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What are the lessons from Southeast Asia as India builds its super apps? – Part 2

Reliance Jio and Tata have launched their super apps in India while Southeast Asian super apps like GoTo and Grab have yet to see profitability even after achieving considerable scale in user numbers. In the first part of this report, we looked at why investors believe that there is a compelling business case for Southeast Asian super apps and how the comparative metrics make a similar case for Indian super apps. But getting down to brass tacks, what makes a super app work? What do the Indian super apps need to do to be successful?

The success of WeChat, Alipay, and Kakao point to a singular reality: These apps became the virtual high streets on which users spent the prime time of their digital lives – whether by simply chatting with each other or by buying things. By nature of the app business, online needs are serviced by monopolies, duopolies, or at most by triopolies as a pattern worldwide. The Northeast Asian super app companies built platforms which users habitually visited for their immediate virtual communication or purchasing needs. In the case of WeChat and Kakao a social media function – the chat app – acted as the social glue to  hold together the services that were added subsequently.

In the case of WeChat and KakaoTalk, a chat app and a high-traffic social media platform acted as social glue to eventually hold together the multiple services built on the apps. It was easy to add more services and make the apps even more addictive, because when people weren’t working in the real world, they spent their time in the virtual high street of the primary utility app. In contrast, Grab and Gojek used ride-hailing to drive users to their platforms. Although chat or payments are commoditised offerings, WeChat and Kakao built up a critical mass of customers and an unsurpassable early lead in the number of users right when instant chat software was taking off globally.

WeChat was launched as a social media platform for chatting and sharing photos in 2011. Thanks to China’s walled-garden strategy for local companies and Tencent’s technology prowess, it reached the 300-million-user mark in two years and immediately launched wallet and payments services. The app later integrated Tencent-funded delivery, ride-hailing, and e-commerce apps on its chat and payments platform. It later also allowed businesses to set up stores in its e-marketplace, and by 2017 – through its mini program – it helped companies run their apps within WeChat to organically transform into a super app. WeChat’s clear super app value proposition is that from communications, to payments and loans, to games and streaming, and to ride-hailing and delivery, users can accomplish their most immediate needs without ever leaving WeChat.

How does the social glue model relate to India’s super apps? Neither Tata or Reliance have that kind of a social glue or an organically built, intuitive, virtual high street app that people spend their digital lives on. Reliance’s super app plans rest on the user base its mobile service Reliance Jio has acquired by offering cheap data – close to 530 million people. Reliance then leverages this user base to power its app ecosystem by requiring the users of the apps to have a Jio SIM card installed – a strategy to acquire more users for the mobile service and the apps simultaneously.

Are payments the super app super glue?

Jixin Foo, a managing partner at global venture capital firm GGV Capital, which is also an investor in Grab and Alibaba, is of the opinion that the key to super app success is a super wallet. He cites the fact that both Alipay and WeChat were mobile money wallets before they became super apps. The payments infrastructure acts as a super glue on top of the social glue of a chat app to provide a solid foundation for a myriad of services while prompting users to try out newer services.

The real value of a mobile money wallet accessible on a smartphone is that companies building super apps can use it to further build other financial services such as digital banking, wealth management and investing, as well as loans and insurance on the same app. The key value proposition is that they can take a consumer through an end-to-end digital financial services customer journey ensuring that the usage of the app can become a hard-coded habit and an inevitable part of life beyond communication or moving around in the city.

Bringing online the next 100 million of the underbanked and underserved Southeast Asian population is the number one game that the region’s super apps are involved in. Case in point: Grab and Sea have acquired digital banking licences in Singapore. Sea had acquired an Indonesian bank, Bank BKE to expand the services provided by its SeaMoney unit through its ShopeePay app. On April 26, it was reported that Sea Ltd intended to purchase a minority stake in Indonesia’s PT Bank Mayora. Sea had in fact initially helped state-owned Bank Negara Indonesia to transform Bank Mayora into a digital bank. Sea’s role is to help the bank address volatility, and risks in SME lending by using data. Gojek had bought 22% in Jago in 2020, which is on track to be one of Indonesia’s first fully digital banks.

Alipay started as a mobile wallet

Meanwhile, Grab acquired Indonesian digital wallet provider Ovo and Malaysian grocer Jaya Grocer.  Similar to Sea’s banking acquisition, Grab seems to have acquired a brick-and-mortar business to build a digital or omnichannel play in the supermarket business on its super app.

