live and Kwai, where followers shower gifts on popular livestreamers…all point to rising comfort with microtransactions/in-app payments. A related revenue model that can emerge is commerce. We are beginning to see early signs of content-led commerce models emerging. LBB or Little Black Book, the curated listings site (I work at Blume Ventures, an investor in LBB) is an innovator in this regard.

While LBB started off exploring ad-led models and then expanded into commerce, there is a bunch of startups gearing up for launch, who see themselves as content platforms that will survive exclusively on transaction fees from ecommerce. And all of them are geared at India2, unlike LBB which is still strongly India1.

Search, social and content are interaction models for ecommerce

Search was the interaction model for ecommerce in India, i.e., type what you want into a rectangular box. It needed some knowledge of what you want and how to type it. Or you could scroll and click on a picture, or voice search if it was supported. Still, it needed a certain awareness and comfort, to be familiar with the UI, to know what you want, to overcome the friction.

Social-Commerce (Meesho, Shop101) removed some of those frictions, and now Content-Commerce will remove some others. It is almost as if the expanding ecommerce landmass needs new hooks (interaction models) to connect with audiences.

Summing up

We are seeing large bets in content platforms catering to the next 100 million to 200 million users. These are users who have been shut out of much of the Indian internet thus far. These platforms will end up getting them aboard but find that the traditional model for monetising their attention – advertising – does not have legs given the lower purchasing power of the audience. Thus, success for these vernacular content platforms will rest on applying models such as in-app payments/gifts, driving transactions, and commerce.

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1: This comprises Rs 300 crore for digital audiences of TV channels (Aaj Tak et al), Rs 250 crore for those of print news sites (Bhaskar et al) and another Rs 200 crore online news sites such as DailyHunt etc. My estimates basis research and conversations.