Layoffs across startups & IT companies
A common theme across Indian startups and IT giants in 2019 was job cuts, primarily to reduce costs as companies grappled with slower growth along with an economic downturn in the country.
India’s most-valued startups, including hospitality player Oyo, ride-hailing giant Ola, restaurant discovery platform Zomato and online classifieds major Quikr, have cut jobs over the past year as the overall funding environment turns cautious.
On the tech services industry front, Cognizant announced plans to cut as many as 7,000 jobs in the next few quarters and exit part of its content moderation business. The content moderation business is likely to impact another 6,000 employees. The IT services major said its headcount addition had outstripped revenue growth, leading to narrowing margins.
IBM had also sacked nearly 300 employees from its services division earlier this year while the India workforces of software makers SAP and Oracle were impacted as part of their global restructuring efforts.
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Internet Shutdowns and its impact
Internet shutdowns are becoming the new normal in India. The country, which has the world’s second-largest Internet base, is currently the leader with 373 reported shutdowns in the past seven years, of which more than 100 have been reported this year itself.
One of the key reasons cited most often for the suspension of Internet services is that it is a preventative measure to avoid violence and unrest, although it is now increasingly becoming the first step in maintaining law and order in any specific area.
Among the regions that have experienced shutdowns this year include states like Jammu and Kashmir, Assam, Tripura, Meghalaya, Arunachal Pradesh and parts of the national capital Delhi, Uttar Pradesh, West Bengal, and Karnataka. Jammu and Kashmir has had no Internet access since August 5, 2019, although it was restored in Kargil district after 145 days, earlier this week.
These shutdowns have significantly hit telecom operators and several Internet businesses across banking, e-commerce, cab-hailing, and food delivery services among others. Each telco in India is losing Rs 2.45 crore on average per day for every state which has seen an internet shutdown, according to COAI, the lobbying body for telecom service providers.
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The year of tech policy
2019 ends with the introduction of the landmark personal data protection bill in the Parliament. In the age of the Internet, where multibillion-dollar businesses are built on personal data, this proposed law aims to give Indians more control over their private data through a strict consent mechanism.
The law will change the way companies as well as governments collect, process and store personal data.
Through the proposed law, the government has pushed the idea of data sovereignty by mandating certain classes on the data to be stored within India borders to allow law enforcement agencies investigate crimes faster. This has upset many foreign companies who don’t want restrictions on cross border flow of data. WhatsApp opposed RBI’s data localisation rule before finally agreeing to store payment data in India.
While the law tightens rules for companies who handle personal data, it has given the Central Government the right to exempt any government agency from the obligations of the law. This has raised alarm bells among companies, Internet rights activists and the general public, who are worried about unaccountable government surveillance.
Apart from regulating personal data, the government has also taken steps to regulate non-personal data processed by e-commerce, cab aggregators and other Internet companies about their consumers. The government is of the opinion that such data can be used for government policymaking.
Earlier in the year, the Indian government outlined a new draft policy for its burgeoning e-commerce sector on Saturday, focusing on data localisation, improved privacy safeguards and measures to combat the sale of counterfeit products. The proposed overhaul, which would likely increase operating costs for the sector, came two months after the government modified regulations governing foreign direct investment in e-commerce.
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Rise and Rise of TikTok
TikTok, a short-video app owned by ByteDance, spent the year fighting court cases against its content, a court-ordered temporary ban on new downloads and multiple political statements accusing it of illegally sharing Indian user data with China. But none of this impacted the rise of the Chinese app’s popularity in India.
It already boasts of 200 million registered users and started monetising the platform with some of the top brands in the country, including Pepsi, Amazon, Flipkart, Samsung, and Bajaj among many others.
To combat some criticism around salacious content on the platform, the Chinese app diversified the content to include educational, motivational, fitness and cooking videos on its platform. It has also managed to get film celebrities such as Madhuri Dixit and Yami Gautam on the platform. This is a far cry from teenagers’ lip-syncing to the latest songs on TikTok earlier in the year.
The company has also beefed up its team in India with hires across legal, policy and content. Its parent ByteDance said it will hire 1,000 people in India by the end of the year.
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Social media and elections
India’s 2019 General Elections saw for the very first time global and Indian social media platforms followed a ‘voluntary code’ on taking down ‘problematic content’ and bringing ‘transparency in political advertising’.
Almost a third of India’s 900 million voters are active on social media, making this one of the world’s biggest ever attempts to monitor internet content. Facebook, WhatsApp, Google, Twitter, ShareChat and ByteDance voluntarily agreed to take down content through a notification mechanism set up with the Election Commission of India.
Political parties also splurged on social media advertising during the year in a bid to win votes and support. Ruling party Bharatiya Janata Party, along with Indian National Congress, Nationalist Congress Party, Shiv Sena and many other parties spent crores of rupees on Facebook, Instagram, Google, YouTube, and Twitter. Most of the advertising spend happened through affiliate and fan pages.
Technology companies and people also continued to battle with deliberate false information throughout the election cycle. Facebook set up monitoring centres to control the spread of hate speech, misinformation, and violent content during the Indian election.
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Tiger’s return to India
Tiger Global, one of the earliest big backers of India’s Internet ecosystem, made a comeback with an investment blitzkrieg this year, after remaining on hiatus for more than two years.
