Strategies used by 9 Indian hypergrowth startups to kick-in the network effects
Estimated Reading Time: 10 minutes
Hey guys, welcome back to this next edition inside startups.
After a long time ( 3 weeks approx.) I’m publishing this article the reason being that I spent a good amount of time doing the research before writing this. In future, if you’re not receiving my emails for a long time, assume that I’m doing research for the next piece :)
And for staying connected with me and to get some insightful and useful piece of content from books, twitter threads and articles you can join Worth Reading Whatsapp community.
Ok, so without further ado let’s dive in!
As you had already seen from the headline, today we’ll be talking about strategies and tactics used by some of the Indian hypergrowth startups to kick in the network effect.
Now, if you don’t know what network effect is, let me give you a little context.
It’s an effect where the system or a product becomes more valuable as users use it more. A most appropriate example of this is telephones.
The more the telephone users, the more people will use telephone and vice a versa. Another popular example of this is social networking apps such as Facebook and WhatsApp. The more users join the platform, the more people one can connect to and vice a versa. This is similar to positive feedback loops which increase the value of a system constructively.
The heart of the power of Network effects is right here: Value Increases Exponentially — Costs increase Linearly. ~Eric Jorgenson
I’ll highly recommend going through this article By Eric Jorgenson and this one by Deepak Singh too (both have explained very well), in case you are interested to go deep into Network effects, and then you can come back to read this post!
I’ve included the following startups for now in this post :
Feel free to skip to your favourite one :)
Ola
I don’t know about you but in my college days, I used to download Ola app, create different accounts entering my referral code in all the working mobile phones at my house. Why so? Because Ola used to give Rs. 200 off on a ride on referral. And that was a complete hit to attract more users on the platform.
However, Ola already sought out the supply first (before demand). They used fleet on street, meeting drivers at CNG gas stations, petrol pumps, outside workplaces, residential areas…pitching them the idea and asking divers to use the app whenever there's a booking available without pushing them to completely switch from their normal taxi service. This was no gain any loss offer for the drivers. For retaining them, Ola was luring the drivers initially by paying them 5000/day tips, but for that, the driver must be able to complete at least one trip in a day.
The network effect of Ola: Once there are more drivers in an area, pickup will be faster that attract more demand. On the other hand, more driver in an area leads to less driver downtime and low prices that again attract more demand.
Ola network effect is similar to Uber (see image below)
Magic Pin
Magic pin has indirect network effects: The more users that sign up to receive offers, the more attractive it becomes for merchants to offer their deals through it and vice versa.
The question is how they did it?
Here’s the thing. Magicpin targeted people between age 16-22 years especially college students and tried to onboard restaurants near universities and colleges. Magicpin incentivized these college students for uploading a photo of the bill + selfie with Cashbacks, vouchers etc. Also, the majority of the college students usually visits a restaurant in a group and seeing one of their freind taking pictures of bill spreads the word-of-mouth among those who don’t have the app yet.
Magic Pin also offers a restaurant with customer relationship management (CRM) tools that tell the purchasing behaviour of customers outside of their outlet and help them decide how they can increase their footfall. And for increasing footfalls, some restaurants started incentivizing (through their own budget) college students by giving them free food asking them to upload a selfie with the bill, again completing the loop.
Sharechat
Sharechat already had around 300 WhatsApp group with them well before they started. So they leveraged those Whatapp group to kick in the flywheel.
When people share pictures /videos on WhatsApp, share chat attaches its logo and in the shared picture or video with play store link. This creates a loop, people start either searching or downloading the app from the shared link mentioned in the description.
Not only this, Sharechat offer to provide Rs. 10 and Rs. 15 Paytm money respectively for each user referred on the platform, using it users as an Influencers through their referral program.
Truly Madly
Initially, to get the early traction, they used to organize a program at college campuses and BPO’s called “Dhabe Pe Charcha”, inviting girls and boy over a chat and offering them chai (Tea) and samosa. This helped them get their first 1000 and help them to understand what their potential users think about dating culture and understanding that will they go on a dating app etc.
The main problem for dating apps like Truly madly was to build trust with women due to cultural conditioning, and the societal norms. So, truly madly focused their energy on bringing women first on the platform and men will follow (classic chicken-egg problem), more options for finding a perfect match.
One strategy they followed is to create digital content targeting millennial girls by Collaborating with AIB-India’s and releasing “Creep Qawwali” video that grabbed almost 1.4 Mn eyeballs on youtube. The message from the video was to tell women audience that all the profile on truly madly were verified, giving them a safe and secure experience.
The second strategy they used was tying up with 50-60 popular restaurants across the country to provide lucrative offers to its users to encourage them to ask their match out on a date. They named this offer as Datelicious. The idea behind this strategy was to break the ice between the matches, giving them the opportunity to meet each other on a date. Once, they both have decided to go out on a date, they need to decide where to meet and what to eat. So, truly madly cuts out their work by showing them a bunch of spots and offering them a voucher or discount coupon they can redeem.
Dukaan By RankZ
There was a time in the mid-August when the Indian startup community and evangelist on twitter was talking about their legal affairs. But keeping that aside… they created a fantabulous product for the sellers and cleverly kicked in the network effect through referral strategy.
