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Huge Growth Of The Food Delivery Market In South East Asia


What, then, makes it such an attractive bet? The answer lies in its most recent acquisition.

“Woowa’s revenue is strong,” said a former food delivery executive who worked in the region.

According to Delivery Hero, Woowa’s 2019 revenues in South Korea grew by 84% year-on-year to 301 million euros ($337.5 million). It achieved an EBITDA of about 3 million euros ($3.3 million) in the first nine months of 2019.

It is the clear market leader in South Korea with an estimated 60% share and has operated profitably since 2016, according to investment intelligence platform Smartkarma. That’s a rarity in the online food delivery sector.

Giving A Tough Competition

Delivery Hero had been competing with Woowa in South Korea, so the deal puts an end to that rivalry, serving both sides. Details of the deal are still under review by South Korea’s antitrust regulator, however, and the companies plan to continue operating both apps separately.

But Southeast Asia is a different story—a challenge Woowa’s co-founder and CEO Kim Bong-jin, put in charge of the joint Woowa-Delivery Hero Asia operations, has to solve.

Woowa’s Vietnam business is still struggling. And in a convoluted way, it has ended up with the remnants of Foodpanda’s Vietnam unit. Woowa had acquired the company that acquired Foodpanda’s Vietnam business in 2016. Despite new management, the delivery app lost out to local competitor Foody, industry insiders told The Ken.

And then there are Grab and Gojek, each jostling for a share in the country’s competitive landscape.

Profitable operations in Korea, an experienced executive, and a foot in the door in Vietnam make Woowa an attractive partner for Delivery Hero’s plans, but it has much to prove in Asia’s emerging economies. For example, Foodpanda and Woowa’s combined footprint across Southeast Asia now extends across most key markets, except its most populous one, Indonesia. The country’s online food delivery sector is firmly in the hands of a Gojek versus Grab duopoly and remains a blind spot for Delivery Hero after Foodpanda ceased operations there in 2016.

It seems unlikely that Foodpanda would make another attempt at conquering the region’s biggest market. However, Foodpanda’s CEO Jakob Sebastian Angele told The Ken he is “open to reconsidering” as the firm plans to “expand aggressively.”

Three’s a crowd

The three big delivery platforms—Foodpanda, Grab, and Gojek—are all in the same boat in Southeast Asia. They are all still loss-making.

The current phase of food delivery development in the region is all about deploying technology such as AI recommendation engines, smart routing, and order batching, as well as cloud kitchens, to reach a degree of efficiency that will allow delivery companies to operate profitably.

It’s especially tricky in price-sensitive markets where average order sizes are small. In order to make delivering $2 meals profitable for restaurants, delivery people, and platforms, all parts of the chain must work with optimum cost-efficiency. Order volumes need to be high too.

Complicating that challenge is the diverse nature of the Southeast Asian market, where every country is different and any aspirant to market leadership needs to quickly adapt to idiosyncrasies in local infrastructure, modes of transportation, payment channels, and consumer habits.

That’s where Foodpanda lost out in its early days.

It kept its IT team centralised in Europe. And the firm couldn’t adapt to the changing market conditions, former employees said. Its situation became especially apparent in Indonesia, where food delivery had taken an unusual twist with the launch of Gojek’s app in 2015.

Gojek offered on-demand food delivery alongside personal transportation on motorcycle taxis. This multi-service fleet proved so effective in Indonesia that its rival Grab also adopted the model later. It’s less of an advantage in cities that don’t have motorcycle taxis. But in Indonesia, where this mode of transportation is common, it allowed delivery platforms to expand fast and keep delivery costs low, former Foodpanda employees told The Ken.

Foodpanda had a second disadvantage to Grab and Gojek. It didn’t adapt to local cashless payments trends. The company, even now, only accepts cash payments, credit cards, and PayPal. The latter two options aren’t that common in Southeast Asia.


Hungry for Southeast Asia, Foodpanda to eat into Grab and Gojek’s share


One decade but 50X the growth. It’s not often one sees numbers like that. And yet, that is the projected rate of growth for the food delivery industry in Southeast Asia, one study shows. This mammoth potential market is the one that trouble-ridden European food delivery firm Foodpanda wants to crack.

Founded in 2012, the company had quickly established a wide footprint across Asia and some Eastern European countries before it hit a rough patch in 2016. It shut down its business in Indonesia and sold its Vietnam and India units.

It looked like defeat.

But in late 2019, the year in which ordering food on-demand went from being a once-in-a-while activity to a regular habit for many, the tables turned.

