Changing India – Surging Mobile Internet users in India

Mobile internet users in India is expected to increase from 159 million users in 2014 to 314 million mobile internet users by end of 2017. Number of mobile Internet users in India have grown exponentially due to combination of factors like low cost of device, decrease in cost of data and increasing smartphone penetration in India. Huge growth in mobile internet users in India is being led by increasing wireless connections and spectacular mobile phone adoption in India. Further, mobile market in India is characterised by increasing smartphone market and a decreasing feature phone market. I have discussed state of internet in China in my previous blog Chinese Mobile App Market. In this blog, I will be discussing state of internet penetration in India, particularly mobile internet and smartphone penetration in India.

Increasing internet penetration in India being led by surging smartphone users
 
 
 
Above image shows a woman in Mumbai watching a movie on her smartphone. For many people in India, mobile phone is only way to access internet.
 
India mobile internet market is one of the leading internet market in the world and it continues to rise higher and higher.  India has third largest Internet user base in the world with more than 50 per cent internet users being mobile only Internet users. But, there are huge chance of improvement in internet usage in India as internet penetration in India (19%) is quite low as compared to other developing and developed countries (Australia – 89.6%, USA – 86.8%, Japan – 86%, Brazil – 54.4%, China – 46%, India – 19.19%).


Growing Internet Users in India: Led by wireless connections

 

Total internet users in India was approximately 278 million by Oct 2014 and this user base is estimated to touch 354 million by 2015 and 503 million by 2017. The growth in mobile devices in India has become a key driver for increasing overall Internet subscriber base in India. Similarly, mobile internet users in India is expected to increase to 314 million by end of 2017 from existing 159 million mobile internet users in 2014 and thus registering a CAGR of 27.8% for period 2013 – 2017. 

Increasing internet users and mobile internet users in India

Rural India has largely been untapped market and thus has good potential for high mobile internet growth. Rural India had 61 million active users in 2014 and 6.7% of overall rural population (905 million) was active mobile user in 2014. Thus rural mobility is an area yet to be untapped and can be a great drivers of overall mobile internet growth in India. A suitable environment of government led initiatives, good 2G technologies, increased mobile device penetration, decreasing handset price and decreasing data tariffs rural mobility will drive the overall rural mobile internet growth story.

High speed Mobile Internet fuelling to mobile user growth in India

 
India has estimated 114 million, 67 million market and 4million 2G, 3G and 4G users respectively  as on June 2014. 2G user base is expected to decline with commensurate increase in 3G user base. Currently 3G users constitute 36% of overall mobile internet users in India and this user base  is projected to increase with an annual growth rate of 61.3% during 2013-17. The convergence of 3G tariff towards 2G tariff is the main reason for increased 3G user base in India. 4G has only started to set its foot in the market but increase in 3G and 4G LTE based user base augurs well for higher mobile internet adoption in the future.

Mobile Internet market In India

Mobile Internet ecosystem in India includes handset manufacturers, technology providers, content and service providers and telecom operators delivering service to the end consumers with the policy and regulatory environment impacting the entire ecosystem. Further, large of Indian mobile users are still uses feature phone even though feature phone shipments are on a slow but steady decline as can be seen below:
Increasing Smartphone users in India and decreasing feature phone users in India

The mobile internet landscape in India is very promising with key main feature being as following:

  • Increase in smartphone penetration with rural India still awaiting digital fortunes
  • Migration of mobile user base from feature phone to smartphone with easy access to low cost smartphone leading to increased smartphone penetration
  • Shift to high speed mobile internet with user base shifting from 2G to 3G and 4G LTE based service
  • Large investments in several aspects of mobile internet value chain
  • Innovative mobile based content and service offering from national and international players leading to increased demand for Internet based services such as chat, social media, video and music through mobile. This increased content consumption through mobile has also accelerated internet usage through mobile
  • Growth in mobile internet ecosystem led by leading OEMs launching low cost, value-for-money and affordable internet based smartphones and tablets at very cutthroat prices. Steady decline in smartphone price is narrowing gap between smartphone and feature phone price and making smartphone affordable to large number of Indian users. Further, arrival of international vendors esp Chinese vendors has also led to increased competition in smartphone market with array of smartphones available to end users at very affordable price
  • Premium segment smartphone market in india is led by Samsung but Samsung’s dominance at premium segment is seriously getting challenged by Apple which is leveraging desire for higher-quality devices by Indians. The main reason for Apple’s growth was successive iPhone 5s price cuts, despite its smaller screen and outdated hardware.

Shift from feature phone based user base to smartphone based user based and untapped Rural India, which have not yet reaped any benefit of digital fortunes, hold very promising future for overall mobile internet penetration in India.

How Alibaba makes money and Alibaba’s business model

Understanding Alibaba's Business Model
 
 
Chinese ecommerce giant Alibaba’s business model has 2 main components – ECommerce and ad technology. Alibaba makes money through purchases happening on its ecommerce arm which is world’s largest and advertisement revenue using an ad technology which is among the best in world due to its sophisticated advertising technology and the future marketing potential.  Alibaba as an eCommerce giant has been discussed in detail in my previous blog post Alibaba as eCommerce Giant. Alibaba’s foray into advertising is mainly aimed at increasing product sales for sellers at its market places and ecommerce sites, but its ad business has been also extended to advertisers wishing to push their products. 
In advertisement value chain, role played by participants varies greatly depending on their position in the value chain. For example, Advertisers aim to get their products sold and focus on creating content that resonates well with their target audiences. I have discussed Advertising Value chain in detail my previous blog Digital Advertisement Value Chain. Well targeted content keeps audience engaged and leads to repeat visits and repeat purchase. Publishers like media companies and content creators sell their inventory to the advertisers and aim to fetch maximum money for their inventory. Data Management Platforms helps in providing insights about users and segment these users into audiences based on user’s online behaviour. These segmented audiences can then be sold to appropriate advertisers leading to higher CPMs for publishers and targeted sales for the advertisers. 