When sellers make their digital store on the app, they cannot remove the Dukaan branding from their store. And for the seller to remove the branding, he/she need to refer and invite at least 5 more businesses on the app.
Hotstar
In Feb 2015 when Hotstar launched, Within six days the app had hit 1 million downloads, faster than any other entertainment app in the world. All thanks to their partnership with ICC to live stream major international cricket events like Icc cricket World cup 2015 and IPL, well before launch which generated user interest.
However, another strategy I got to know on Hotstar kicked in network effect was from the twitter itself. Thanks, Krishna for the insight :)
Here’s how Hotstar network effect looks like:
More users on the platform -> More money to spend on content rights + partnerships -> larger and better content library attracting more users and vice a versa.
Zomato
Before entering into the delivery segment, Zomato was online restaurant discovery website. For them, the most important thing was more restaurant listing and more customers who visit these restaurants and leave a review that further attracts new customers and traffic on that restaurant on the Zomato app.
Zomato used to give points to customers who leave a review with photos after having a meal. To make the ball rolling, a person used to get food vouchers when they leave their first-ever review on Zomato.
Once, a particular reviewer put thousands of reviews, pictures, he/she becomes a connoisseur which is the highest title one can achieve on Zomato as a foodie. Now, Restaurant invites these connoisseurs on their restaurants luring them with a free meal (at times with cash around 2500-3000 Rs, if the restaurant is popular) asking them to leave a review of their restaurant.
Not only this, Zomato inviting the to the food festivals, food tasting events, recognizing with badges and rewarding them with food vouchers, goodies etc. These connoisseurs further become Zomato evangelists spreading word of mouth through their social handles inspiring others to also leave reviews on the platform.
Urban Company
Urban Company solved the chicken and egg problem by onboarding service providers first which would provide different services that will attract more users towards the platform.
So, they used the cluster mechanism to onboard service providers without fleet on street. Instead, they send these sellers cold text messages about their offering and schedule a call with whoever reply on those messages. From what I understood, The main hook in that message was MG i.e Minimum Guarantee offered every month to service providers if they get on their platform to accept a service request. Similar to Ola drivers, this was a no-loss situation for service providers as Urban Company was allowing them to handle their usual offline work even they are listed one UC platform.
And for deciding which cluster to target, UC team mainly consider:
The User demographics in that area (for UC their target customers were usually upper-middle and Rich class people so targetting Posh areas make sense for them).
Customer density in a particular area. Means, how many queries a service generates from that area, what type of queries they are generating etc.
One of their ex-employee told me that, the company used to run an experiment using google ads to see the demand in a particular area. Once, they are totally sure about the demand, then they focus on onboarding service providers from the same area.
CRED
Since it’s inception CRED always stays in limelight either for their Business model or for their creative TV ads CRED featuring three veteran Bollywood celebrities Anil Kapoor, Madhuri Dixit and Bappi Lahiri. However, I was more curious about strategies CRED used to kick-in the network effect.
First, let’s understand how CRED show characteristics of the network effect. CRED rewards credit card payments with points that once can redeem against offers, discounts or get cashback on brands available on the platform.
More users on the platform -> More brands to partner with CRED -> More cash brands burn on giving discount and cashback.
So, the challenge for CRED was to Sought out the Demand side and supply will come eventually.
Getting early adopters was pretty easy, all thanks to the social media presence of Kunal Shah and his unique way to launch CRED on twitter.
But for a journey beyond first 1000, One of the strategies they followed was to send cakes and Gift boxes for the employees in companies like Netflix and in co-working spaces like WeWork (Banglaore), no matter these people were using CRED or not at that time. This was surprising and unexpected for people and they started bragging about CRED on social media, generating Word-of-mouth for the company.
Not only this helped CRED to gain word of mouth but also it was a good way to build trust with their potential users or users not active on the app. As Kunal shah says, "Trust is earned and reciprocated when you do it first”.
A couple of other strategies CRED followed in no particular order to kick in network effect:
Introduced the users with services and sites on the app, they didn't even know existed. For e.g: play date with puppies, Spring verify, background check service for maids are a few of them.
Giving wow-experience to users when they booked tickets of an event or a show through CRED coins they had. Either by having a separate entrance reserved for CRED members or by offering complimentary beverages only to CRED members.
Conclusion
In a 2 sided marketplace, try to get the harder side first (either supply or demand) and it will be easier to create value for the other side. In the case of urban clap and Ola the harder side was driver/sellers (supply) and for truly madly it was women.
Giving physical experience to your consumers like hosting events curating a special experience for users, helped the startup to build an emotional connection with them, as in this online era users hardly expect the company to invest their money and effort in giving surprises. Also, this helps the startup to get direct user feedback.
Before charging anything from the user, give them some FREE value offering (not just anything) in order to build confidence and trust with them.
Strategies implemented by startups in their Zero to one journey may not work when they are scaling up from 1 to 10 or 100. As you can see from the above examples, startups had burned tons of cash and experimented with various ideas in order to get things right.
Tha’s all from my side today, Let me know what you think in comments :)
Until next time, stay safe!
P.S: If you think that any information or insight in this blog is wrong or need correction, feel free to comment below or reach out to me @1997harkirat
P.S.S: I’m also running a WhatsApp group where I share insights from books, twitter threads and worth reading content.
This is very informative and interesting for those who are interested in blogging field.
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