India's homegrown messenger Hike signals its demise and a missed opportunity

Hike says its super app concept didn't work because of network effects of overseas players like WhatsApp. Yet, an opportunity that laid within arm's reach could have changed its fortunes.

Less than two weeks ago, India's first and only indigenous messenger app, Hike, announced its passing. Its CEO, Kevin Bharti Mittal, said: "Today we are announcing that we will be sunsetting StickerChat in Jan 21. We thank you all for giving us your trust. We wouldn't be here without you."

The "Bharti" in Mittal's middle name also belongs to India's largest -- or second largest, depending on how the numbers look on any given day -- telecom company, Bharti Airtel, which was started by Kavin's father Sunil Mittal, who was once a humble bicycle spare parts purveyor that, in fairytale fashion, rose to become the owner of one of India's most prominent companies.

With this lineage, you would expect that it was only a matter of time before Kavin and Hike became a mainstay with Indian smartphone users nationwide. Alas, it was not to be.

It certainly wasn't for a want of money or connections. After all, Hike had heavyweight investors in the form of Softbank and Bharti, both of whom at the outset became 50:50 investors.

At its peak, around 2016, Hike managed to attract a total of $260 million, including $175 million from Tencent, a company that owns China's most successful messenger WeChat. The investment brought its valuation to an enviable and somewhat incredulous $1.4 billion figure. Another big name backer was Tiger Global.

Yet, shortly afterwards, it was apparent that things were not firing according to plan based on its disclosed numbers. Revenues remained flat and its user base of a self-reported 100 million was also evidently not seeing much growth.

Of course, that doesn't quite tell the entire story. After all, most internet companies of scale today, like Flipkart or PayTM, are still losing money by the bucketful. It's just that the bet that they will eventually optimise their operations, reach a certain scale, and finally make a profit as more of India gets wired is good enough for today's internet investors who are not exactly leafing through Graham and Dodd's bible on value investing.

A STRATEGY THAT DIDN'T STICK

For Hike to have represented a continuing bet worth taking, there should have been a convincing line of attack that seemed worth banking on. However, the company's existential muddle may have set in right from the beginning.

When I first reported on the outfit in 2013 while meeting with Kevin at his offices, resplendent in glass and steel and packed with busy people engaged in a flurry of activity, it seemed that the company had everything it would need to rival WhatsApp, a well-known name in India at the time with 20 million users, but relatively unknown outside of the country. 

Mittal himself was smart and urbane, but he was maybe a touch more self-assured than he should have been. Yet he was no slouch, having armed himself with degrees in engineering and management from Imperial College, London.

From the outset, Hike was confronted with one of two different models to benchmark -- a plain and simple messaging app like WhatsApp; or an "ecosystem" app like WeChat, which captured its users' attention from the time she woke up in the morning all the way to bedtime.

Since then, WeChat users have been encouraged to order cabs, buy flowers, video chat parents, rejig a stock portfolio, buy some life insurance, and pay for their dry cleaning, all without ever leaving the app. This was the best example of a super app. Other similar ones that have made huge splashes are Kakao Talk in South Korea and Line in Japan.

The ones that got it right made mountains of money. Kakao Talk, for instance, generated a staggering $203 million in revenue and an even more astounding $59 million in profits in 2013 via its 140 million users hooked on the app's 180 games amongst other things.

Even though South Korea was no doubt a few eons ahead of India, this was a glimpse of a very real future that would undoubtedly be within grasp in five to 10 years' time.

At the time, India had not yet authorised digital payments, but you could see that it was only a matter of time before this would happen. Indeed, Hike won approval for its payments system by 2017, but arguably, there was not enough traction to make it a go-to app to pay for things.

For a super app to work, one of many things need to be in place: Either you have a captive user base in the form of a telecom operator, or you build one like WeChat did. Then, once you are authorised to get into payments and all of the ecosystem fripperies, such as grocery shopping, Diwali cash gifts, or pizza delivery, you move from a cumbersome wallet-based system to real-time payment transactions which India's Unified Payments System made possible in 2016.

For some mysterious, baffling reason however, Hike did not elect to hitch its wagons to 250 million some users of its sister Airtel network. Perhaps the ambitious junior Mittal wanted to show Dad, and the world, that he could go it on his own. 

To get a sense of the opportunity missed, take a look at Airtel's nemesis Reliance Jio, which is part of an octopus-like empire that runs everything, from retail to groceries to telecom.

Of course, Jio's strategy is much more complicated now that it has entered into an agreement with its latest investor, Facebook. As part of this deal, Facebook's messenger WhatsApp, with some 400 million captive loyal Indian fans, is now integrating with Reliance Jio's increasingly popular grocery-ordering initiative, Jio Mart.

Nevertheless, whether Airtel's archenemy uses WhatsApp or eventually its own messenger, the plan to take advantage of network effects by linking the embedded messenger to every Reliance product and service via a grafted-on payment mechanism is the kind of game-changing strategy that the Chinese companies, Tencent and Alibaba, utilised to raise their revenues and valuations to stratospheric levels.

Yet, Hike did no such thing. Instead, it chose to focus on India's admittedly large youth population, thinking that this alone would drive user growth. To entice them, Hike began developing a localised sticker strategy that delivered quixotic and endearing messages for Indians to send to each other.

Now, the enormous advantage that WeChat had at the time of its launch in 2011 was the serendipitous banning of Facebook from China, which left no other real social media options. The field was wide open. 

India, however, witnessed the steady ascendancy of foreign social media players such as WhatsApp and Facebook.

Today, Mittal says that going the super app way was a mistake and that the ecosystem in China, with no Western competition, was and is significantly different from India's. This unique ecosystem is what allowed for a super app experience in China and not India. Sadly, this epiphany was crystal clear even back then.

Mittal is correct by stating today that his father's archrival Mukesh Ambani forced dirt cheap telecom rates and an ensuing collapse of the telecom sector, which, along with inexpensive powerful smartphones with large storage made housing over a hundred apps easy to do. This, therefore, obviated the need for a one-stop-shop that housed everything.

Perhaps. However, a powerful in-house messaging app embedded within the Airtel family would have made the question of which app format to adopt ultimately irrelevant. Armed with a payments arm much like Alibaba's Alipay or its archrival WeChat Pay, Hike could have been a force that was big enough to compete with Reliance and Facebook.

Instead, it is Reliance that is now looking to create a super app for itself.

The tragedy of this story is that Kavin Mittal did have some good ideas -- he launched a gaming company at the time and acquired another to capitalise on a trend that he correctly bet on. Today, the gaming industry has skyrocketed in India and is perhaps the one internet-related sector that will flourish before anything else.

Meanwhile, Hike says it has pivoted to focusing on Vibe, a virtual space to interact and watch content with friends and Rush, a place for multiplayer bit-sized gaming.

"Global network effects are too strong," said Mittal in a tweet as an explanation for Hike exiting the messaging landscaping. That may not have been the case had he used a network that was right under his nose all along.

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