Foodpanda’s parent company Delivery Hero, founded in Germany and listed in Amsterdam, acquired South Korean food delivery firm Woowa Brothers in a $4 billion deal. And Southeast Asia’s little red dot, Singapore, is the headquarters for the new Woowa-Delivery Hero Asia joint operations, making the region the epicentre of this food delivery empire.

Foodpanda 2.0 anyone?

Southeast Asia represents a big growth opportunity for the sector. East Asia countries like South Korea, Taiwan, and Hong Kong are considered relatively mature markets and Woowa has been operating profitably at home for some years already.

“In more mature food delivery markets […] food delivery is estimated to make up around 10-15% of the overall F&B spend,” a spokesperson from GrabFood, on-demand platform Grab’s food delivery arm, told The Ken. Grab offers food delivery in six countries across Southeast Asia at the moment. “In Southeast Asia, this number stands at less than 5% […] there’s significant headroom.”

Indeed, the combined total value of online food orders (called gross merchandise value, or GMV) is poised to hit $5.2 billion by the end of the year, the joint study by Google, Temasek, and Bain projected—more than doubling in size from 2018.

By 2025, this number is projected to breach the $20 billion mark.

And Foodpanda is getting ready for it. The company is moving its R&D centre from Berlin to Singapore and wants to develop its own mobile wallet, a former Foodpanda employee told The Ken.

It also wants to make big investments in cloud kitchens, a form of business that rents out fully functional kitchens to restaurants. Foodpanda is aiming to go from the “handful” of cloud kitchens it operates now to 100 in the region in 2020.

Cloud kitchens represent a critical new phase in the evolution of food delivery business models. They can help delivery platforms save on costs and let restaurants produce food cheaper. As a result, the format got a lot of attention and funding in 2019. One only has to look at Rebel Foods, India’s largest cloud kitchen startup, to understand why. And Rebel Foods, best known for its brand Faasos, is entering the region in partnership with Gojek, Grab’s biggest rival.

In order to navigate this landscape of opportunity, Foodpanda’s second act will need to learn from past mistakes. When it retrenched in 2016, it was because of the rise of on-demand platforms like Gojek and Grab, which had introduced the concept of offering food delivery alongside transportation and other services. Grab and Gojek expanded so quickly that Foodpanda struggled to keep up.

Now Foodpanda will have to face-off against these two—especially Grab, which is the only challenger in the area with a regional footprint comparable to Foodpanda. In addition, its appetite for Southeast Asia will affect Gojek, whose expansion into Thailand and Vietnam is still in the early stages. Indonesia, the region’s biggest market for food delivery, might well turn out to be the weak spot in Foodpanda’s plans for a comeback—the company no longer has a foothold in the market since its troubles in 2016.

For parent company Delivery Hero, which cut its losses in Germany and is now looking towards Asia, this is a battle it cannot afford to lose.

The Woowa factor

Investors seem confident of Delivery Hero’s chops, however.

The company’s share prices skyrocketed after the deal with Woowa Brothers in December.

Prices reached 70.80 euros ($79.01) per share at close on 3 January 2020, up from 50.16 euros ($56.20) on 12 December 2019, the day before the deal was made public.

This is despite Delivery Hero Group’s overall losses. The firm’s latest Q3 2019 statement reveals that it is hundreds of millions in the red, with an EBITDA of negative 420 million euros (-$468 million).

By offering consumer finance, Byju’s helps parents break the accessibility barrier


A detailed analysis of the 110 complaints The Ken analysed has thrown up worrying evidence: 54 of the complainants, claimed to have had no idea they were signing up for a loan to buy their subscription. The average ticket size of the loans were Rs 66,000 ($952), and down payments ranged from Rs 1,000 ($15) right up to Rs 60,000 ($864).

“Subscriptions sold through Capital Float accounted for almost 70% of our total sales. We would take any amount, even 5% of the total subscription fee as upfront payment, if it would help us close the sale. So on a Rs 60,000 packet, I’ve come away with as little as Rs 100 in upfront payment,” said the Haryana-based BDA.

The Ken interviewed 22 individual complainants to understand how the sale unfolds. Inevitably, the problem starts when parents realise they have been signed up for a loan. Or, in the case of parents who knowingly took on a loan, were asked to pay EMIs despite asking Byju’s to cancel their subscription.

Efforts To Make A Conversation

“I have sent countless emails and made phone calls to Byju’s. I want to cancel my subscription. But they haven’t entertained my request and the EMI process has been triggered. Neither was the loan mentioned during the sales pitch, nor the 15-day trial period,” says a Pune-based complainant.

In fact, she claims, even on pointing out that the Byju’s terms and conditions stated a 15-day trial period, she was assured by the BDA that this cancellation would be done “anytime”. The person requested anonymity, claiming they had been physically threatened by Capital Float’s collection agency for non-payment of dues. Other complainants also report being repeatedly harassed by lenders to complete EMI payments. From the 110 complaints analysed, 22 parents claim to have been misled by the Byju’s sales agent about the 15-day trial period.