Alibaba

Alibaba has large amount of users visiting to its various e-commerce platforms, market places and partner websites, leading to Alibaba getting access to vast trove of consumer and transactional data. Alibaba applies proprietary algorithms on these transactional data to evaluate quality of advertising inventory and based on these data predicts CTRs and conversion rates of marketing messages. This helps Alibaba segment advertising inventories leading better user targeting, increased marketing effectiveness, improved consumer targeting efficiency and enhanced ROI for advertisers.
For example Alibaba knows well in advance a user’s buying history and thus his taste, preferences and recent purchases. Based on this information and its targeting algorithms, Alibaba as a publisher is able to show perfectly targeted product advertisement to users.  This in turn helps Alibaba increase product sales for merchants listed on its e commerce platform. It also helps Alibaba enter and mark its presence in the ever important advertisement business. 
 
Key features of Alibaba’s online ad business are the following:

1. Data Management Platform

DMP helps in creating audience segments by using consumer’s online user behaviour (products people browse and buy) on Alibaba’s e-commerce platforms. Alibaba’s DMP data is further combined with advertiser’s audience data to deliver targeted advertisement to potential customers with similar attributes. This provides better targeting ability for advertisers on its ad exchange and its market place. 

2. Taobao Ad Network and Exchange (TANX)

TANX is one of the earliest and one of the largest real time online advertising exchanges in China. TANX handles and automates third party buying and selling of billions of advertising impressions on a daily basis by on Alibaba market places and non-Alibaba sites through real-time bidding auctions. TANX is powered by its DMP wherein DMP helps participants on TANX leverage its transactional data to evaluate and select online advertising inventory using both behavioural data of users as provided by DMP and browsing behaviour and shopping history as provided by advertisers. Unlike Alimama, TANX allows for transparent pricing of advertising inventory leading to increased ROI for marketers. TANX is not limited to merchants only and any brand advertiser can buy ads on TANX. Participants on TANX include publishers, merchants, Demand Side Platforms and third-party data and technology companies
U.S. rivals: Google’s AdX, Yahoo Exchange (formerly Right Media), Facebook Exchange, Twitter’s Mopub 

3. Taobao Affiliate Network

Taobao Affiliate Network is Alibaba’s network of third party sites like Weibo (China’s Twitter equivalent) wherein Taobao sellers run ads bought through Alimama. Sellers put marketing displays on our affiliates’ websites and mobile apps. Further, sellers pay a performance-based marketing fee primarily based on CPC or CPS basis with a significant portion of marketing fees getting shared with the participating affiliates. 
Taobao marketplace is one of the most prominent Alibaba’s e commerce property with 100 million visitors a day.
Rivals – Google Display Network, Facebook Audience Network, AOL’s Advertising.com

4. Alimama

Online marketing service is primary source of revenue as said by Alibaba in its US SEC filing. Advertiser can choose content-based PPC advertising plan (like adsense) or purchase banner or text link based on CPI or cost per time. Alimama is an online marketing technology platform that provides online marketing services to sellers. These online marketing services include services such as:
  1. P4P marketing service: Sellers bid for keywords that appear in search or browser results on a CPC basis based on prices as determined by Alimama’s online auction system. This facilitates market based price discovery based on online bidding system. This is similar to bidding of key words on Google ad words.
  2. Display marketing: Seller bids for display positions on areas like landing pages, channel pages and delivery confirmation pages of Taobao Marketplace and Tmall or Alibaba’s third-party marketing affiliates at fixed prices or prices established by a real-time bidding system on a CPM basis. Alimama provides one stop solution to promote product brands Display Marketing helps to promote product brands on Alibaba Market Place (Taobao) and Alibaba’s network of third party sites namely Taobao Affiliate Network. 
US Rivals – Amazon Advertising Platform, eBay Advertising, Google Shopping

Uber teams up with Didi Kuaidi in car hailing space in China

Uber vs Didi Kuaidi

 


Uber’s war with Didi Kuaidi in ride hailing service has reached back to Uber’s home turf as Didi Kuaidi has opened up a new front by backing up Lyft, Uber’s biggest rival in America. Uber’s battle with Didi Kuaidi in Chinese car hailing market has been discussed in detail in my previous blog Uber’s epic battle with Didi Kuaidi in Chinese ride hailing market. Earlier some month back Didi had rejected Uber’s offer to invest in Didi and also said to Uber’s CEO that ““You are earlier than us” globally but there will be a day when we will surpass you.”

Didi Kuaidi along with Alibaba, Tencent holding and billionaire Carl Icahn has recently invested in Lyft’s latest funding round valuing the company at $2.5 Billion. This investment will increase competitive threat for Uber vis a vis Didi Kuaidi as Uber will have to put its focus back on its home turf.  Uber is facing similar thread in Asian market wherein investor’s such as Soft Bank from Japan, Tiger Global have put their money in favour of local players and Didi has also invested in Grab Taxi.

Uber and Didi are involved in a very costly struggle in China and Didi’s investment in Lyft will put Uber’s situation bit worse in that Uber will have to put its focus back on USA rather than focusing on China, which as per Uber’s statements was Uber’s biggest prize.

Along with investment in Lyft, Didi Kuaidi has recently rebranded itself as “Didi Chuxing” and even changed its logo for the same reason.  This move is aimed to showcase itself not only as car hailing service provider but a serious player providing broader commuting services. Earlier Didi used name “kuaidi” which meant quickly while its new name “Chuxing” in Chinese means commute.  For this purpose, Didi has entered into services like taxi hailing, premium driver service, car pooling and bus sharing reinforces its goal of moving into broader commuting services.

The turn of these events had made Didi’s fight with Uber more interesting in car hailing space with both players bleeding due to intense competition. Uber had already pumped $ 2 Billion in China to catch up with Didi Chuxing which already had 2 years of head start in China. Finally long running battle between the two companies got over with Didi Chuxing acquiring and merging Uber China with itself, Didi Chuxing investing $ 1 Billion in Uber global and Uber China investors getting 20% stake in Didi Chuxing.  Quest for profitability was the main reason for leaving China as per Uber CEO Travis Kalanick. Economics and profitability won over Uber’s desire to solve transportation problem for one fifth of humanity. Hope consumers are going to be the ultimate victor in the final battle.