The super app strategies of the Southeast Asian companies are similar and different at the same time. The commonality is that they are betting on a future in which once a person is reflexively used to booking a ride on the app or using it for gaming content, they will also buy goods over the internet, transact online using the digital wallet, and then make it their digital haunt for the many other services.

Ultimately, what the super apps are after is data. They are eyeing the user’s purchase and payments data to build further financial services and products on the app. The investors are betting on a monopolistic or duopolistic future and a consistent, positive, margin-generating model that for them is nearly here, yet never near enough.

However, having a leading digital wallet in its app hasn’t stopped the selling of Paytm shares, even though the Indian fintech company reported a 114% rise in GMV year-on-year in March 2022. Paytm shares that had an IPO price of INR2,150 had dropped to INR520 in March, and now trades at around INR558. When it comes to payments in India, Walmart-owned PhonePe and Google Pay hold a steady lead over Paytm.

Several analysts in India have commented that Paytm, despite being a payments leader in its early days, has not provided clarity into how it will achieve profitability or how it can provide a clear value proposition to the common man over the UPI-based Google Pay or PhonePe in payments. Unfortunately for Paytm, it was quite late in adopting UPI.

UPI – or United Payments Interface – is part of the “India Stack” or the publicly owned digital payments, identification, and ecommerce infrastructure. And the payments-led super app play is getting murkier in India with India’s leading banks opening up their digital platform APIs and integrating partner apps on one platform to create virtual super apps.

Relying on Google and Facebook: An Achilles heel for Reliance?

Most services that Reliance and Tata offer (or plan to offer) in their super apps are naturally commoditised. To differentiate themselves, they need to innovate – and that means investing in new IP. According to a report by investment holding firm Vertex Ventures, Grab’s success over Uber in the ride-hailing market in Southeast Asia (it simply bought off Uber’s business in the region) comes from its IP – especially the IP it built in driving deep localisation of services.

Reliance leverages WhatsApp for its growing JioMart grocery delivery service. It is building a low cost smartphone and a custom smartphone operating system in partnership with Google as the foundation for its super app strategy. The low-cost smartphone is targeted at bringing online the next 500 million Indian users and locking them in the Jio platform. The super app will be bundled with the phone, plus a SIM card package that Reliance will sell.

Reliance has also announced that it will offer its own 5G network solution that it is positioning to outcompete solutions from Eriksson and Nokia, as well as ZTE and Huawei given the background of the Indian government’s intense focus on technological self-reliance. It has also sought permission to test its own 5G gear. It is believed that Reliance will be the first Indian service provider to offer 5G data services in India.

Several analysts hold the view that the investments that Facebook’s Meta and Google have made in Reliance make no business case for either party, or even Reliance. Facebook and Google have faced restrictions due to the Indian government online policies for their digital forays in India. India has also required that data on Indian users must be saved only locally.  Analysts consider the investments by Google and Facebook in Reliance as operations to indirectly influence Indian government policy.

For Reliance, using the infrastructure of Google and Facebook could be fraught with long-term risks as Chinese and Russian companies are now finding out. Using Facebook and Google’s apps or platforms for scaling user numbers or as the payment interface around which the super app is built can make it hostage to unanticipated algorithm, policy, or regulation changes, not to mention the fact that ultimately the leverage over the super app would lie in the hands of these US companies.

Indian super apps are on an evolutionary journey

Indian consumers are value conscious and switch between multiple apps providing the same service or product to compare prices before deciding to purchase. As a result, the specialised apps in India that serve food delivery, logistics, or ecommerce have developed scale and a loyal customer base.

Fundamentally it is going to be tough for Reliance or Tata to force Indians to chuck the specialised apps in favour of their super apps when the super apps do not have similar high-traffic utilities on them, and high-traffic apps like Tata’s Big Basket are also available outside the super app. However, a low-cost phone running on a custom OS, with an app ecosystem that serves vivid entertainment and supported by cheap, high-speed data plans are the elements that could sway a value-conscious user’s decision to use the Reliance super app in the long term.