BDAs The Ken spoke with admitted to playing fast and loose with the 15-day trial period. And it has led to some particularly thorny issues for both parents and lenders. While clearly mentioned in Byju’s terms and conditions document, sales agents often give parents the impression that cancellations can happen even after the 15-day mark. If parents do reach out to customer care beyond this time frame, they are told in no uncertain terms that cancellations are now impossible.

Seems like good, old-fashioned miscommunication. But on closer scrutiny, a definite pattern of selling is discernible.

Meeting The Targets

Remember Byju’s BDAs have aggressive and unforgiving weekly meeting and sales targets? That means BDAs often obfuscate the loan part of the process for fear of losing their customer’s built-up interest. In addition to not being explicit about the loans, the BDAs admit they never make parents aware of the nature of the documents they are asked to sign. The whole process, claim complainants, is rushed. After spinning a three-hour sales pitch, the documentation process is a measly five minutes.

It’s a textbook example of how to use behavioural economics and nudges to your advantage. Human beings have a limited amount of mental energy to spend during a given period of time. If you wear it down through activities or conversations that use the brain (like a two- to three-hour long sales pitch featuring educational concepts and career decisions), then it will be easier to get people to gloss over the final five minutes.

Most commonly, the signatures are obtained on electronic clearing service (ECS) forms, which trigger the EMI process, and feature the name of the third-party lender. The details often escape the parents’ attention. “I trusted the sales agent because his pitch was detailed and he was an IIT graduate,” says the Pune-based complainant quoted above.

The Ken’s conversations with both current and former Byju’s BDAs revealed a particular context for the sale. Most sales agents, or counsellors, exhibit a deep understanding of the subject matter, promise personalised guidance throughout the subscription period and build personal relationships with the family. By the end of the pitch, most sales are a simple matter of signing up in good faith.

In most cases, the lender approves the loans even before the 15-day trial period is over. Without any real recourse to cancel subscriptions, most customers were doomed from the start.

“Even if a customer requests a cancellation within the 15-day period, the BDA doesn’t entertain their request. They stop answering calls or responding to emails. By the time the parent finally gets through, the 15-day trial period is over, and cancelling the subscription becomes almost impossible,” says the Delhi-based BDA quoted earlier.


How Is Life Actually At Byjus?


“Those who didn’t meet their weekly targets of Rs 2 lakh were chastised in front of their whole team. We operated in a sense of total fear,” he adds.

To cement the aggressive sales target is an elaborate sales pitch, with certain features baked firmly in. It starts on an introductory call with a lucrative offer of a “scholarship”: a discounted price in exchange for a multi-year Byju’s subscription. On these calls, explain the agents, the parent is made to believe that their child has been “selected” out of a huge group, to qualify for a “free” counselling session by a Byju’s subject expert.

A veiled sales pitch, each counselling session takes between two and three hours, and is a monologue about the ills of the Indian education system. The Ken has accessed a recording of a Byju’s sales call in progress, with a pitch that can be broken into three distinct phases: quizzing the child, counselling the parent and making the sale.

“We’re even trained to ask a particular set of questions, which we know are difficult for the student to answer. For instance, fractions are a huge problem area for students. So we might model a quiz on that,” says the Haryana-based BDA quoted above. Other team favourites are: What is the shape of a rainbow? What role does chlorophyll play in photosynthesis? How is a rectangle different from a square?

The Actual Gain

“The aim is to expose discrepancies in the child’s concepts and link it to their performance in higher classes. That’s how we make a play for multi-year subscriptions. We tell the parents that opting for Byju’s now will help the child in higher classes and competitive olympiad exams,” adds the BDA.

Throughout the recording, a Byju’s sales agent can be clearly heard pushing for a multi-year subscription as a replacement for all other tuition or coaching classes. “It’s your responsibility to make sure that your child does well in 10th and 12th standard. That she doesn’t take humanities instead of science,” says the agent, playing on Indian parents’ fundamental fears. The parents, desperate for a suitable option for their 10-year-old, are coaxed into buying the product.

Sales agents have an arsenal of such tricks up their sleeve, according to BDAs The Ken spoke with. One is the promise of a customised learning path, suited to the child’s comprehension levels. Others include support from a subject matter expert, a dedicated mentor, daily lesson plans, coaching over the phone and a personalised Android tablet loaded with course content.

