24 March 2016 09:19:55 IST

Fringe benefits: start-ups join hands as funds dry up

With integrations, non-competing businesses are leveraging each other’s customer base to reduce costs and increase revenues

Lately, well-established tech start-ups and Internet companies with no common business interests are joining hands to provide integrated services to consumers. Industry experts are of the view that such integrations help gain a larger market share, and signal that a particular market is entering a phase of consolidation as fundings dry up.

For example, tech giant Google recently said it partnered with cab-hailing apps Uber and Ola in India to allow users to book a cab through its Google Maps app. Soon after, leading e-commerce marketplace Snapdeal integrated cab-booking service in a tie-up with Uber.

BusinessLine spoke to a few industry experts to understand the rationale behind this growing trend and whether it will work or not.

In the case of Google, when a person searches for directions using Google Maps, it will throw open options of taxi services available to that destination. Similarly, taxi-haling app Uber had earlier tied up with Zomato to help consumers get a cab to a restaurant. However, the service did not take off as expected.

Vikram Gupta, founder of early-venture fund IvyCap said such tie-ups are a natural evolution for businesses that have clear synergies with other businesses. “These kinds of synergies start showing up at larger scales of businesses. We will see similar synergies in many other businesses, with time,” Gupta added.

While such integrations help take on local competition, they also help the companies find out ways to keep the cost of customer acquisition low. Earlier this month, Snapdeal, which competes with Flipkart and Amazon, integrated Zomato, redBus and Cleartrip into its app, allowing users to book bus tickets, order food and make travel plans.

Uber could leverage the Snapdeal integration to compete with Ola, while Snapdeal could also benefit as this offering is unique by an e-commerce platform in the country, at present.

Saurabh Uboweja, Chief Brand Strategist at Brands of Desire, was of the view that the Indian internet consumer market is entering the first major consolidation phase.

Consolidation phase Besides, the funding scenario is also drying up and is imminent in the short term. The market size and the large number of untapped internet consumers continue to be a huge attraction for large companies.

Under such circumstances, it is not viable to spend huge amounts of money upfront to acquire customers and it makes practical sense to tap into the customer networks of similar or larger non-competing businesses. It not only reduces the cost of customer acquisition, but also makes it performance-linked, investors and start-ups feel. Vivek Vyas, founder at obituary site Shradhanjali.com, said, “I firmly believe such tie-ups work wonders as they compliment each other and create a win-win for everyone since it saves a lot of time, and money too in some cases. Apart from that, such mechanisms raise the bar of service standards. Being in the tribute service, I have been thinking of sending our complimentary subscription forms with death claims of some of the insurance companies.”

Seamless service From a consumer point of view too such integrations work as consumers these days are time-starved and mobile phones are crowded with apps. Companies need to shorten the time for consumers to get solutions, said Kumar Rajagopalan, founder of Retailers Association of India, representing various consumer Internet companies.

“There is a clamour by service providers to reduce time of consumers in various aspects of search, discovery, transact, pay and logistics. We would therefore be seeing retailers and service providers entering multiple market places and also tie-ups between various market places, in coming times. Search service providers, goods and services market places, logistics service providers, payment systems, gifting enablers will tie up with each other to create a more seamless experience for consumers,” said Rajagopalan.

Apoorv Ranjan Sharma, founder of venture fund Venture Catalyst, said such tie-ups will reduce cost in unit economics and hence lead to improved margins. It also increases engagement. Sharma added that billion-dollar start-ups do such deep integrations because consumer stickiness already exists.

The key point is traditional customer acquisition models needed companies to have money in bank to spend on marketing. With this mutual-sharing economy, when funds are scarce in the market, start-ups are leveraging each other’s customer base to reduce costs and increase revenues, he added.