India’s search for indigenous social apps

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

The big story

India’s quest for homegrown social media platforms and messaging apps has been as elusive as my friends on Arattai — the latest India-made “WhatsApp Killer,” depending on whom you ask.

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

India’s internet and smartphone userbase is second only to China, making New Delhi’s lack of homegrown social media and messaging apps quite striking when compared to Beijing’s bouquet of popular offerings.

More than a decade ago, China banned American social media and messaging apps, and it led to the rise of local players such as WeChat, Weibo and Douyin. South Korea and Vietnam did not even have to shun foreign products to built popular messaging apps KakaoTalk and Zalo, respectively.

But for a country that has built fintech powerhouses, e-commerce unicorns and numerous consumer tech apps, India’s inability to carve out a niche in the social media and messaging space has been quite puzzling.

Can Arattai — which means chit-chat in Tamil — progress beyond the initial chatter to emerge as a viable domestic alternative to WhatsApp? Or will it meet the fate of flash-in-the-pan apps such as microblogging site Koo that saw a similar euphoria around it but had to eventually shut shop?

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

Government ministers too flocked to the local microblogging site, as the Indian state locked horns with X over content moderation disputes. In 2021, Koo raised $30 million in a funding round led by Tiger Global Management, according to data from Tracxn, and the following year the app reportedly went viral in Brazil.

But growing a new social media platform in a market dominated by deep-pocketed players requires funds and patience. The startup funding winter of 2023 threw a spanner in the works for Koo, as investors pulled away from supporting unprofitable businesses.

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

For the next stage of growth, Koo needed business-to-business partnership to expand distribution of the app. They also needed experienced hires for business development, but those were too expensive without the funding support, Ramdasan added.

Funding could be one key difference between Arattai and those that came before it.

Arattai is backed by Zoho Corporation, an Indian multinational company that makes business software and web-based tools. According to Tracxn financial database, Zoho clocked revenue of about $1 billion for the year ending March 2024 and a profit of more than $300 million.

In February this year, a report by Burgundy Private and Hurun India said Zoho was valued at around $11 billion, placing it among the most valued unlisted companies in the country.

“Koo was a limited attempt with limited venture capital money and limited amount of time,” says Anand Lunia, founding partner of venture capital firm India Quotient. He describes Zoho’s founder Sridhar Vembu as a “perpetual entrepreneur” with “no VC pressure.”

“I don’t think he is trying to win this in next three years or five years,” Lunia said.

While access to patient capital does set Arattai apart from the other Indian attempts at breaking the dominance of American social media and messaging apps in India, the road to success has more challenges.

Unlike China, local contenders need to woo away users from existing, popular platforms to make space for themselves. And to get users to switch, to create the network effect, the likes of Arattai need product differentiation.

“For any platform to be successful, they either need to do something significantly better than the previous competitor, offer something different, or have policy buoyancy [support],” says Joyojeet Pal, Professor of Information at the University of Michigan.

In the social media space, the products that have made waves in the last several years have brought something new…