We have discussed India’s Innovation Gap at length recently. Here’s a company that is trying to innovate with the mobile phone as a way to get to people who are otherwise unreachable, even via the Internet.
Chaupaati, or ‘phone pe deal’ (deal via the phone) is a phone classifieds service for the Indian masses. People in Mumbai, where the company is based, call a Chaupaati call center rep to find the best deals on computers, consumer durables, mobiles, automobiles, real estate, furniture and other goods. Households, entrepreneurs and unorganized businesses call another number to advertise these deals, then receive leads by SMS and pay per lead, as per their subscription plan. Chaupaati aim to be India’s premier ‘deal directory’, collecting information from unorganized markets and connecting Indian people to it.
Ninety-three percent of India’s workforce works in the ‘unorganized sector’. Word of mouth and references within the network are the primary ways to connect with opportunities for jobs, alternate income or key purchases, with several middlemen in each transaction. As mobile phones are becoming the medium of choice for such communication, Chaupaati provides an open platform to manage information relating to it that is accessible through a medium people have already chosen.
A returning Indian entrepreneur, Kashyap Deorah, CEO, founded Chaupaati Bazaar in February 2008. During his final year at IIT Bombay, Kashyap co-founded Righthalf.com, the first campus start-up as part of IIT Bombay’s Business Incubator. After Righthalf.com was successfully acquired by Stratify (later acquired by Iron Mountain for $160 million), he moved to Silicon Valley in late 2000 and worked with high-tech startups.
The company is angel-funded by Anand Rajaraman and seven others: family, Rakesh Mathur and Venky Harinarayan from Junglee and friends and colleagues from the past. The total amount raised during the seed round was Rs 1.85 crores ($358,000). The current investors are committed to re-invest into Chaupaati as required to assist it to reach profitability. Chaupaati plans to invest their profits back into the business to scale it to a crore-a-month ($194,500) in revenue within 18 months. Access to capital can shorten this time by half, making the crore-a-month goal reachable within six months and match actual revenue to those levels with good profit margins within three more months. Today the company operates out of three branches in Santa Cruz, Mulund and Jogeshwari in Mumbai with 25 employees.
The energy of aspiring Indians around him prompted Deorah to start the company even though his core team does not have much domain experience. After his return from the US, Deorah reconnected with his juniors from IIT Bombay and found that some of them, like him, had experience with early start-ups. They are all specialists in cracking the code and in being generalists and have faith in the business, so when required they bring in industry specialists to help them reach the next level.
When Chaupaati was founded, other services were available, but their target audience and mode of delivery were different. Newspaper classifieds like The Times of India, DNA and others have started using SMS and voice to build an extra lead source into the main line of business (print) at lower costs of acquisition. The local search market, comprising companies like JustDial, AskLiala, GetIt and Guruji, is well funded, and is getting extremely competitive. It is characterized by aggressive geographical expansion and focuses on capturing high-value verticals increasingly catering to the tip of the pyramid. Online classifieds like Naukri, Sulekha and Shaadi, when augmented with a large field sales forces to acquire and serve customers offline, have been able to create successful businesses.
Unlike these companies, Chaupaati, built for the semi-literate and vernacular audience, is focused on unorganized businesses and entrepreneurs, thereby addressing the latent need and non-consumption at the lower end of the market.
According to Deorah, there are about 300 million earning Indians, and about the same number of mobile subscribers. He spent over three months trying to understand why Indians buy phones and what they do with them, and discovered that Indians buy phones (especially their first one) for commercial rather than personal reasons. The mobile phone is a tool to make more money and save more money. The official market for mobile phone handsets in India is Rs.70,000 crores ($13.6 billion), consumer durables Rs.40,000 crores ($7.74 billion), computers Rs.20,000 crores ($3.9 billion), automobiles Rs.45,000 crores ($8.7 billion) and real estate Rs.200,000 crores ($38.9 billion). It is estimated that in each segment, one-third of all transactions are second-hand and unaccounted for. Thus, actual volumes in each category are 50% higher than what the numbers suggest. Chaupaati’s service makes many illiquid items liquid as a result, and people have sometimes listed pets, match box covers, apparel, and foreign exchange for sale.
Similar to Google’s business model, an advertiser pays Chaupaati per lead, but there is no fee to post an ad. The company gets 2-5% of the item’s value for getting the transaction done. The number of leads needed to get the deal done differs for each category. Average conversion rates are 10%, with some going up to even 50%. This puts Chaupaati’s addressable market at Rs.10,000 crores ($1.9 billion) for the above categories alone.
As Chaupaati’s usage increases, the number of people on the telephone and in the field should scale proportionally, making it a variable cost business. The real challenge is scaling the sales and collection model to monetize the service. The company’s model relies on repeat usage, and customers choose their method of payment. The highest volume is generated through the sale of mobiles and the highest revenue from computers and home appliances; automobiles and rentals are the fastest-growing categories.
The typical buyer has a household income of Rs.10,000 ($195) per month. The typical seller is a local retailer with expertise in assembling, re-furbishing and after-sales service. Currently available in Mumbai only, Chaupaati receives over 10,000 calls per month, with peak days crossing 1,000 calls a day. The company has over 40,000 unique users, 25% of whom are sellers. Fifty percent of the deals are advertised by individuals whose repeat usage is cross-category and 50% are by dealers whose repeat usage is within the same category. The company has generated 60,000 potential deals and estimates that Rs.10 crores ($1.94 million) worth of items have been sold through Chaupaati. A few hundred dealers have signed up for subscription plans in which they pre-pay for a certain number of leads in order to lock in a good price-per-lead. The company is trying to convert regular users to this model.
The company started generating revenues in December last year. Revenues have tripled from December to January, and further doubled from January to February. If this growth is maintained, the company expects to become profitable on variable cost in April and on total cost by July. Chaupaati has also launched two new revenue streams that have the potential to develop into significant businesses. It is too early to determine the profit margins, but CEO Kashyap Deorah is optimistic and expects them to range from 20% to 60% since this is a high-margin business. That’s a fairly broad band, but for this stage of the game, it is not unusual not to know more specifics.
The company plans to grow by region and into the semi-urban and rural sectors next, while also moving from the low-income to the middle-class population. Deorah is confident of an IPO in the next four years.
What I like about this company is its experimental nature, and the attempt to do something new, something different. India desperately needs people who are willing to do experiments, and it is refreshing to see a venture that has the characteristics of risk-taking in it.
This segment is a part in the series : Deal Radar 2009