What happened to the Indian delivery startups?

I don’t know if you have been following the Indian mobile app startup scenario recently or not but nonetheless, it is worth your attention. Especially the failure of delivery app businesses. A lot of money has been poured into delivery app startups and almost all of them have failed to provide anything of substantial value to the customers.

While there can be a lot of precautions you can take while making a mobile app, it all comes down to the business model and its indispensability in the long run. There is a universal concept of Utility vs. Value when it comes to categorizing products and services.

Considering simple economics, anything that has utility in human life can make a good business. Having said that, anything related to oil, medicine, banking etc. naturally has more chances of success as they will be consumed under any circumstance. These are industries that create inelastic and recurring demand.

Utility of products and services from similar industries
A scale of Utility for certain products and services

In fact, this is the main reason Warren Buffett has always channeled a large part of his investments into companies that fall majorly into non-IT sector. Apart from IBM, there are no other IT companies that contribute to his dividend. Most of the investment are made into companies delivering products and services with inelastic and recurring demand. He is distant from internet companies and everybody knows that.

Warren Buffett's portfolio. Observe that no Google or Facebook to be found here
Warren Buffett’s portfolio. No Google or Facebook to be found here

While Warren Buffett has been able to identify utility within the business models, the Indian startup space has not been able to do so. Club it with lack of standardization across a number of aspects, and you have set up yourself for failure. Delivery apps have exemplified this recently.

Identifying a sustainable business idea based on a mobile app is tricky. Many fail to figure out the sustainability of a particular business model.

The Utility vs. Value check of the business model

To identify this, you need to first identify the particular sector that the app is going to function on.

Something such as Practo, Uber or PayTM may have a lot of utility. We will always need doctors and cabs. Also, the demand is mostly inelastic in nature as alternatives are feeble. Bill Payment is also a mundane, repetitive, yet an important task. These three fall well within the utility quadrant and thus a well-made app for these could very well stay in business by providing substantial utility.

A scale of utility for various app businesses in India
A scale of utility for various app businesses in India

As for delivery apps, they do not provide indispensable utility and a lot of factors prove that.

Delivery apps mostly cater to people who order food from restaurants. However, restaurant goers, especially the weekend lot may not be the target audience for this at all. Going out in the weekend is an experience in itself and home delivery may not really put a dent on that. People may go out anyways despite traffic or other hurdles.

Going out in the weekend is an experience in itself and home delivery may not really put a dent on that. People may go out anyways despite traffic or other hurdles.

Coming on to college goers who go for cheaper food caterers in India, the service consistency here cannot be assured. As most of the caterers have their own supply chain, hiring a food delivery service might inflate their budget and will not be conducive for their target market. Also, this segment is highly unorganized and operates on economies of scale with fewer margins per unit sale.

Apart from that, food ordering from restaurants for an individual cannot be periodic. Eating certain types of food is highly dependent on mood and does not come with a calendar–another factor that largely subtracts the utility factor from these food order apps.

The model was also challenged by existing restaurant and hotel listing apps as they started to integrate backward to set up their own supply chain. Zomato is an evident example.

While demand for food delivery might be recurring, a food delivery app business suffers grossly due to lack of differentiation. A delivery app features the restaurants and outlets with more or less same parameters of evaluation as a restaurant listing app such as Zomato does.

Zomato and Swiggy. Look how both offers price range and ratings
Zomato and Swiggy. Look how both offers price range and ratings

So, in other words, it is clear that Zomato or Yelp can easily go back a bit and work on their own supply chain but it is relatively difficult for delivery apps to expand on Zomato’s core competency and beat them at the same time. Since Zomato has been in the market for a longer time, it is difficult to entirely turn the tables.

Freebies-The final nail in the coffin

Under pressure to acquire users and beat the competition, freebies given to users for app installation or orders became the major driver. While it gave them users, the intent was to get the free stuff. With low and dispensable utility, the freebies became the sole motivation to use the app.

While cab aggregators gave freebies too, the business had indispensable utility. Cab for hire can be a daily requirement, and in a country where service quality has been consistently bad, it had huge potential, to begin with.

Since a lot of these delivery startups could obtain funds in plenty, they continued anyways. However, with time it is now being concluded that delivery apps do not provide indispensable utility. It can be deduced that consumers do not see any real value in these apps.

Yeah!

Freebies changed the consumer behavior towards these apps forever and easy funds blinded the CEOs from seeing the real value by not allowing to test these apps without rewards.

A majority of these delivery startups have already shut doors. The ones that are still continuing might soon follow suit. Investors have grown cautious and have been limiting the magnitude of investment recently. Investors have also started to question the remaining startups to deliver and show real value offered by their business models.

2015 has been a fertile year for Indian startups in terms of capital. 2016 is definitely going to be lesser than that. In the midst of this, it becomes pertinent to the new mobile app startups to bring ideas that are solid and provide a lot of utility for consumers.

2 comments
  1. Pratik
    Pratik
    September 21, 2016 at 7:45 am

    I concur that while the same can be said for apps and food delivery models such as Swiggy, FoodPanda etc, overall; delivery business has a huge potential. The requirement to move goods from one location to another is as basic a requirement as finding a doctor. It can not only be food, but can also be raw materials, finished white goods such as electronics or apparel, and even personal door-to-door service. Unfortunately, there is no such model that exists in India.
    Think of something like an eBay user selling a used laptop in the US. They use Fedex or UPS to deliver the product to the seller. Compare that to a similar service such as OLX or Quikr in India. We “travel” to the location to pick up the product. The most important factor is to patiently create consumer awareness for a particular business model.
    Lastly, most Indian entrepreneurs think of the business from the wrong end of the spectrum. To them, the mobile application is the primary aspect of the business, while in reality, the business model is the deciding factor about the mobile application.

    • Arup Dey
      Arup Dey • Post Author •
      September 22, 2016 at 5:56 am

      Hi Pratik! Thanks for your points. It is true that an app should be derived out of the model and not vice versa. As for moving goods and raw materials, the transactions are mostly B2B type involving other factors before approval. The transaction is not recurring and needs both parties to come together and discuss risks and various liabilities. There is high involvement of both sides.

      Considering you get stale food from a delivery startup, you may whine a little but if a goods delivery company crushes you brand new car in transit, you may go to the court. Hence, these businesses may benefit from apps but do not really need them, unlike food delivery startups where the app plays an important role as the products are fundamentally low involvement but generate recurring demand.

      As far as the OLX model is concerned, certain products can be delivered but not all. Users buying a used laptop or a smartphone would want to see the condition of the product themselves before making a transaction.

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