And of course, discounts—multi-year subscriptions are bundled together into an attractive, all-inclusive package. In the recorded call, the sales agent offers an eight-year mentorship subscription, from class 5 to class 12, at Rs 1.2 lakh ($1,726) instead of the retail price of Rs 2.4 lakh ($3,453).

All these elements and sales tactics combined, the BDAs say, are used to convince parents of a progressive, cutting-edge platform to help their children learn. All just to get by in a cutthroat sales world.

The Sale

“The main aim is to close the sale on the spot. There is no other option,” says a second Delhi-based former BDA, who sold over 300 subscriptions during his one-and-a-half-year tenure with Byju’s. A steep sales target cements this drive to sell no matter what. “From the minute I walked into a pitch meeting, my job was to determine the spending capacity of these potential customers. From the make of the TV to the parents’ job profiles, I’d use every bit of information to position my pitch.”

Multi-year subscriptions are not an easy sell at Byju’s as it typically expects to be paid in full for its products at the time of a sale, even when their service stretches over as much as five years. And few families can afford to pay as much as Rs 2 lakh ($2,880) at one go.

The solution? Byju’s decided to offer consumer loans to prospective customers. That way, it would still get paid in full upon a successful sale, but parents could then pay monthly loan instalments over the years to lenders. And the customers pay no interest on these loans, which is borne by Byju’s instead.

“The loans increased the ticket-size of my subscriptions from Rs 50,000 to Rs 1.5-2 lakh,” says the BDA quoted above.


The making of a loan crisis at Byju’s


“Come fall in love with learning,” said the photo of a cherubic kid wearing oversized glasses on the receipt the parent waved at the camera. But there’s little love in words she and three other parents used in the video—a complaint to the Chennai Cyber Crime Department.

“I did not know they were signing me up for a 12-month loan for Rs 50,500 ($729) from some company called Capital Float,” she said.

“They took our biometrics saying it was for EMIs,” said another.

“They” was Byju’s, India’s edtech behemoth.

Huge Revenue

With revenue of Rs 1,430 crore (a little over $200 million) for the year ended 31 March and a valuation of over $5 billion, founder Byju Raveendran’s eponymous startup is already an unparalleled success story, and not just for the edtech sector.

Since the launch of its learning app in 2015, the company has known no barrier to growth. Soaring revenues, users and even celebrity endorsements have bolstered its growth and put a significant distance between Byju’s and its nearest competitors like Toppr and Extramarks. Raveendran, a regular fixture across education and start-up conferences worldwide, has ushered in an era of homegrown entrepreneurs with global ambitions.

“I strongly believe that the next big education company will be built in India,” Raveendran said in a previous interview with The Ken for an earlier story.

All the fanfare and glowing PR, however, masks systemic issues with how Byju’s products are marketed, sold and paid for. Even a cursory internet search throws up a dense litany of allegations of mis-selling and unwanted loans pushed on to customers by Byju’s sales executives.

On the one hand are vocal parents, who’ve aired their complaints to anybody willing to listen. On the other are the third-party loan providers who are being burnt by Byju’s growth-at-all-costs sales tactics, unwilling to talk. Riding on Byju’s growth spurt was supposed to be a secure way for lenders such as Capital Float to power their loan book. Instead, they are smarting from accusations of cheating and harassment by the very borrowers they acquired through Byju’s.

Over several weeks, The Ken analysed 110 unique complaints spread over 14 sources, including consumer complaint forums, Facebook, Twitter and even the Google Play Store. A series of thorough conversations with some of these complainants and lenders subsequently showed how Byju’s sales processes are set up to sell products using unsecured loans to an upwardly mobile, middle-class population.

At risk is the nascent and fragile trust India’s edtech sector has just started building with Indian parents, who consider their products a solution to dealing with the inadequacies of a broken education system.

The Pitch

The Byju’s sales pitch is a fascinating mix of performance, academic counselling and the tried-and-tested sales tactic of “try now, pay later”. The Ken spoke with 10 current and former Byju’s business development associates—BDAs, or counsellors, as the company usually calls them—to unravel a long, carefully planned process to guarantee a sale. And sometimes obfuscating a whole bunch of details key to the sales process.

“When we counsel parents during the sales pitch, we show them how far behind their child is in their conceptual understanding of maths and science topics. We exploit the need for an alternative to schools and tuition centers,” says a Delhi-based former BDA, who worked with Byju’s for over a year. All of the BDAs spoke to The Ken on the condition of anonymity since they either work for rival edtech platforms now, or are still at Byju’s.

As The Ken reported earlier, Byju’s BDAs have a weekly sales target of Rs 2 lakh ($2,876), comparable to targets at large consumer goods companies. Byju’s funnels a majority of its sales leads from its free app. Parents download the app after seeing a Byju’s ad or hearing about it from another parent or friend. This app exists primarily to let parents sample Byju’s lessons. The actual lessons are delivered via a tablet pre-loaded with a Byju’s SD card.