Android Marshmallow: Key Features

Google has recently released Android Marshmallow, which comes up with certain key features aimed at increasing overall user experience of a user. Google had announced 6 key features that are specifically aimed to enhance UX of an android user in the Google I/O on May 28, 2015. The key features announced in the I/O was as follow:

1. Android Pay
In the line of Apple pay and Samsung Pay, Android Pay aims to enter into the mobile payment ecosystem. Android Pay uses a device’s NFC connectivity to enable tap to pay services. User need to only unlock the phone, keep it near an NFC terminal and payment will get completed without opening any app. Android Pay will work with all major card and carriers and also work with all major commercial establishments.

 

Android Pay support t in Android Marshmallow

2. Privacy (App permissions)

In line of permission options in iOS apps, an app designed for Android M will ask for app permission as and when these permissions will be used by the app. Earlier app used to ask for all app permissions together during installation time. At the same time, users can navigate to setting section to check the list of permissions that app uses and revoke or provide for a permission.

Improved privacy feature in Android marshmallow

3. Improved Web Experience (Chrome Custom Tab)

Android M providers a new feature named “Chrome Custom Tab” which aims at providing way to harness chrome’s capabilities while keeping look and feel of native experience. Chrome Custom Tab will provide a way to open customized Chrome window on top of the active app, instead of launching the Chrome app separately. This will provide intuitive user experience while a user navigates between app and web.

Chrome Custom Tab support in Marshmallow

4. Simplified Security with Native Fingerprint Support
Android M will provide native fingerprint support on devices running on Android Marshmallow in a uniform way. The fingerprint securely unlocks the phone apart from authenticating a user while he signs in and checks out in Android Pay, Play Store and other apps such as e-commerce apps.

Native Fingerprint Support in Android Marshmallow

5. App links
Android M simplifies web redirection in that a user clicking on a web link in an external app will be automatically redirected to appropriate app corresponding to the web link. Earlier android used to ask a user if he wanted to open the web link in a web browser or the app supporting the web link. For example, earlier a user clicking a YouTube (Facebook or Twitter) link in some other app was asked if he wanted to open the youtube link in YouTube or in Chrome. Now android will automatically open up YouTube link instead of asking a user to choose between YouTube app and Chrome Browser.

Improved app link support in Android Marshmallow

6. Smarter Batteries

Android M uses Doze feature to increase battery performance wherein Doze automatically puts an android device into sleep state. Doze uses motion sensors to find the duration in which device is not active and based on this information, Doze reduces the background processes so as to reduce battery drains.

Further, App Standby feature in Android M reduces battery drain from seldom-used apps limiting impact of these apps on battery life leading increased charge in a device. Lastly USB type C support is Android M will help in quickly transfer power and data all through same cable. This will provide fast charging to a user giving hours of power in few minutes.

Apart from these features, Android M provides following features, which were not discussed in Google I/O:

1. Auto Backup and Restore for Apps

Autoback up and restore for apps was one of most interesting feature that was not discussed Google’s I/O keynote speech. This feature has been missing in Android for years and with Android 6.0, users will be able to automatically back up their apps and app settings (with a file size limit of 25 MB or less per app) to Google Drive. The uploaded backup data won’t count against the user’s Google Drive storage quota. These backups happen no more than once a day and run only when the device is idle and is connected to a working Wi-Fi connection to avoid unwanted data charges and battery drain on your device.

2. New app drawer

App drawer is one of the most immediately obvious visual changes in Android M. The new app drawer vertically scrolls instead of horizontally, and is held against a white background. Further, at top of the menu four most recently used apps are also put up to provide ease to a user.

New app drawer in Android Marshmallow

3. Now on Tap (Contextual Assistance)

This feature provides contextual assistance to a user without the user leaving the app he is presently in. Now on tap spreads the concept of Google Now to entire OS so that a user can use this feature on any screen regardless of what he is doing.  User needs to touch and hold home button and Now on Tap will provide relevant contents after carefully analyzing user’s context.

 
Thus, if a user getting an SMS from a friend for going to a XYZ restaurant for dinner then Google’s Now on Tap will automatically recognise context of the text in the SMS (XYZ restaurant) after long press on the home button and thus will show results to the users based on user’s context (in this case XYZ restaurant) and thus will show useful results related to XYZ restaurant as shown below:
Now on Tap in Android Marshmallow

4. RAM Manager

Android M introduces a new RAM manager in Android M with memory section now located at front and centre in setting menu. This is aimed at providing more accurate and comprehensible information regarding the maximum and average RAM usage of apps. Based on this information, user will be able to optimize their app usage and remove apps which needs to be removed in order to increase device performance and battery life.

New RAM Manager in Android Marshmallow

5. Expendable Storage
                                                                                               

Expendable Storage is Google’s new storage feature which takes an external storage source (such as an SD card or USB drive) and formats it like an internal storage space. This allows for using any external storage as encrypted extended storage for apps and games.


6. Direct Share Feature

Android M makes sharing intuitive and quick for users wherein developers will be able to specify sharing targets deeper inside their apps. Thus, a user will be able to directly share content to a specific friend or community in another social network. Thus, for an example an app will be able to directly share a content to an exact contact in a chatting app in a single step. Presently it used to take 2 steps to share content.

Direct Share Feature in Android Marshmallow
Apart from these main features, some of the other new features in Android M include support for improved cut/copy/paste implementation, bluetooth stylus support, improved bluetooth low energy scanning for nearby beacons and accessories, option to remove status bar icons, rotating home screen options etc.

Uber’s epic battle with Didi Kuaidi in Chinese ride hailing market

Taxi hailing service in China: Uber and Didi Kuaidi

 

Uber has conquered the world in ride hailing service but it has to still conquer Chinese ride hailing market where it faces stiff competition from its rival Didi Kuaidi. We have already discussed in detail Uber’s car aggregation business and its attempt to set high standards in personal transportation market in my previous blog Uber in tough business of Car Aggregation. Uber has Baidu has its investor while Didi Kuaidi has Alibaba and Tencent as its investor and this make this battle more fierce. The main reason for such a battle is the presence of very large commuter market in China consisting twice the total US population and an anticipated influx of 100 million people in China’s middle class. Recent days have also seen incessant inflow of cash to these two start-ups reinforcing investors readiness to bet on world’s largest transport market and thus spend heavily for subsidising car rides to in gain market share.

