Nailing subscriptions in India

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Today I’m looking at subscriptions in India from two angles: the consumer market and B2B SaaS. — Anna

From subscriptions to sachets

A recent story by my colleague Jagmeet Singh about a wearables launch caught my eye because neither of the two new smart rings launched in the Indian market would employ a subscription-based model.

Subscriptions are a tough sell for wearables (and hardware in general), because you have to keep paying even as the device gets older. That’s still the model that incumbent Oura shifted to, arguing that this allows it to continually add new features. Its user base wasn’t happy about the switch, though.

In contrast, BoAt, one of the two companies launching a smart ring in India, is aiming for a price tag below $80. That’s much lower than Oura’s $299 starting price, and it doesn’t even include the subscription.

BoAt’s CEO, Sameer Mehta, made a comment to Jagmeet that goes well beyond wearables: “Software-as-a-service (SaaS) doesn’t work in India. Even the likes of Netflix are struggling to have a subscription base, and entertainment is one of the biggest drivers in the country,” he said.

Claiming that SaaS doesn’t work in India is at least an exaggeration. But when it comes to consumer subscriptions, Mehta has a point: Even a heavyweight like Netflix can find it hard to translate its global success in India.

Price hikes, in particular, seem to be ill-advised. While Netflix removed its basic tiers in the U.S. and U.K., effectively raising the minimum cost of its subscription, the company reduced prices for its service in India in December 2021. The effort seems to be paying off, with the streaming company saying that engagement in India grew nearly 30% year-on-year in the first quarter of 2023.

Engagement, however, isn’t the same as a paying subscriber base. Netflix’s paid user base in India has been estimated at 6.1 million — out of a population of more than 1.4 billion people. But the company probably wouldn’t describe itself as struggling in the Indian market, seeing how it now feels confident enough to crack down on password sharing in the country, as it did in other markets.

Password sharing, however, is probably only a small factor in Netflix’s troubles. Much higher on the list is competition with cable and with other players whose catalog is more in tune with local audiences. Services like Disney’s Hotstar offer a much larger, ad-supported library, TV shows syndicated from international providers, and lots of sports streaming. Amazon, meanwhile, bundles its Prime Video service with its broader Prime subscription, and various telecom providers bundle it with some plans, making it worth more.

Netflix seems to be well aware of this: It has been working on original content for the country and has also struck a bundle partnership with conglomerate Reliance’s telecom unit, Jio Platforms.

One thing is for sure: It takes time and fine-tuning for foreign companies to win Indian customers. Spotify told Billboard its user count in India has tripled over the last two years, but didn’t say from how much to how much, or how many only use the ad-based tier. Either way, Spotify drives less revenue from customers in India, where streaming services have historically been a lot cheaper: A standard monthly Spotify subscription costs 119 rupees ($1.43) compared with $10.99 in the U.S.

There’s more: India is one of the markets where Spotify offers “Premium Mini” daily and weekly mobile subscriptions, a strategy in line with the concept known as “sachetization.” It all started with shampoo.

Up to the late 1970s, most Indians were not even buying shampoo. This was not because they did not want to, but the average bottle of shampoo cost more than most Indians were willing or able to pay. In response, an ingenious entrepreneur put single-use quantities into a sachet that could be sold for 1 rupee each. Sales took off [and] the act of making affordable, bite-sized packets out of regular products came to be known as “sachetization.” — Viral Acharya, Financial Times

To this day, sachetization is still very much a thing, including in the digital world.

“Indian consumers are more value-conscious and OK with some inconvenience; they would rather pay as they buy (e-commerce, transportation) or consume (digital media like Pocket FM). Much of the economy is sachet-based pricing or prepay,” Lightspeed partner Dev Khare told me.

To companies hoping to sell subscriptions to Indian customers, he would suggest “[trying] to put per-transaction payments or sachet or prepay first; [and] subscriptions only for the most loyal customers.”

What’s true of Indian consumers, however, doesn’t necessarily apply to Indian companies. Khare, for instance, is much more bullish about B2B SaaS than consumer subscriptions and expects Indian companies to do well on that front.

“Lightspeed has one of the largest B2B SaaS portfolios in India, including Innovaccer, Acceldata, and Darwinbox. We see B2B SaaS companies from India selling into the U.S. and EU with category-leading products. We also see Indian SaaS companies starting with sales in India and expanding to similar markets like in Southeast Asia and the Gulf countries.”

Bessemer Venture Partners also shares the view that Indian SaaS companies could do well on their home turf and abroad.

In its recent report, “The Rise of SaaS in India 2023,” the VC firm stands by its previous projection that India’s SaaS market could reach $50 billion in annual recurring revenue by 2030. In addition, it predicts that “Indian companies’ efficiency advantage will aid them on their path to global leadership.”

What’s the efficiency advantage? That’s Bessemer’s way of summing up its finding — both this year and last year — that software companies tend to show better efficiency metrics in India than elsewhere.

“Across revenue ranges and levels of business scale, we observed that Indian SaaS companies have higher efficiency scores (defined as FCF% + Growth for mature companies, and as Net New ARR/ Net Burn for early stage companies) than their U.S. counterparts,” the authors wrote.

According to the report, there are two key drivers behind this better performance:

(1) SaaS businesses in India already value efficiency on a cultural level; they can upstart and scale with less capital than startups in other countries;

(2) India’s SaaS companies tend to build additional products faster and earlier in their lifecycle.

Having surpassed $1 billion in revenue in 2021, Indian software company Zoho is a great example of how much companies can achieve with less capital: It became a unicorn without a dime of external investment.

Capital efficiency is music to investors’ ears these days, as is the ability to sell more products to existing customers. As even usually outperforming global software companies face declining net dollar retention, it could make Indian SaaS companies particularly appealing.

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