“Once downloaded, we track the performance of the child through this app, the kind of activities attempted, and then call the number to book a session,” says a Haryana-based former BDA. Every employee, he says, needs to book at least 15 “counselling sessions” a week.


Trai’s broadcast revolution will not be televised


Over the last few years, the Telecom Regulatory Authority of India (Trai) has been on a crusade. This crusade was meant to shield the TV-watching consumer from the cloak and dagger tactics of the broadcast and cable services industry.

The problem, as the regulator saw it, was simple—broadcasters and distribution operators transmit hundreds of television channels to subscribers. Despite viewers only watching a few select channels—say, sport or news—they have little choice but to subscribe to and, therefore, pay for the entire gamut.

So, since 2016, Trai has formulated one policy paper after another, all aimed at addressing the woes of subscribers. To do this, it sought to control and establish a level playing field between mighty content behemoths and the companies which transmit this content to subscribers. This resulted in the Tariff Order 2017—which required broadcasters to declare prices for individual pay channels and capped the pricing of a pack of channels at no less than 85% of the sum of their a la carte pricing.

Notified in 2017 and enforced on 29 December the following year, Trai expected the order to aid in price discovery of individual channels. This would allow subscribers to choose only the channels they wanted and effectively spend less on their direct-to-home (DTH) or cable TV bill. It would also let Trai keep tabs on the exclusive deals between broadcasters such as Sony, Star and Zee and distribution operators like Tata Sky DTH, Airtel DTH and Hathway, which have led to an unlevel playing field.

No FruitFul Efforts

But the road to hell is paved with good intentions. After broadcasters challenged Trai’s order in the courts—which ruled the discount capping of packs was arbitrary—a wave of disruption has been unleashed in the space.

Just not in the way Trai had hoped.

Broadcasters and operators began creating hundreds of heavily discounted channel packs—confusing viewers and dissuading them from opting for standalone channels. Today, it is either more complicated for subscribers to renew a cable or a DTH connection, more expensive, or both.

Cable or DTH operators—the pipe between broadcasters and viewers—feel they have lost bargaining power with the broadcasters, as the latter sets the price of channels under Trai’s regulation. Payouts by DTH operators to broadcasters have increased by around 40%, according to sources.

Smaller channels and broadcasters, which don’t have the leverage of their larger broadcast counterparts, are also reeling under the new system. With big broadcasters perversely incentivising channel packs, smaller players are left in the lurch. Lower traction will lead to lower ad rates.

The writing on the wall is clear: “All small channels will shut down. The small operators will die,” said one executive with a DTH provider. “This regulation will create monopolies. You are making sure that only people with deep pockets will survive,” the executive added.

Trai isn’t blind to this new reality. In a consultation paper released in mid-August, it acknowledged that the situation hasn’t panned out as it hoped. But even as Trai ponders the chaos it has unleashed, new heavyweights are emerging—OTT players.

With the cost of internet data plummeting, video streaming services such as Netflix, Amazon Prime, and Hotstar have seen a marked uptick in popularity. The subscriber base of the 16 top OTTs increased 2.5X—from 63 million to 164 million—between August 2016 and August 2017.

“Amid this changing landscape, Trai is over-regulating the sector, strangulating the traditional players,” says the DTH executive quoted earlier. And while the reign of the old guard seems shakier than ever, the gatekeepers of India’s data revolution—Mukesh Ambani-owned telco Reliance Jio and its arch-rival Bharti Airtel—seem primed to rule the space. Positioned as an OTT player, Jio is also shielded from Trai’s regulations.

A Skewed Broadcast System

For years, five broadcasting companies—Star India, Zee Entertainment Corp, Viacom18, Sun Network and Sony Entertainment—have dominated India’s broadcast and cable business. Accounting for the bulk of the sector’s $9 billion-plus revenues in 2017, they virtually control the sector. Indeed, their heft, both in terms of finances and content, means they wield considerable influence on distributors as well. Here’s how they functioned:

Broadcasters charged distributors (DTH or cable operators) for transmitting their channels to subscribers. The larger the platform, the better the rate a distributor can negotiate with the broadcaster. Smaller platforms, therefore, are forced to shell out far more.

Revenue Growth Of The Carousell


This writer wrote about advanced conversations between Naspers and Carousell in June 2018, but an investment wasn’t completed and announced until April the following year. Prior to the deal becoming official, OLX had intended for Carousell to become a proxy in Southeast Asia, with the investment eventually leading to a full majority ownership in the future.