In this race, Didi Kuadi seems to racing ahead of Uber due to several factors like Didi’s presence in 80 cities compared to Uber’s presence in 16 cities, Uber’s fund raising of $1.2 Billion for the Chinese market along with Didi Kuadi’s latest $3 Billion fundraising (mainly from Tencent, Alibaba, Temasek Holdings, Coatue Management, Pingan Ventures, Capital International Private Equity Funds’ (CIPEF), China Investment Corporation).  Further Didi is much larger organization with 4000 employees (excluding drivers) compared to only 200 employees of Uber in China. Also, Didi Kuaidi has a near monopoly in China’s car hailing market with a total 80% market share in China’s car hailing market.
Expansion in China was not very smooth for Uber as Uber has there have been some news of Uber’s office being raided by Chinese police. Further, there was some news of Uber’s drivers getting arrested for illegal use of vehicles. Uber is also facing difficulty over their blockage on WeChat, China’s hugely popular mobile messaging platform and run by Tencent. Uber’s accounts on WeChat have all been shut off including its official account and search results in WeChat have started hiding Uber results from users.
Uber has taken many steps to catch up with its rival. Uber has created a totally separate entity named UberChina for its expansion in China. This may help Uber with respect to local Chinese government as creation of local entity will provide a sense of being local and Chinese to the ride hailing service. Uber has also got investment form Baidu and this collaboration with Chinese search and mapping giant will help in more accurate mapping and increased range of services. Further, this collaboration will help Uber in achieving a major goal in terms of building an excellent local partner.
Further, Uber’s recent $1.2 Billion fundraise is expected to continue with some additional funds yet to be raised in days to come. Also, Uber is planning to enter 100 more cities over the next year, doubling a goal set 3 months ago. Uber is also planning to launch major promotional campaign and get more and more drivers into its ambit by offering large bonuses to drivers.


But, Uber is still behind its Chinese competitor in car hailing space and it will be interesting to see if Uber is able to succeed in Chinese market as Chinese government has always a tendency to prefer local players over foreign internet players as has been seen in cases like Google and Baidu, Weibo and Twitter, Alibaba and Amazon. In all of these cases Chinese companies have won over foreign companies. In case of Uber, time will tell if Uber is able to conquer the battle called China.

Uberisation of Grocery Delivery: Instacart a 2 Billion Grocery Delivery app

 
Past few years have seen rise of On-Demand economy ( also called as Sharing Economy or Collaborative Economy or Gig economy) in all segments of life due to increased availability of sources of communication and very low transaction cost associated with On-demand economy. On-Demand economy tries to bring consumers and providers of goods and services to same platform and use highly scalable technologies and platforms to fulfil consumer’s demand by immediate provisioning of goods and services. These companies have achieved massive success by providing information at the finger tip of the consumer and providing instant gratification for the consumer’s need.
 
On Demand economy has found its presence in each and every part of human’s life ranging from Transportation (Uber, Lyft, Sidecar, Blablacar, Hailo), Housing (Airbnb, Homeaway, Wimdu), Clothing (Vinted, Tradesy, Twice), Parking, Home Goods and Food. I have discussed in my previous blog working of On Demand Economy in transportation with Uber as an example in my previous blog Uber in tough business of Car Aggregation. A graphic design of these on demand services along with finding in these companies can be seen in the chart below:

On Demand Services influencing people's life

 

Instacart is one of these On-Demand economy based service that has achieved massive success by disrupting the way people purchase groceries. Instacart is an On-Demand same day grocery delivery service that delivers groceries in as little time as 1 hour or 2 hour. Instacart utilises technology to meet consumer demand by immediate provisioning of goods and services.  Instacart connects consumers from personnel shoppers in consumer’s area who pick up and deliver groceries from users favorite stores saving consumers time. 
 
This article explores business model of Instacart and tries to find out the reasons for immense success that Instacart has achieved in a very short span of time. Instacart was funded by Y Combinator in 2012 and has also received 220 million Series C funding valuing company at $ 2 billion. Instacart is located in San Francisco, and well-funded by some of the greatest investors in the world, like Sequoia Capital, Khosla Ventures, Andreesen Horowitz, SV Angel, and Y Combinator. 
Timeline for Instacart

 

 
Problem being solved by Instacart
 
Instcart provides solution to people around the world to shop for their groceries. Instacart solves same day on-demand grocery delivery problem wherein it fulfils a customer’s order in one or two hours after he places an order. A user can order his groceries and have these delivered to his door step in one or two hours using his phone or web. 
 
Instacart has partnered with various local stores like Whole Foods, PetcoNow, Kroger, Costco, Breads Bakery, Mollie Stone, Gelson’s, Smart & Final, Super King, Fresh & Easy and Ralphs!, H Mart, Natural Grocer. A user can choose and mix items from variety of these local stores into one order. Currently Instacart delivers in SF Bay Area, San Jose, NYC, Brooklyn, Washington DC, Philly, Boston, Chicago, Austin, Seattle and Los Angeles. 
 
Instacart solves above Order Fulfilment problem (fulfilling orders from local stores) by solving complex optimization problem like vehicle routing algorithm. Further, Instacart uses machine learning to map individual stores, track how long a shopper will take to pick from an item from a store and drive and predict delivery time taking into account weather, traffic pattern, location and other factors like sporting events. This creates an experience for its customers that is nothing short of magical leading to increased user acquisition and user retention for Instacart.
 
Market and Competition
 
US grocery market size is $1 trillion consisting of $700 Billion grocery business and $300 Billion convenience spending market. Further, US grocery industry is very fragmented and it has many players operating in it with very few barriers to entry.  Margin in the industry is very low leading to fierce competition between the players and firms try to increase market share and revenue by offering lower and lower prices. Further, e-commerce has also emerged as an important shopping channel along with other channels like Hypermarkets (like Walmart,Kroger, Safeway, Supervalu), Supermarkets (Aldi, Stater Bros and Superior Grocers), Discount Stores and Convenience Stores etc. 
Instacart is working to bring this fragmented market together by providing consumer an opportunity to order their grocery from some of these stores. It faces competition from other online one day delivery players like Amazon, ebay, taskRabbit, Google Express. It is currently present in 17 cities and contracts around 4000 personnel shopper.
 
