Exploring indigenous social apps in India

This report is from this week’s edition of CNBC’s Inside India newsletter, which brings you timely and insightful news and market commentary on emerging economies. Subscribe here.

big story

India’s quest for a homegrown social media platform or messaging app is, depending on who you ask, as elusive as our friends at Allattai, India’s latest ‘WhatsApp killer’.

Some see this as a bold challenger, while others call it a copycat. The truth lies somewhere in between.

India has the second-largest internet and smartphone user base after China, and New Delhi’s lack of homegrown social media and messaging apps is most noticeable when compared to Beijing, which has a wide range of popular services.

More than a decade ago, China banned US social media and messaging apps, which led to the rise of local players such as WeChat, Weibo, and Douyin. South Korea and Vietnam didn’t even have to shun foreign products to build popular messaging apps KakaoTalk and Zaro, respectively.

But for a country that has built a fintech powerhouse, an e-commerce unicorn and a plethora of consumer technology apps, India’s inability to carve out a niche in social media and messaging is quite puzzling.

Could Arattai (meaning chatter in Tamil) move beyond its initial chatter and emerge as a viable domestic alternative to WhatsApp? Or will it follow the fate of flash-in-the-pan apps like microblogging site Koo, which enjoyed similar euphoria but was ultimately forced to shut down?

In March 2020, serial entrepreneurs Aprameya Radhakrishna and Mayank Vidawatka launched Koo, a microblogging platform billed as Twitter for non-English users in India. Driven by its nationalistic appeal, celebrities and top influencers joined the app, and within its first 18 months of operation, Koo hit 10 million downloads.

Government ministers also flocked to local microblogging sites as the Indian state clashed with Company X over a content moderation dispute. According to Tracxn data, Koo raised $30 million in a funding round led by Tiger Global Management in 2021, and the app reportedly took off in Brazil the following year.

But growing a new social media platform in a market dominated by deep-pocketed players takes money and patience. Raising startup funding in the winter of 2023 has posed a challenge for Koo as investors pull back from supporting unprofitable businesses.

“By the time Koo stabilized its product, the capital had dried up,” said Anurag Ramdasan, a partner at 3one4 Capital, a Bangalore-based venture capital firm that invested in Koo.

For its next phase of growth, Koo needed a business partnership to expand its app’s distribution. Ramdasan added that business development also required experienced hires, which would have been too expensive without financial support.

Funding may be one of the key differences between Arattai and its predecessors.

Arattai is backed by Zoho Corporation, an Indian multinational company that manufactures business software and web-based tools. According to the Tracxn financial database, Zoho posted approximately $1 billion in revenue and more than $300 million in profit in the year ended March 2024.

In February this year, a report by Burgundy Private and Hurun India said Zoho was valued at about $11 billion, making it one of the most valuable privately held companies in the country.

“Koo was a limited experiment with limited venture capital funding and limited time,” says Anand Runia, founding partner at venture capital firm India Quotient. He describes Zoho founder Sridhar Vembu as an “eternal entrepreneur” with “no pressure from venture capital”.

“I don’t think he’s going to win a championship in the next three or five years,” Runia said.

Access to patient capital is what sets Allattai apart from other Indian attempts to break the dominance of American social media and messaging apps in India, but there are additional challenges on the road to success.

Unlike in China, local competitors will have to lure users away from existing popular platforms to make room for themselves. And to get users to switch and create network effects, products like Arattai need product differentiation.

“For any platform to be successful, it has to offer something significantly better than its previous competitors, or it has to offer something different, or it has to have policy buoyancy (support),” said Joyojeet Pal, a professor of information at the University of Michigan.

In the social media space, the last few years have brought something new to the table. Instagram focused on images, Snapchat introduced filters, TikTok introduced short videos, and Clubhouse (which was briefly popular) introduced an audio-only format.

Pal said that in 2010, South Korea’s KakaoTalk took advantage of the fact that there was no native language option in the country and offered Hangul (Korean script).

There’s not much more that messaging platforms can do, other than group size, direct transactions, or integrating AI into the messaging process, because it’s very difficult for messaging apps to take off unless they offer a new value proposition, Pal said.

Bottom line: Arattai needs a hook that can engage users.

For now, like Koo, it’s relying on social media influencers, ministers and celebrities to endorse the platform. Arattai was launched in 2021 but remained largely unknown until India’s Education Minister Dharmendra Pradhan mentioned it in a post on X on September 24, urging Indians to switch to the homegrown app.

This post brought the app into the limelight, and the number of downloads skyrocketed. “We saw a 100x increase in Arattai traffic in three days (from 3,000 to 350,000 new signups per day),” Venbu ​​said in a September 29 post.

Arattai’s total downloads from Google Play Store are over 10 million, but that’s still tiny compared to WhatsApp’s 500 million users in India. Building apps with network effects takes time, but Lunia says it sometimes takes even more system-shaking government policies.

For example, the 2020 ban on TikTok reportedly made Instagram the most popular short video content app in India, while demonetization provided fertile ground for the proliferation of fintech apps.

Demonetization was a policy measure taken by the Indian government in November 2016 that siphoned off around 86% of India’s currency in circulation, forcing the introduction of fintech apps and leading to the rise of companies like Paytm and PhonePe.

Such policy moves are rare, with key government figures including Prime Minister Narendra Modi calling for self-sufficiency in all sectors and encouraging the adoption of domestically produced products, but banning US-made apps to achieve that goal has not been considered.

Arattai will therefore primarily rely on innovation to differentiate itself from its competitors, something Vembu stressed the company is actively pursuing. Will it work? We will update when the Arattai app starts to become more active.

Popular TV Shows on CNBC

Taimur Baig, chief economist and managing director at DBS Group Research, said unlike the US, India is not looking inward. New Delhi is engaging and attracting foreign investors.

Mithul Koteka, head of foreign exchange and emerging market macro strategy Asia at Barclays, said India’s latest steps to internationalize its currency are promising compared to China’s efforts to boost the yuan.

need to know

Anthropic is opening its first office in India as rival OpenAI increases its presence in the country. The company plans to open its first office in India, tapping into a market where the use of artificial intelligence is expanding and rival OpenAI is already making headway.

US tech giants are suspending data center deals in India under the weight of trade uncertainty. Both companies have delayed decisions to lease large data centers in India, nervous about the recent deterioration in trade relations between New Delhi and Washington.

Tata Capital’s IPO, the largest so far this year, was fully subscribed. The $1.75 billion IPO attracted particularly strong interest from accredited institutional investors. The company’s shares will be listed on the exchange on Monday, October 13th.

at the market

of nifty 50 As of 12:45 pm local time on Thursday, the BSE Sensex was up 0.36% and 0.33% higher. The broader index is up 6.4% year-to-date, while the Sensex index is up just over 5%.

Benchmark 10-year Indian government bond yields were trading 2 basis points higher at 6.526%.

very soon

October 10: Canara HSBC Life Insurance Company launches IPO

October 13: Tata Capital shares listed on exchanges. India consumer price index data for September

Every weekday, CNBC’s Inside India brings you news and market commentary about powerful emerging businesses and the people behind their rise. Live stream the show on YouTube and watch highlights here.

Showtime:

USA: Sunday to Thursday, 23:00-0000 ET
Asia: Monday-Friday, 11:00-12:00 SIN/HK, 08:30-09:30 India
Europe: Monday to Friday, 05:00 to 06:00 CET