Such is its familiarity with classifieds in the region and its deal-making nature that there’s a case to be made that OLX may have played a part in the 701Search merger. That the deal came little more than six months after OLX became a Carousell shareholder and board member only adds weight to this argument. OLX had, as mentioned, cherry-picked two 701Search businesses to merge with its local entities in Thailand and Indonesia, so why not finish the job and pin the remainder to its Carousell asset. However, Malani, the Carousell CFO, claimed OLX was not actively involved in facilitating the merger.

“It wasn’t OLX that got the deal to the table,” he explained. “It was a direct conversation that we were having with Telenor. Once we started the dialogue [and] sensed that there was an interesting combination and interesting mix, we took the matter to the board, where OLX is present.”

Regardless, OLX and its “diverse experience” worldwide has provided strong input for Carousell, though Malani stresses its involvement is only at the board level rather than operational. It’s a similar situation with Telenor, which has board representation through investment executive Svein Henning Kirkeng and Johan Rostoft. The latter leads the telco’s online classifieds business and was previously the managing director of 701Search.

Future in motion

The next phase for Carousell will likely focus on developing strong premium verticals. The business has become popular with younger audiences because of its mobile-friendly design. However, the investor quoted earlier suggested that it may need to embrace a more traditional, web-based approach if it is to tap lucrative verticals the way 701Search has.

In the global classifieds space, the traditional money-spinners have typically been real estate, automotive and recruitment. Craiglist Inc, which started in 1995 and is one of the originals in the space, is estimated to have crossed $1 billion in annual revenue last year despite the growth of social media, e-commerce and other modern-day internet services. A whopping nearly 70% of its sales are said to have come from recruitment listings, according to figures released by analyst firm AIM Group earlier this year.

These verticals, however, are not nearly as lucrative in Southeast Asia. Singapore—Carousell’s home market—is dominated by influential players in those sectors, including market leader JobsCentral in the jobs space, billion-dollar firm PropertyGuru in real estate, and, in automotive, ambitious startups like Carro–which has raised over $100 million from investors. That said, Malani claims leadership in property rentals in Singapore. The company also acquired automotive portal Caarly in 2016 on undisclosed terms in a move to kickstart its monetisation push—it is unclear how that acquisition has developed. 701Search’s assets and experience, though, could be a massive boost in these areas.

Malani said Carousell plans to work closely with 701Search to share ideas and best practices across various business units, but that’s dependent on a successful integration.

Inspiring Factors

Carousell has come a long way. While it will forever be the plucky startup that inspires a new generation of Singaporean founders, the business today is unrecognisable from what it started as. With OLX and Telenor among its core shareholders and through investment and consolidation deals, it has picked up enough speed to become a part of the global classifieds elite. How it fares following this merger will dictate whether Carousell continues in its current guise and adds more pieces through deals, or whether the company itself becomes a building brick in someone else’s classifieds wall.

Anyone looking for clues on possible outcomes should recall that OLX took full control of Russian classified giant Avito in January 2019 for a cool $1.16 billion. Avito’s own growth took off following a 2013 merger between two OLX properties, and a $50 million capital injection that valued the new entity at around $570 million. Already, many of the ingredients required to follow that recipe are firmly in place.

Merging Of Carousell With Telenor


The new entity has taken a flat valuation. Carousell commanded a valuation of $560 million in April following the investment from OLX, while 701Search was valued at $330 million after Telenor bought out partner Singapore Press Holdings (SPH). Following the merger, 701Search accounts for 32% of the newly-combined company—that’s $272 million—with Carousell representing the remaining $578 million.

An $850 million valuation gives a very generous multiple of over 20X of revenue—it’s typically 10X in classifieds—but there’s a belief that revenue can continue to grow. However, the deal reflects that Carousell may be the better positioned of the two entities to do so. Malani explained that the two companies will run as standalone operations to “preserve momentum”, but that opportunities to collaborate will be explored further down the line.

“We’ll also look at what are the things that we can do better,” he added. “[So] something that one asset has figured out that another asset six hasn’t yet, or something that is working insanely well in Vietnam that we should bring to the Philippines.” For Carousell, the deal makes it the undisputed market leader in the region, but it also represents a period of potential stability for 701Search.

Musical chairs

Unlike Carousell’s new-age beginnings, 701Search has a far more orthodox origin story. It was born out of the digitisation of the listing business in SPH’s traditional print business. Since then, things have become a lot more complicated.

Its acquisition by Telenor in 2017, for example, isn’t exactly what it may seem on the outside. Telenor bought out shareholder partner SPH, which owned one-third of the business. But its deal to take over the stake of Norwegian media major Schibsted—the third partner in the business—is more intricate.