Revenue Model
 
Instacart follows sharing economy based model like the model followed by Uber. Earlier, Instacart used to earn revenue through delivery fees and product markup. Instacart charges $3.99 per delivery  for three hour delivery and $14.99 per delivery for one hour delivery. Instacart also earns some money by marking up the prices of grocery items (by one estimate 20%) wherein it charges customers more for individual groceries than their in-store price. Further, shoppers can also earn between $15 and $30 an hour depending on how quickly they deliver the food (using their own cars).
 
Recently, Instacart has made one shift in its revenue model, wherein it allows some grocery store partners to price their own goods on Instacart. In return, these grocery stores pay Instacart a fee to service their locations. It explains why for some grocers the products cost the same on Instacart as they do in store, but for others the price is more or some times less.
 
Operational Model
 
Instacart follows “managed crowdsourcing” model wherein a user orders something on Instacart through an app and Instacart crowdsources labor to serve user’s order in one hour or three hours after an order is made. Instacart is also working to expand its delivery schedules to for later today, for the next day etc. The crowdsourced labor consists of trained shoppers equipped with an Instacart shopper app. This app is extremely intelligent with information like location of shoppers in the store, exact knowledge of the location of items in different shops and other information like department, isle and shelf location of these items. Based on these information, shoppers are routed in the store as well as outside. Further, these app provides minutest update on any order to the consumers. This leads to very large efficiency in overall fulfilment of orders.
 
Instacart is a very lean organisation and this brings efficiency in its operational model. Instacart does not hold any inventory and it does not own any warehouse or fleet of trucks for its operation. This shields Instacart from the risk of variable grocery prices as the it does not keep inventory with itself. It partners with grocery stores and charge grocery stores a fee instead of charging consumers by charging markups on product price. This makes grocery stores more amenable to improving Instacart’s efficiency like offering Instacart company’s its own personal checkout line. 
 
Instacart is also looking to outsourcing its deliveries to third parties providers like postmates, Lyft, Sidecar but at the same time it is not planning to completely outsource its delivery process but keep the last mile portion of delivery business with itself.  In this mechanism, Instacart will maintain control of the end-to-end consumer experience through apps developed for shoppers and delivery people. All delivery directions will still be provided through the app, whether delivery will happen through in-house delivery person or someone contracted through a third-party.


Paradox of Twitter’s stagnant user growth and increasing revenue

Recent stepping down of Dick Costolo as CEO of Twitter and Twitter co founder Jack Dorsey being made interim CEO has again put on front Twitter’s 3 main challenges namely stagnant user growth, user retention and disappointing advertisement revenue. The micro messaging platform has been plagued by slow adoption by users and its user growth has become stagnant in recent years. Further, Twitter is getting stiff competition from its rival such as Facebook, Line, WeChat, Instagram, Snapchat and Pinterest. Twitter user growth chart, its revenue growth over the years and MAU growth chart can be seen as below:

 

1. Stalled user growth – Twitter had 302 MAUs in March 2015 and its growth has become a bit sluggish in recent quarters while its compettitor Facebook had around 1.4 billion MAUs in March 2015 and Facebook is still growing. Further, Twitter is facing stiff competition form its rival messaging and apps Facebook, Whatsapp, Line, Viber, Snapchat etc. Twitter grew from 255 MAUs in March 2014 to 302 MAUs is March 2015 while its rival Facebook increased its monthly active users from 1.276 Billion active users in March 2014 to 1.441 million active user in March 2015. Investors see MAUs as an indicator of growth and potential size of a platform and thus the lacklustre user growth despite continuous efforts from top management is a major cause of concern for Twitter.
 
2. Weak Ad Business – Ad business is continuously under pressure to sale more ads and ad sales are continuously failing to meet the forecast. Twitter’s quarterly revenue fell down from $479 million in Q4, 2014 to $436 million in Q1, 2015. The advertising revenue also fell down from $432 million USD in Q4, 2014 to $ 388 million USD in Q1, 2015. Last quarter, twitter reported weakest quarterly revenue growth and also missed revenue expectation for the market. This raises serious concern about twitter’s ability to generate revenue from sources like advertisements, data licensing etc.
 
3. Improving user experience – Twitter is said to be difficult to use for new users who are not used to short form of communication. Further, flood of content in twitter makes the platform scary for new users leading to very low retention rate. This can seen in that around 1 billion users have tried twitter sometimes but these users did not stuck around to twitter for long. Twitter needs to work on making navigation easier for new and existing users so as to provide compelling user experience to the suers. Thus, the main focus of twitter’s user acquisition strategy should be based on making easier onboarding of new users into twitter and retaining these users who are acquired.
 


Above mentioned challenges haver put immense pressure on Twitter’s product to make twitter more appealing to the users and more monetizable. This has led to accelerated pace of prodcut development in Twitter and thus Twitter has made slew of changes in its product so as to manage key challenges faced by it. Following are some of the key prodcut changes that twitter needs to include or has alsready included in its prodcut line.


1. Genre wise seperation of topic – Twitter may provide users ability to browse topic based on genre, area of interest for ex. News, Business, Sports, Tech, Music etc.


2. Save option to the user – A tweet gets lost in vast ocean of tweets and user sometimes is unbale to get back to tweet or a link he wanted to read/reply in future. User should be provided a save option to save his favourite tweets which he wants to read in future or reply back in future.

3. Search functionality – There should be a search functionality wherein a user should be able to search tweets he or she might have missed or could not have saved to be read in future. The recent twitter google deal will also help users get tweets as result in Google search result. Twitter should provide a funclitonlity to search tweets in Twitter itself instead of asking users to go to Google and search a tweet. Location based search or topic based search are other area where twitter can make search more relevant to users.
 
4. Better experience for New Users – Twitter needs to work upon making twitter better for new users who are not used to short form of communication and the flood of content that they have to face when they use twitter for first time. The main focus of twitter’s user acquisition strategy should be based on making easier onboarding of new users into twitter and providing
 
5. Easier navigation for user – Twitter needs to work on making navigation easier for new user and existing user so as to provide compelling user experience to the suers.
 
