Platform businesses in India - Modern Monopolies?

[sahil_vi]

I feel motivated to start a thread on discussing, analyzing and understanding platform businesses in Indian markets. Why i want to focus on indian markets is that 99% of us invest in Indian businesses only. In fact there is no cheap and convenient way to invest in US businesses currently. At same time, please feel free to cite US businesses as examples to motivate the discussion. The tangible end goal i have in mind is to tease apart the business models of listed (or soon to be listed) platforms in India, and see what valuations might make sense (whether they are over or undervalued; business understanding is the key driver of accurate valuations). Will add my thoughts on platform businesses and together, we can attempt to tease apart the sky high valuation platform businesses trade at (or don’t).

What are platforms?

Let’s start with some basic definitions. The word platform is probably most abused in today’s day and age with everybody and their mom claiming to have a platform.

Platform Business

Let us start with the textbook definition, then tease it apart.

A platform is a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers. In order to make these exchanges happen, platforms harness and create large, scalable networks of users and resources that can be accessed on demand.

Is an auto-ancillary company a platform business?

The definition, if followed only in letter, might imply that auto ancillary companies (taken as an example) are in fact platforms. Let us see how: Auto-ancs create a bipartite graph/network with raw material on one side of the graph and OEMs on the other side of the graph. They facilitate exchange between independent groups, and in fact also add value in the middle (which many other platforms do too).

Well, surely this must be wrong, right? How can an auto anc company be a platform? We’ll explore this question in the rest of the post.

Is YouTube a platform?

This is something which everyone can agree with with. Yes, youtube is a platform business, it facilities exchange of views between producers (channels) and viewers (general public). The graph above looks very similar for youtube except that on the right side are Channels or content producers and on the left are usual viewers like you and I.

What differentiates a general old economy company such as an Auto-anc from YouTube?
Let us discuss a term which is often thrown around with Platforms.

Network effects

Platforms create networks of entities, (IndiaMart for example creates network of businesses). These networks then result in Network effects.

In economics, a network effect (also called network externality or demand-side economies of scale ) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Network effects are typically positive, resulting in a given user deriving more value from a product as other users join the same network. The adoption of a product by an additional user can be broken into two effects: an increase in the value to all other users ( “total effect”) and also the enhancement of other non-users motivation for using the product (“marginal effect”).

Reframing it in simple terms, every incremental user of the network adds value to other existing users, and every non-user thus is incentivized to join the network. Let us see how this applies to Motherson Sumi.

Motherson Sumi

On the left side, every incremental end user increases Motherson Sumi’s scale, which enables motherson Sumi to become more efficient, which in turn allows them to pass on the gains in efficiency back to all users. This maximum efficiency player then becomes irresistible for other OEMs. Similar scale or incremental user arguments can be made for Divi’s lab as well.

On the right side, every incremental capital goods supplier added increases Motherson Sumi’s scale and enables them to pass that on to rest of the users. At some point in the scale journey, the incremental deltas become so large, that it not viable for motherson sumi to not be provided by other capital goods makers. However, do consider that if MotherSon Sumi is a large network with monopolistic characteristics, there is no option for suppliers except associating with Motherson Sumi

That argument for the right side sounds a little less convincing, but lets hold on to that thought for now. And analyze YouTube instead.

YouTube

On the left side Every incremental user increases YouTube profitability and makes YouTube more profitable which YouTube is able to pass on to all users (lesser ads per user). This makes YT irresistible for any new user.

On the right side, every channel added increases YouTube’s Content Library and enables them to attract more end users. At some point in the scale journey, the incremental deltas become so large, that it not viable for Youtube to not have a presence of some content maker. However, do consider that if YouTube is a large network with monopolistic characteristics, there is no option for Channels except associating with Youtube.

Do the applications of network effects also sound similar now? What is happening?

Terms matter

What i have been referring to as left side and right side, and what platforms refer to as producers and consumers do have terms in the old economy. It is: Supply chain and distribution. YouTube’s supply chain and distribution are YouTube platform. Motherson Sumi has physical processes for supply chain and distribution. We are now ready to answer the question being posed. My answer is:

All businesses are platforms. Being a platform is not a binary, it is a spectrum. What matters is the scalability of supply chain and distribution.

YouTube has ultimate scalability. Most costs associated with distribution and supply chain scale sub-linearly with incremental supply and demand. This is why unit economics is beautiful and high. Motherson Sumi has what is a linear Supply Chain and Distribution. Hire more people, create more teams, have more meetings, only then can we onboard new producers or consumers. Thus, we must understand and appreciate all businesses in terms of scalability of supply chain and distribution. This is necessary, not sufficient. Subsequent posts will explore platform businesses in greater depth from other angles. But before I go, i want to say a few words about some well known, and some not so well known platform businesses.