Schibsted gave up its 701Search stake in exchange for Telenor’s share of the joint venture—SnT Classifieds, which operates in Latin America. The agreement saw Telenor net $406 million overall. That swap deal challenges assumptions that Telenor merely acquired the 701Search business. It was instead an asset swap driven by its partner’s desire to grow in Latin America.

Then there’s the issue of the countries that 701Search doesn’t cover.

The relationship between Telenor and Schibsted is complicated, and it spans many parts of the globe. SnT Classifieds covered Bangladesh and Brazil, while 701Search—which also includes SPH—covered businesses in Thailand and Indonesia.

And this web only became more convoluted.

In a major piece of global consolidation announced in November 2014, Naspers bought into all four of the businesses mentioned above through OLX. While the businesses in Bangladesh and Brazil were never part of 701Search and are not relevant to the Carousell story, the deal did mean that the services in Indonesia and Thailand—Southeast Asia’s two largest economies—were removed from the 701Search business. 701Search remains a shareholder, but those stakes were not subject to the Telenor buyout and therefore continue to be jointly owned by Schibsted, SPH and Telenor.

No Longer Involved

Overnight, the 701Search business that Carousell now owns was no longer involved in Southeast Asia’s two biggest markets.

One can speculate about the impact of that deal—the Indonesia entity actually competes with Carousell today—but the fact that OLX chose those two countries over the others reflects that it considers them to be of greater importance. Following the deal, what was left in 701Search was less premium.

One rival to keep an eye on may be OLX Indonesia, which counts both Telenor and OLX as investors. Data from Similarweb suggests the OLX business enjoys a significant lead over Carousell. There is no suggestion that a tie-up between OLX Indonesia and Carousell will happen. However, classifieds is an inherently acquisitive space, and such an alliance could benefit Carousell significantly while also serving to tie-up investments for Telenor and OLX.


Singapore’s Carousell makes its mark on the global classifieds stage


Carousell, Singapore’s startup darling, has found its path. In November, the seven-year-old mobile classifieds service announced a merger deal with Telenor-owned rival, 701Search. The deal values the combined entity at $850 million and brings together two of the region’s most prominent classifieds businesses.

The Singapore-based company was “unbelievably lucky” to pick up this deal, an investor whose portfolio includes classifieds businesses told The Ken. This turns the business into a genuine contender for unicorn status (a valuation north of $1 billion), said the investor.

The Carousell story is well known in Southeast Asia startup folklore. It was founded by three early-twenties graduates of the National University of Singapore (NUS) after they spent a year in Silicon Valley as part of their undergraduate program.

The company only began to monetise its service in the past few years, adopting a classic classifieds approach by charging for advertising and visibility with a focus on high-priced assets. Profitability, however, remained a distant dream. Not anymore. 701Search is a company even rarer than a unicorn—it’s a profitable business. The combination of Carousell’s reach and 701Search’s profitability is seen as a perfect match.

What Was The Concern?

For Carousell, the deal is a vindication of its perseverance. Southeast Asia is a region where major startup exits remain rare despite increased firepower from investors (a topic that The Ken recently explored in depth), but Carousell has had its past temptations. Its three young leaders once rejected a $100 million acquisition offer that Bloomberg reported would have made CEO Siu Rui Quek (and co-founders Marcus Tan and Lucas Ngoo) “wealthy beyond his dreams.”

Not only did Carousell choose to stay the course, but it also earned major validation this past April when it closed a $56 million investment from OLX, the classifieds business belonging to Naspers. South Africa-based conglomerate Naspers is best known for an early and lucrative investment in Chinese internet giant Tencent.

One industry source said at the time that the deal could be a precursor to an eventual takeover from OLX, a process that’s fairly common for the group. Carousell’s tie-in with 701Search furthers that thinking—it is precisely the kind of regional consolidation one would expect of a company on its way to becoming a must-buy business for a major global player like OLX.

But success is not a guarantee. Both Carousell and 701Search’s assets will continue to live on independently post the deal. The challenge for Carousell will be in how it allows each service to grow while replicating success across its portfolio. There may be opportunities to lower operational costs. The investor quoted earlier said retaining the “undoubted” talent of 701Search staff will be critical—this is truly an operational challenge.

Opposites attract

The contrast between 701Search and Carousell goes beyond just profitability. While the former is a 13-year-old service born of corporations and anchored to traditional desktop web listings, the latter is a startup focused on mobile classifieds. The two companies are also at very different points financially.

It’s difficult to compare the financials of the two companies as financial data for 701Search is scant and dated. The most recent year a like-for-like comparison can be made, in fact, is 2017. In that year, according to Telenor’s year-end 2017 financial report, 701Search made a NOK 37 million ($4 million) loss on revenue of NOK 66 million ($7.2 million). This was markedly better than Carousell, which reported a loss of $29.8 million on revenue of just $1.7 million in the same period.