6. Video Streaming – Twitter has recently launched live streaming app Periscope in march 2015. Twitter also plans to allow users to shoot and edit videos without leaving the twitter app. It also plans to allow users group direct messages and provide new camera tools.
 
7. Online bullies and Trolls – Online trolls have long been problematic for Twitter leading to serious users leaving the platform. Twitter needs to solve this problem and simplify reporting of these bullies so that serious and loyal users do not leave the platform.
 
8. App Aggregation and monetization through services – Twitter needs to emulate business model being used by Wechat, Snapchat and Facebook wherein these apps offers some specialized apps and services to the their users. For example Snapchat offers Discover sections which consist of stories from different publishers. Similarly Facebook provides apps for messaging, consuming news and sharing photos. WeChat provides services like eCommerce, gaming, mobile payment etc. Periscope is an attempt in this line and Twitter can also follow this in order to monetize its services.
 
9. Make conversations easier to follow – Conversations around a tweet are difficult to follow especially if there are large number of replies in a tweet. Twitter is working on grouping conversations together and highlight most interesting exchange around a tweet just below the tweet.
 
10. Removal of 140 character restriction in Direct Message – Twitter has recently removed 140 character restrictions for Direct messages, which will provide much awaited solutions to users who wanted to get this restriction removed.
 
11. Revamped home page for logged out users – Twitter has revamped its home page to provide a better experience to its logged out users by allowing non logged in users to follow trending tweets. Further, Logged-out users visiting the homepage can now see a feed of tweets from several popular accounts on the topic of their choice, similar to what they’d see if they were logged-in.
 
12. Recap feature – Twitter now provides list of missed tweets to users as and when he opens the app. These missed tweets include some of the best tweets user missed from the accounts he follows while he was away from Twitter.
 
13. Partner ship with Google, Yahoo Japan and Flipboard – Twitter has announced deals with Yahoo Japan and Flipboard that will see Twitter ads start coming as “promoted tweets” pop up on Yahoo Japan and Flipboard. Further, Twitter’s recent deal with Google will start start showing for tweets into Google search results. For Twitter, there is no direct monetization involved from the deal but Twitter stands to gain in terms of increased traffic.
 
14. Highlights for users – This feature brings summary of the best tweets tailored for the user via push notification by letting him quickly catch up with what’s happening in his world.
 
Twitter’s product has been tweeking with various product features and has been conducting series of endless A/B tests but it has to be seen in future whether these product changes will lead to break any logjam in user acquisition. Further, Growing its monthly and daily active users should be only one part of twitter’s plan as Twitter needs to diversify its advertising products and find more ways to monetize syndicated content so as to increase its revenue per user also. Further, Twitter needs to start reengaging with its 1 Billion account holders who tried Twitter in past but did not stuck around with it by providing a compelling user experience to these users and existing users.

Google declining CPC: Is mobile to be blamed for this?


Google posted its first quarter earning for 2015 on April 23, 2015 reporting $17.3 Billion revenue and EPS of $6.57.  Google missed market’s earning expectation of $17.5 Billion by a whisper and market gave Google thumps up for 12% YoY increase in revenue and the reported decrease in its Capital expenditure.
Pricing pressure on online ads led to 7% YoY decrease in Cost Per Click, however Google reported 13% YoY increase in aggregate paid clicks. The increase in aggregate paid clicks could offset the decline in cost per click and based on increased paid clicks Google could increase its YoY advertising revenue despite making less money per ad.  Finally Google ended up with $65.43 Billion cash and cash equivalents in Q1, 2015.
Some of the major highlights of Google’s Q1 earning can be seen as follow:
  • Revenue – Google’s Q1, 2015 revenue increased to $17.3 Billion, which is 12% up from $15.4 Billion revenue in first quarter of 2014.
  • Paid Clicks – increased by 13% YoY but decreased by 1% with respect to the previous quarter. This includes 12% YoY decline paid clicks from Networks and 25% increase in paid clicks due to Google sites
  • Cost Per Clicks – has seen decline for last 11 quarters and this has come up as big area of concern for Google. CPC saw 7% YoY decline.
  • Traffic Acquisition Cost – Traffic acquisition cost as a percentage of advertising revenue got down to 21.6% in Q1, 2015 to 23.1% in Q1, 2014.

 

Google’s Historical Revenue Data
Google gets most of its revenue through Advertising with 2 main components, namely advertising revenue from paid clicks on Google websites and advertising revenue on paid clicks on Google Network Members’ websites, contributing 89.5% of its total revenue in 2014.
 
Paid Click vers Cost Per Click mismatch in Google
Google has been grappling with Pricing vers Supply trend mismatch since 2011 wherein volume of paid search has been rising and cost for each click has been decreasing. This can also be seen in the figure as below:
Declining Cost Per Click
 
 
The falling CPC has led to  being interpreted as Google beginning to lag in advertising economy and thus started being left behind by players like Facebook and Twitter. But, can it always be said that falling CPC is the true measure of advertising effectiveness of a firm? We will discuss in detail about the trends in Google’s CPC and its advertising revenue in following section:
1. Shift to mobile
Google has around 90% market share in mobile search and thus dominates the mobile search engine market due to exceptional adoption of  Android OS by smartphone users. Android has 80% OS wise market share in smartphone landscape and google is expected to continue its leadership position in this area. Continuing decline in CPC has been attributed to massive shift to mobile and difficulties in monetising search on mobiles. Further, ads on mobile websites brings in smaller revenue than similar ads on desktop. But this trend may reverse due to innovations like Enhanced campaign.

2. Growth of advertising on you tube

As per Google CFO Pichette, rapid growth of advertising on youtube rather than difficulty in monetisation mobile search is the main reason for decline in CPC. Further youtube ad monetisation is influenced by following factors:
a. Rapid growth of youtube viewership – Youtube has over 1 Billion MAU and youtube has grown very rapid in world more especially in less developed countries. Further, ad rates are less in less developed countries than ad rates in developed countries and this has led to overall decline in CPC.
b.  Growth of True View ads on Youtube – Number of advertisers on youtube has grown substantially by 45% YoY and all the top 100 largest advertising brand on Youtube run True View ads.  True View ads charge advertisers only when an ad is watched for 30 seconds or more by a user and this leads to lower monetisation from True View ads than monetisation from Google.com. This has also led to decline in CPC for Google.

