Nexus was an early backer of one of the two leading free online horizontal classifieds in India and was instrumental in building out its leadership in the country. Both the leading companies are helmed by smart mature leaders and the battle between the two companies has been on for a few years now. I can see this battle continue in the short term given that both companies seem to have cash in the bank for now. However, eventually, in this business model, only one player can become a strong viable business, not two. Winner Takes All!

The value proposition of a free horizontal classifieds platform is simple - Maximum Liquidity.  Buyers want more sellers and sellers want more buyers.  This is a true network effects business (i.e. the value of the platform increases with more users using it).  Once there are a critical mass of sellers and buyers on the platform, it is very hard replicate the liquidity on the platform. More users will beget more users and the liquidity will continue to grow without scaling marketing significantly.  And when there is unparalleled liquidity, that is when monetisation avenues like fees for preferred placement of ads works as there is no other alternative to market to such a large audience online. And that's when you can build a potentially highly profitable business as the costs are mainly technology and maybe some reduced marketing as a result of the network effects.

In India, the challenge with the online free horizontal classifieds industry was that it was a two horse race from the beginning. Both companies raised adequate monies, built strong platforms, and invested heavily in marketing. Users came to both platforms. Since it was free, users experimented with both platforms. Both platforms built a decent seller base and buyer base. Both platforms are trying to build "unparalleled liquidity". However the existence of two strong free platforms doesn't allow either one to become a successful business. Once a platform significantly dominates in liquidity, it is able to reduce marketing costs and switch on monetisation aggressively. In order to differentiate to be able to monetize, one of these companies has launched vertical platforms (i.e. separate platform for auto, real estate, etc.). These are good growth initiatives, however they may not help them to win the horizontal classifieds war unless they are unparalleled leaders in liquidity. A vertical classifieds business competes on "best service" for a finite liquidity (you cannot compete in best service for a very large base of liquidity - it is too complex) versus a horizontal free classifieds that competes on "unparalleled liquidity" but potentially giving up on service.  There are strong independent players that compete in vertical marketplaces with focus and capital dedicated towards solving the "best service" problem. It is hard for a horizontal free classifieds who is fighting the  "unparalleled liquidity" battle to also fight the vertical battle of "best service". The danger of trying to do both is that resources may get spread too thin and both battles could be lost.  

I suspect some of the vertical strategies in India are driven by similar strategies in China. However, in China, the leader in free horizontal classifieds business acquired  a vertical classifieds only once clear leadership in liquidity was established. So monies were invested in building vertical services on top of horizontal leadership without fighting both battles simultaneously.

Hence I believe the future for free online classifieds in India will lie in one of the following outcomes :
a) Both horizontal platforms consolidate and create one platform 
b) One horizontal platform outlives the other with a stronger balance sheet
c) One horizontal platform stops competing in the free classifieds space and pivots to vertical or other adjacent businesses.

Wish both companies luck and hope they will be able to navigate through the competitive environment successfully. Interesting times ahead.  

There has been a lot of unnecessary recent negative press and social media chatter around a recent de-valuation in an Indian unicorn by an existing investor in the company. Valuation fluctuations are par for course in large fast growing private technology companies. Let me explain why.

Financial valuations in large fast growth private technology companies is part art and part science. It is generally driven by -

a) The promise of the rapidly changing future financial metrics of a company -  Most of these fast growth companies are addressing new markets that have not been addressed before, therefore there are many unknowns at the time of financing – market structures, competitive landscape, etc which are dynamic in nature. As the company evolves and markets mature, more clarity emerges or more opinion forms around future growth potential of the company.

b) Liquidity of large pools of capital - Global environment and financial cycles can affect investor sentiments and large capital flows in private companies, thereby potentially reducing the pool of further capital which could then affect valuations due to pure demand/supply economics

Valuation fluctuations are short term aberrations and don't really affect the entrepreneur or the investor. Smart entrepreneurs continue to focus on building long term value by focusing on differentiation, scalability and sustainability. They understand these fluctuations in a rapidly changing environment and manage their ambitions, teams and plans accordingly and use it to their advantage to drive efficiencies in their business.

India is going through a digital revolution and companies will continue to thrive and grow given our attractive demographics. Many investors I run into continue to say that “India is one of the few bright investment spots left”. Market leading companies will continue to attract investor interest at premium valuations.