Both companies have improved since. In 2018, the last year for which its financials are available, Carousell lost $25 million on revenue of $7 million the following year—a 4X increase in total sales and a $5 million reduction in losses from 2017. 701Search, on the other hand, has since turned profitable. According to company CFO Rakesh Malani, Carousell is also profitable in two countries, though he declined to specify which.

A second investor with a focus on classifieds businesses told The Ken that 701Search is estimated to have a $20 million annual revenue rate today. Some three-quarters of this is thought to come from Mudah, its marketplace in Malaysia, courtesy of its lucrative automotive and real estate verticals. This estimate is plausible since Carousell told the press that the combined entity’s annual revenue stands at “over $40 million”.

xto10x is entering a space that is flooded with such tools


The company was founded and is run by executives who have seen scale and understand it. The team consists of folks from Flipkart, India’s largest startup ever, and Carousell, Southeast Asia’s largest classifieds company.

Also, by not investing in companies attending its school, xto10x ensures that their incentives are not purely financial. It can guide them to attempt purposeful product-led growth rather than purchased capital-led growth.

The scaling wall

The idea for the company was born out of a breakfast meeting between Bansal and Krishnamurthy in September 2018. “We wanted to start something that could be bigger than one company and have a wider impact,” explains Krishnamurthy. The duo brought on board Neeraj Aggarwal, the former VP of supply chain operations at Flipkart, as co-founder and COO.

Earlier this month, xto10x also hired Jia Jih Chai, former senior VP for growth and strategy at Carousell and previously Airbnb’s managing director for Southeast Asia.

They believed the time for doing something like this was right as post-2015, the Indian startup ecosystem has really come of age. “Pre-2015 was all about building the ‘Amazon of India’ or the ‘Uber of India’. But companies now are looking at every corner of the economy and building solutions that don’t have any parallels and are unique,” says Krishnamurthy.

Among startups today, there is plenty of vision and funding to go around, but what startups lack is tactical expertise. While investors do offer strategic advice, startups can’t rely on their VCs to completely solve their problems. “They wouldn’t want to be completely vulnerable and share all their troubles with their VCs as it could affect their future round of funding,” says Aggarwal.

For instance, companies that have signed up for this program have significant operational challenges. Hyperlocal delivery company Dunzo is reportedly in the middle of scaling back operations in parts of Bengaluru, Mumbai and NCR to optimise its delivery fleet. While others like bike taxi company Rapido are operating in a regulatory grey zone without any clear operational rules.

After nearly 50 conversations—each lasting about two hours with different types of startup founders—the xto10x founders found that there are 10 recurring challenges that are common to those who have achieved a product-market fit. These include challenges related to strategy and business design to hyper-growth and customer experience. “These ‘10 pillars’ are our North Star,” says Krishnamurthy.

These pillars are addressed and handled in a six-month bootcamp for startups—the 10X Academy.

Payment gateway Razorpay, tax-filing platform Cleartax, meat and seafood company Licious, self-drive car rental company Zoomcar and bike-taxi company Rapido are some of the companies who are part of the current second cohort at the Academy. While companies like social commerce platform Meesho, online marketplace for gold loans Rupeek, ed-tech company Vedantu, and Dunzo are some of the companies that attended the first cohort earlier this year.

So, how exactly does this bootcamp work?

The un-Shark Tank

It begins with xto10x inviting startup founders for a “vision challenge” round. In an informal two-hour conversation, the three co-founders of xto10x challenge the startup’s ‘vision’ and identify the drivers and bottlenecks of the startups.

In each cohort, eight founders are chosen to be part of the 10X academy. After both parties agree mutually on the problems, a structured six-month program is set into play. All the eight founders meet for a weekly roundtable every Friday to discuss one of the challenges from the 10 pillars. Like culture or organisation design, and the roundtable serves as a cross-learning platform. Besides Bansal, Krishnamurthy, and Aggarwal, external experts like Rahul Chari, CTO and co-founder of PhonePe, also advise the companies on their challenges.

There are also one-on-one sessions with mentors. “This way, it is not a theoretical exercise,” says Vidit Aatrey, co-founder and CEO of Meesho.

At the end of three months, a blueprint for execution on the top challenges is designed by the startup founders. Krishnamurthy, Bansal and Aggarwal then assess how the startups are sticking to the plan and change course if needed through the next three months.

Aatrey says they also present the blueprint to the other companies in a mock boardroom discussion. This helps figure out flaws in the execution strategy. “Though we guide them, we don’t promise to be there for them always,” says Krishnamurthy.