 

3. Multi platform enhanced campaign – Google introduced multi platform Enhanced Campaigns so as to make cross device paid search campaigns easier for advertisers to manage.  Multi platform enhanced campaign tie mobile and desktop bids together and thus ads on tablet can not be separately bid by an advertiser. Further, it was also presumed that CPC price for tablets will be pulled up to desktop levels as there will be same bid for both desktop and tablets. Most AdWords campaigns were converted to Enhanced by the end of July last year.
4. Realignment of advertising revenue in favour of mobile devices
Since large number of web traffic (in range of 50%) has started coming from mobile devices, advertisers have started realigning their ad budgets in favour of mobile devices.  Further, advertisers with less spending on mobile advertisement started putting more money for mobile advertisement and this might have led to decrease in desktop revenue as some money have got diverted from desktop and have been shifted towards mobile. Lack of price discovery arising due to shift in spending pattern of advertisers might have skewed the overall CPC but in longer run CPC for mobile devices and desktop may align to their respective prices.
5. Role of emerging markets
Increased share of emerging market has also led to overall decrease in CPCs as increased number of clicks from emerging market brought overall CPC down.  Most of Google growth is coming outside USA and European market which is a low priced market. Thus although, Google is able to add search volume but this addition is coming at a cheaper rate bringing overall CPC rate down.

6. Increasing CPC but decreasing paid clicks on Google Network Member’s site – For the last 2 quarters, CPC on Google network member’s properties has been increasing YoY and paid clicks on these properties have been decreasing YoY. The increase in CPC might be due to the fact that network ads might have been historically sold at lower price than Google’s site and this increase might be due to catching up by network’s ad CPC.

7.Decreasing CPC but increased paid clicks on Google Site –  But, Google web sites sold more
ads at a decreasing price a scan be seen below:
But as a whole, it can be seen below that Google earns more money form its own sites than network sites as can be seen below:

8. Increased contribution of advertising in Google’s revenue:

Google earned 59 Billion USD revenue through advertising which constituted 89.5% of its revenue. This shows Google’s dependence of advertising for its revenue and any decreasing trend, either in price or volume can have large impact on Google’s competitiveness.

 

Revenues (in millions) by revenue source for the periods as presented:
 
Year ended December 31
2012
2013
2014
Advertising Revenue
Google Websites
 31,221
 37,422
 45,085
Google Network Member’s websites
 12,465
 13,125
 13,971
Total Advertising Revenue
 43,686
 50,547
 59,056
Other Revenue
 2,353
 4,972
 6,945
Total Revenue
 46,039
 55,519
 66,001
Percentage of revenues by source as a percentage of total revenues for periods presented:
Year ended December 31
2012
2013
2014
Advertising Revenue
Google Websites
67.8%
67.4%
68.3%
Google Network Member’s websites
27.1%
23.6%
21.2%
Total Advertising Revenue
94.9%
91.0%
89.5%
Other Revenue
5.1%
9.0%
10.5%
Total Revenue
100%
100%
100%

Thus, it is difficult to say if average CPC is cause of worry for Google if overall click volume and overall revenue is increases.  and overall revenue is increasing. If Google is able to leverage its presence in desktop, search, youtube, chrome, android etc in a better way and is able to deliver well targeted quality ads for advertiser then falling CPC in short run should not be cause of worry for advertisers as there might be many exogenous factors that may be leading to decrease in overall CPC.
Note:
Google’s revenues from Google Network Members’ websites include revenues generated primarily through advertising programs including AdSense for search, AdSense for content, AdExchange, AdMob, and DoubleClick Bid Manager.
Paid clicks on Google websites include clicks related to ads served on Google owned and operated properties across different geographies and devices, including search, YouTube engagement ads like TrueView, and other owned and operated properties including Maps and Finance. 


Mobile App Monetisation – How to calculate mobile app advertisement revenue

Mobile advertising is one of the most common mobile app monetization strategy used by mobile application developers worldwide. Mobile app ad revenue constitute major component of global advertisement revenue earned by developers. Mobile app developers use mix of following methods to monetise their apps:
  1. Paid apps
  2. In app advertising
  3. Freemium (using In app purchases for monetisation)
  4. Incentivised advertising

 

In app advertising (50.3% Interstitial and 40.8% Banner Ads) followed by Freemium model (49.7%) is the most preferred monetisation model used by app developers as can be seen in the following report:

Distribution of respondents using ad monetisation models
Further, Ad Networks were most preferred channel for selling in app ads followed by Meditation Platforms, Direct Sale to advertisers and Inventory sell through ad agencies. Real Time Bidding is the latest channel being used by publishers for selling their in app ads.
Preferred channel of selling ads by advertisers
In this blog, we will mainly discuss mobile app monetisation by advertisements in an app. Revenue in mobile advertising is mainly influenced by following factors:
  1. eCPM – effective revenue per thousands ad impressions
  2. Number of Ad Impressions shown to the user (N)

Based on the above, total revenue to the publishers can be calculated as:

Total Revenue = N X eCPM/1000

Further, Total Number of ad impression mainly depends on total number of sessions, which further depends on the number of active users (MAU or DAU). Thus, total number of ad impressions depend on some combination of following factors:

  1. Number of active users – For this MAU (Monthly Active User) or DAU (Daily Active User) can be used.
  2. Number of session per active user
  3. Average session duration
  4. Screen/Session
  5. Refresh rate of Banner Ads – Refresh rate determines frequency of ad impression being generated on a mobile app. Publishers can choose “No Refresh” option or refresh ads every 30 to 120 seconds. The default value of Refresh rate is “No Refresh” and the publisher can set this value to some value between 30 and 120 second. Google recommends to persist an ad for 60 second or longer.
  6. Number of interstitial ads per session

 

The calculation for total revenue changes based on the refresh rate set by the publisher and the frequency of ad request being made by the app. Generally app makes ad request to DFP only once for each screen view. But, app can increase the frequency of the ad request by making multiple ad request to DFP after some time interval.

We have divided this calculation for 2 scenario of refresh rate and the scenario when the app is making only 1 ad request to DFP for each screen view.

