Understanding History – Digitization Waves and How They Took Place

The Indian digitization story has been a unique one – the Jio rollout and low smartphone prices led to an unprecedented digital inflection point, which in turn led to rapid adoption in new technology paradigms like mobile first and on-demand (eg. Uber, Swiggy). Large consumer tech companies in Edtech like Byju’s, in E-commerce like Flipkart, heralded the first wave; the emergence of social commerce companies like Meesho and a new wave of SMB SaaS players like Khatabook, Dukaan heralded the second wave.

As a result, various technologies – which include new-age startups/platforms, legacy on-prem and cloud softwares have penetrated different markets creating distinct layers over the years.

If we look at the current landscape, very broadly – there would be three markets categorized by different levels of technology penetration –

• New age consumer and business technology plays which have been created in the last 5-7 years – think Flipkart, Byju’s, Swiggy as consumer plays; Shopify as business plays
• Legacy technology products being used primarily by businesses – think Tally, miscellaneous legacy AutoCAD technologies being used by architects
• Semi-offline markets where smartphone and WhatsApp penetration is high – think Kirana stores and small retail businesses. These are semi-offline because they have reasonable WhatsApp and phone penetration and have recently seen Khatabook, Dukaan adoption.

Each market has seen the emergence of what we may think of as Motherships

Our objective is to identify these Motherships where embedded ecosystems can be built. The future of venture backable businesses will be embedded growth – built on the back of Motherships whose core functionality is limited to one or two use cases. The goal is to significantly expand their use cases and subsequently expand their TAM – by solving for the end-user through functionalities which are difficult to build and scale.

Creation of Embedded Ecosystems on Platforms Solving for Single/Limited Use Cases

We want to make platforms into Ecosystems which give users more reasons to use the platform and drive greater network effects. Potential motherships have 1 or a maximum of 2 use cases – for example, Tally’s main use case is data entry for accounts, Swiggy solves primarily for food delivery and restaurant discovery, or a Khatabook solves primarily for accounting/maintaining ledgers, but each of these platforms is used by a large chunk of the population.

To summarize – A few common traits of motherships

• They are technologies (software/hardware) which have a reasonable presence/penetration in core industry categories
• They have 1 or maybe 2 core use cases – and their bandwidth is restricted to these specific use cases
• There is a potential for new functionality which is not their core competency

Motherships can be single platforms OR multiple distributed touchpoints:

• Shopify – Single Platform
• Credit Cards – Distributed across several users

Mapping out possible motherships (this list is not exhaustive, would love your thoughts on this, do write in – sarthak@kae@capital.com)

Building for the B2B2C/B2B2B Users, Where Platforms Face Significant Challenges in Developing New Capabilities/Functionalities

We will notice most platforms have a dominant position in their respective markets, so what is to stop them from developing the functionality in-house?

The counter to the above argument is to tap into those APIs/functionalities which need high bandwidth to develop and maintain. These will be easier to “outsource”/ “unbundle” – and solving for this seamlessly is needed to be done.

Additionally, new functionalities may add a structurally different revenue stream, significantly driving up TAM – Embedded marketplaces, Embedded NFT gateways are strong examples of such functionalities.

The possibility to charge per API call opens up potentially massive markets with highly scalable models.

The new functionalities can include (and are not limited to) –

• Embedded product marketplaces for procurement – imagine excel sheets/Tally with an embedded marketplace, where building supply is a challenge
• Embedded service marketplaces
• NFT/Blockchain functionality which requires high processing power/costs
• Deep learning which requires high processing power/time, very deep expertise
• Cybersecurity
• Reverse Fintech – Fintech players/Fin. Institutions being used to distribute other products/services

Embedded Marketplaces, Deep Learning, Blockchain – and then some more!

These are some of the plays which we are exploring, and we would love to hear from you if you are building something out in this space.

We are particularly interested in discovering –

• Embedded Tools (for Eg. NFT API Tools, Cybersecurity API Tools, Deep Learning API Tools) being built on B2B Marketplaces

AND

• Embedded B2B Marketplaces on commonly used SaaS/Software tools like Excel, Tally (including platforms like Khatabook maybe!)

Similarly, Embedded tools built on Consumer/Prosumer Platforms/Marketplaces are of interest as well.

If you feel you are working on something of this sort, or know someone – we would love to speak to you!

Do write to sarthak@kae-capital.com