Tata launched its super app Tata Neu on April 7 this year after postponing the launch several times due to challenges with integrating the different in-house developed, acquired, and funded apps on the Neu platform. These apps, like online grocer Big Basket (which was acquired by Tata), continue to function outside the Neu platform as well. It is clear that Tata is on a super app journey – and it is learning, iterating, integrating, and evolving its super app strategy as time goes by. Even though the local media described Tata Neu as India’s first super app, Tata Sons group chairman N Chandrasekaran said at the launch that “The ecosystem will continue to evolve over time, but currently these apps will continue to be business as usual.” The Neu super app is built on an open architecture and according to Chandrasekaran, the app will host non-group brands as well. The app currently brings together online pharmacy, hotel and air ticket booking, and grocery delivery on a single platform.

The idea that Tata was looking to refine the integrations and value proposition of the super app over time could be understood from the fact that at launch, top Tata brands such as Tanishq were yet to be integrated in Tata Neu. In addition, the company made key appointments to Tata Digital (the unit that runs the super app) close to the launch. Under the leadership of Mukesh Bansal, Tata Digital has made key hires for its digital play from across India’s digital innovation ecosystem. According to a company statement earlier this year, Tata will strengthen established categories and expand into new ones over a period of time as its super app strategy evolves.

In January this year, Tata Digital set up Tata Fintech, a financial marketplace which will also offer financial services. Tata Capital, Tata Group’s finance and investment arm, was said to be working with Tata Digital to build this digital financial services platform. The platform is also expected to provide financial services to merchants and suppliers. Once fully functional, it is expected to process microloans, credit card applications, insurance distribution, as well as provide merchant solutions. During the same month, Tata also announced its entry into digital payments by establishing Tata Payments – the payment gateway for consumers to purchase a product or service on the super app.

In Southeast Asia, legacy Indonesian banks that drew investments from Sea Ltd have used Sea’s technology to become digital banks. Tata is similarly planning to use the supply chain infrastructure and technology of India’s leading online grocery Big Basket, which it had acquired earlier for its digital platform. The fact that Tata had to postpone the super app launch multiple times due to integration challenges – despite having the breadth of IT talent within the group –  hints at the challenges ahead for the company’s super app strategy.

A super app strategy without a high-traffic digital high street

The Indian super app challengers are trying to bring multiple apps together on their platforms without first creating app stickiness. This is actually counter-intuitive and the opposite of the strategy used by the Northeast Asian and Southeast Asian super apps. The challengers seem to be betting that once the integration and user experience evolve over time, with their strengths in diverse sectors and experiences in serving diverse markets, they can offer the kind of choices that US-owned Amazon or Flipkart will not be able to deliver in India. Tata Group’s board has allowed Tata Digital a budget of US$2 billion for acquisitions and investments.

Considering India’s population, neither Paytm or its Walmart-owned challenger PhonePe have reached the scale to call them super apps. Similar to Paytm, PhonePe integrates multiple services and products through access to third-party apps. PhonePe’s in-app platform – named PhonePe Switch (which is the fulcrum of its super app efforts) – has more than 500 apps in it.

The super app plays of Reliance and Tata are similar to WeChat, Gojek, and Grab, and dissimilar to Paytm and PhonePe in the sense that the companies are investing in most of the apps on their platforms in a holding company model. Tata’s opening up to third-party apps makes its super app platform a combination of the holding company and third-party app hosting models.

The secret to Gojek’s stickiness is ride sharing

With gross transaction value exceeding US$10 billion, Southeast Asia’s Grab and Gojek had already achieved super app status late last decade. Ultimately, a highly sticky, high-use utility is essential to scale a super app. Only Reliance and Tata have relatively high-use apps in JioMart and Big Basket respectively. Then they have the benefit that as large conglomerates, they can bring together apps serving multiple market segments and industries, as well as brand names that have intergenerational customer trust on their platforms.

India’s super app strategy has just crystallised

As it is, India is late to the super app game in Asia. The Indian super apps’ success will depend on how they will navigate the integrations of technology and data, while delivering a consistent customer experience across the different apps. The fact that the software that Reliance and Tata have acquired and integrated into their super apps continue to be available outside their super apps as standalone apps dilutes their super app strategy, especially that Indian users switch between multiple apps and compare prices to make their purchase decisions.

Delivering superior personalised user experiences and building long-lasting, value-generating customer relationships on the super apps is something that the Indian companies are expected to experiment, revamp, iterate, and innovate on the go, while the Southeast Asian super apps had crossed that landmark in the past decade.