“No Refresh”
Refresh rate other than “No Refresh”
Further, we have made following assumption for our sample calculation:

Input Data
Active Users(MAU)
10000
Sessions per active Users
5
Screen/Session
6
Fill Rate
100%
Number of interstitial ads per session
1
eCPM-Banner (in $)
1
eCPM-Interstitial (in $)
4

We have used MAU as the measure of engagement, although DAU is also used for this purpose. Further, total number of sessions is the beginning point to calculate total revenue in either of scenario. At the same time, it is to be noted that Google analytics provides for total number of session and it does not provide for sessions per active users, although there is a linear relationship between active users and sessions per active users.

Scenario 1 (No Refresh Rate)

In case of refresh rate set as “No Refresh”, there is only one ad request made to DFP for each screen view. Consequently, there is only one ad in one screen view. In this scenario, the ad revenue can be calculated as follow:

Input Data
 
Active Users(MAU or DAU)
10000
Sessions per active Users
6
Total Number of Session
60000
Screen/Session
6
Total Number of Screen Views
360000
Total Number of Ad Request Made
360000
Fill Rate
100%
Total Number of Impressions
360000
Revenue Calculation
 
Number of interstitial ads per session
1
Number of Banner ads served
360000
Number of Interstitials ads served
60000
eCPM-Banner (in $)
1
eCPM-Interstitial (in $)
4
Earning from Banner ads (in $)
360
Earning from Interstitial ads (in $)
240
Total Earning (in $)
600

In this scenario, there is “No Refresh” option selected and app does not make more than 1 call for each screen view, total number of screen view rather than total time spent inside the app decides total revenue for the app. Thus, total number of screen views rather than total time spent inside the app has been used to calculate total revenue for the app.

Scenario 2 (Refresh Rate other than No Refresh)

In case of refresh rate other than “No Refresh” rate, there can be more than one ad shown to the users for each screen view. In this scenario, the ad revenue can be calculated as follow:

Input Data (Assumption)
 
Active Users(MAU or DAU)
10000
Sessions per active Users
6
Total Number of Session
60000
Average Session Duration (in Minutes)
2
Refresh Rate of ads (in Seconds)
30
Total Number of Ad Request Made
240000
Fill Rate
100%
Total Number of Impressions
240000
Revenue Calculation
 
Number of interstitial ads per session
1
Number of Banner ads served
240000
Number of Interstitials ads served
60000
eCPM-Banner (in $)
1
eCPM-Interstitial (in $)
4
Earning from Banner ads (in $)
240
Earning from Interstitial ads (in $)
240
Total Earning (in $)
480
In this scenario,  publisher has set a Refresh rate other than “No Refresh”, app can make more than 1 call for each screen view, total time spent inside the app rather than total number of screen view decides total revenue for the app. Thus, total time spent inside the app has been used to calculate total revenue for the app.

Soft Bank investment in Wandoujia hottens up Chinese App Store Market Place

Wandoujia, China’s one of the largest android app distribution platform, with a massive funding of $120 million from a consortium of investor including Soft Bank, GoldMan Sachs, DCM and Innovation Work Development Fund (IWDF) in a series B funding in January 2014 has opportunity to come as a serious threat in the fierce battle of China’s increasing lucrative android app eco system. Earlier Wandoujia had received $8 Million Series A funding from a consortium led by DCM and IWDF in 2011.

Softbank is Japanese mobile telecom company which has been huge investments in Chinese companies such as 32% stake in China’s biggest Internet mall, Alibaba and $600 million funding in China’s taxi based app Kuaidi Dache.  IWDF is U.S. based investment arm of Chuangxin, China’s renowned early stage venture firm.
Wandoujia is China’s search engine for mobile entertainment with more than 2.2 million free videos, 1.7 million novels, 1.5 million high quality android apps and games, wallpapers and themes. Wandoujia claims to be having 350 million total installation with 800000 new installations each day.  This makes Wandoujia  one of the leading Android app distribution channel in China.  Wandoujia has partenered with various foreign developers like Flipboard, Evernote Sketch, Evernote Food, Path, Pocket, and Line to promote their apps in China. F Wandoujia publishes Mobile Search Index, which helps in discovering and thus downloading android apps in China. Further, Wandoujia has a PC-to-Android syncing tool with the name Snap Pea for global audience. Wandoujia says that it is first mobile gate way in China integrating contents across multiple verticals like apps, games, videos, music etc.
In my previous blog Chinese Android App Store Market, I have discussed Chinese mobile market and Chinese Android app store landscape in detail.  Softbank investment in Wandoujia has made Chinese app store market more interesting with tough competition between major app stores with each getting huge support from one or other big player in the Chinese Internet market. 
Since it is very difficult to rank Chinese app stores due to difference in metrics used by different Android app stores, we have analysed major Chinese app store players in no particular order:

Sl No
App Store
Major Feature
1
Baidu Mobile Assistant
·     Recently purchased rival 91 mobile in $1.9 Billion
·     Synergy with Baidu’s search engine – which is China’s largest search engine
·     Baidu and 91 mobile run separately
2
Wandoujia
·     350 million times installed
·     800,000 new installations each day
·     Received $120 Million funding from Soft Bank
·     Available as Android mobile app and as a web app
·     Search engine for mobile entertainment with search engine for online videos and eBooks
·     PC to Android sync app named Wandoujia (Chinese version) and SnapPea(Global version)
3
Tencent App gem
·     Uses WeChat to give boost to its app store
·     Total cumulative download of 64 million apps
·     400% increase in daily active users and daily downloads on App Gem in past six months
4
360 Mobile Assistant
·     Owned by China’s second biggest search engine Qihoo
·     Qihoo’s app store has “over 400 million users
·     Assumed to have biggest android app market share
5
91 Mobile Assistant
·     Owned by Baidu along with Hi Market
·     Reduced distribution fee for mobile game developers from 10 % to five %

Although Chinese app stores do not follow similar metrics to provide data and there have always been reliability issues in these data, Newzoo has released market share of various app stores in China as shown below:

This makes Baidu as having highest market share with total market share of 37% market share (Baidu Mobile Assistant – 20%, HiMarket – 9% and 91 Mobile Assistant – 8%) followed by 24% market share of Tencent’s my app.