However, the India outlook for one of the most influential technology funds has changed significantly, with a major focus on cross-border enterprises and Software as a Service (SaaS) startups. This is primarily due to a key top-level management change with Scott Shleifer taking over Tiger Global’s private equity portfolio from Lee Fixel who abruptly quit the firm earlier this year.
Shleifer has taken the industry by surprise as he matches step-by-step Fixel and his deal-making pace. Tiger Global has made more than 20 new and follow-on investments in India this year. In a way, this is reminiscent of the fund’s spray and pray style in 2015, although there is one key change this year. People close to the fund say that several of the investments in 2019 have been relatively smaller sized in less expensive firms, unlike in 2014-15 when a lot of the investments were larger ($100 million or more) and in more mature startups.
Some of the key startup bets from the fund this year include Ninjacart, UrbanClap, Zenoti, Wow! Momo, INDWealth, NoBroker, and KredX among others.
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SoftBank’s year of troubles
2019 was the year that gave a reality check to SoftBank’s growth-at-all-costs strategy.
As the year winds down, the Japanese group is struggling with the debacle of office-sharing startup WeWork’s failed IPO in September, the tumbling public valuations of its portfolio firms like Uber and Slack and loss-making sale of its investments in startups like Wag.
Last month, SoftBank posted its first quarterly loss in 14 years, due to a string of write-downs on WeWork and other marquee investments.
These developments have also impacted the firm’s fundraising for its second technology fund, with the first close expected to be around $30 billion, a considerably smaller amount compared to its maiden corpus of $100 billion.
SoftBank is also calibrating its strategy to focus on mid-stage growth companies that have a positive top-line and spend longer periods of time in due diligence before closing the investments.
Over the past year or so, SoftBank has selected businesses in India that are not hugely loss-making and cash-burning for investing, including the likes of logistics firm Delhivery, online insurance marketplace PolicyBazaar and eyewear solutions firm Lenskart.
SoftBank is also pushing its portfolio companies, including the ones in India, to stop chasing growth for the sake of growth and aim to turn profitable.
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Second time founders gain currency
Second-time startup entrepreneurs and industry veterans are being wooed by top venture capital investors with large cheques for idea-stage startups, in a bid to get in early on the most competitive seed and series A funding deals.
Among the investors lining up for these deals include Sequoia Capital, Matrix Partners, and Lightspeed Venture Partners.
The bullishness to back these startups is partly because some of the most valuable startups in the Indian startup ecosystem have been built by these executives. They also bring in operational credibility and could therefore potentially have a much higher chance of getting another exit. This trend is also indicative of the growing maturity of the Indian startup ecosystem.
Among the entrepreneurs who have secured significant amounts of capital for their second ventures include Citrus Pay cofounder Jitendra Gupta who started Amica Financial Technologies; Ashish Kashyap, who founded INDWealth, and Kunal Shah who started Cred.
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E-commerce & policy hurdles
E-commerce marketplaces Flipkart and Amazon were forced to restructure their businesses following the implementation of Press Note 2 in February.
Amazon was forced to reduce its stake in the two largest sellers on its platform – Cloudtail and Appario, while insiders said Flipkart had to rejig its model of Alpha and Beta sellers, who drive the bulk of the sales on its platform. While both Amazon and Flipkart’s owner Walmart acknowledged that the change in regulation had caused some downtime, they said sales were largely unaffected.
Despite the policy change, pressure from offline trader associations did not let up, forcing the government to further look into complaints of capital dumping, unfair trade practices and non-adherence to FDI policies. In June, the government asked e-commerce firms, including Flipkart and Amazon, to furnish details on their company structures. The move came in the backdrop of several government departments starting to look into the way e-commerce business functioned in order to rejig policies if required.
Currently, apart from the Department for Promotion of Industry and Internal Trade, which was made the apex body to regulate e-commerce firms, the Department of Consumer Affairs, the Ministry of Electronics and Information Technology are all looking at formulating pieces of policy that will affect the way business is conducted online. In addition to this, the Competition Commission of India, India’s apex competition body, is also conducting a study into the alleged anti-competitive practices of e-commerce marketplaces.
While it is yet to be seen how each of these policies shapes up, it’s clear that 2019 was a year of change e-commerce in terms of how these firms are regulated.
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How industry groups took on Oyo, Zomato
Food delivery and restaurant discovery firm Zomato and hospitality chain Oyo were at the receiving end of agitations by domestic industry groups like NRAI (National Restaurant Association of India) and FHRAI (Federation of Hotels and Restaurant Association of India) over issues like alleged deep discounting, high commissions, lack of data transparency, contract breaches and abusing their dominant positions among other things.
The standoff between Zomato and restaurant associations, which spanned across several weeks, reportedly saw thousands of restaurants logging out of the platform with union minister Piyush Goyal even offering to mediate these discussions to help them resolve the issues.
Zomato eventually suspended its contentious Infinity Dining programme, amended its Gold subscription programme and agreed to rationalise offers to members.
On the other hand, Oyo saw more than 500 hotels across 100 cities exiting its platform since April as the relationship has soured after various disputes. Oyo, however, denied this and claimed that it had voluntarily let go of some properties due to quality concerns.
Oyo is also facing a probe from the Competition Commission of India (CCI) for allegedly abusing their dominant positions by charging excessive commissions from hotel partners and providing deep discounts.
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(Megha Mandavia and Alnoor Peermohamed contributed to this story)
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