1. Google search: Ultimate scalability. Planet scale platform, low incremental costs for distribution (done by someone else like Jio), low incremental costs for supply chain (everyone creates websites for their own selfish reasons, and also makes it indexable by Google for their own selfish reasons).
2. Netflix: Distribution is scalable because it is an app and once made, very little incremental costs on distribution. Is supply side costs low? No. If content was static, people would get bored and move on. Need to continually investment in new content acquisition and creation. Process is also not very scalable because content still needs to be written, directed, shot physically.
3. Amazon: Distribution scalability is not cheap because amazon needs to deliver it physically to people. Amazon does outsource to 3P when possible but if they always did this, costs would be high, so they need to do self distribution (warehouses, distribution centers, delivery boys). Is supply chain scalability any better? Nope, but definitely better than Netflix because amazon does not need to invest in product creation (unless it wants to). Over the last 20 years, amazon has also perfected the distribution and supply chain so much that they are able to drive huge efficiencies which others are not able to. Look at delivery speeds for Amazon and compare to Flipkart.
4. Vaibhav Global: Distribution is somewhat similar to Amazon, supply chain is similar to amazon too. There are 2 key differences : (i) while Amazon allows any seller to sell as themselves, VGL acts as seller of all products. (ii) VGL insists on making 65% gross margins on each product which limits the growth of the platform compared to amazon who are even happy to make losses on some products in the name of market penetration. VGL has chosen to operate at a different tradeoff point on the profit-growth curve. Their choice is different from amazon, not incorrect. Zara (inditex) is another example very similar to VGL.
5. Saregama: My personal favorite to analyze in this framework. Effectively what Saregama does is it maps songs to listeners via the streaming apps. Given their huge catalog size, each streaming app has to integrate and thus only serve as franchises of the saregama IP. The distribution is done by someone else and they take their cut for it. Key function performed by Saregama is aggregation and DCF of future cash flows into a present value, which they provide to the content creator and then take on the risks of the future cash flows not materializing. The other problem for them is that scalability is limited by their own (internal) cashflows. If they only have 250cr, how can they acquire more content? If they dilute equity, then that results in worse profitability metrics. This is an inherent challenge on the supply side for saregama given the uniqueness of the business model of the music IP industry. If somehow content creators (eg: film producers) could be convinced to take on the risk of future cash flows, then saregama could become a scalable platform. Understanding the business from these prisms also enables us to identify and anticipate future disruptions. MAAS (music as a service) is a key disruption to the business model where saregama might be reduced to a content aggregator not adding enough value. In the mean while, what can saregama do to move up the value chain? They can try to eliminate human biases in the supply chain. They have enough and more data on 2,00,000 songs to train ML models to comnpute DCF for each song and build a supply side UI/UX which completely eliminates the human. Why would producers want to be onboarded on this? Its simple, time value of money. Saregama can analyze the video, audio, lyrics, metadata (singer, language) to give the producer instant cash for their song the moment it is made. In fact using some advanced ML they can even work with producers to optimize songs for streaming (end goal) helping them increase the value of their songs (key question is: what kind of songs stream more?). Its possible they already do some of this but it isnt public knowledge if they do.

In this post i have analyzed the question of what makes a platform business a platform business. IMHO, each business is a platform business, difference lies in supply side and distribution scalability. Some businesses are inherently very scalable (low incremental producer and consumer addition cost), others are not, and everyone lies on a spectrum. Similar to valuation being a fuzzy concept which is net present value of all future cash flows, we need to start thinking of platformness of a business as a fuzzy concept. YouTube and Instagram are a 1.0, netflix is a 0.7, Amazon is a 0.5, Motherson Sumi is a 0.01, VGL is a 0.5, saregama is a 0.7.

In the next post i will analyze the assumption or hypothesis that scalable platform businesses are modern monopolies.

In the meanwhile would request/suggest others who have strong thoughts/ideas/independent opinions to please add those too, and take the discussion forward.

My ideas in this post are original though are influenced by the book Modern monopolies and SOIC webinar on platform businesses.

[Bibhu]

Most important thing in platform business is data. More they interact with the customer more they know about the customer preference, customer behaviour. So they can personalize things accordingly. Platforms don’t share customer data with the distributor. Going ahead they start verticalization.ex. Netflix, Disney and others realise this problem lately and started their own .

[RedEPS]

I’m not sure we have many “platform” businesses in Indian markets other then Zomato(yet to be listed), IEX, BSE and Indiamarts. Some names above may be stretching it(or maybe I don’t understand them well enough). Thing is that these businesses are call options on them winning a market and many already trade at high valuations. It’s very much a winner takes all game.

IMO risk/reward is more favourable in US markets but only select ones. Etsy, FB(I own) looks interesting to me considering current valuations.

[sahil_vi]

Scalable Platforms = Modern Monopolies?

It is enticing to believe that once a platform has been created, users have been acquired, network effects would keep competition at bay and create deep moats around the business. Unfortunately, IMHO, real life is not so simple. Consider many examples:

1. Uber had 1st mover example and yet lyft is competing successfully in USA.
2. Yahoo! and AOL has search engines far before Google came on to the picture. And yet, Google search won.
3. Google created app store much before apple did and yet both dominate. That being the case, there are only 2 app stores worth writing about. Nobody creates apps for Samsung app store. Why?
4. QVC (Qurate) has 93% marketshare in discount jewellery in USA and yet VGL has grown from 1.5% few years ago to 4% marketshare and continues to acquire marketshare. Why?

The answer to all these questions would enable us to analyze platform businesses (that i define as businesses with platformness >= 0.5 [arbitrarily chosen]) from the prism of durable competitive advantages.

Google is a powerhouse of platform businesses, Google search, Google ads, YouTube, Google Maps and it is a powerhouse that churns out platforms. Then why are its valuations so low compared to many other platforms?

Durable competitive Advantages (DCA)

The key takeaway of this post that I want everyone to take away, is that network effects in platform businesses by themselves only enables fast growth due to sub-linear scaling of costs. But what really keeps competitors at bay, or leads to disruptions are durable competitive advantages.

Google

Google’s ads business was a monopoly due to their dominance over search. They continue to have dominance over search, but what has started happening slowly, is the emergence of verticals as @Bibhu has alluded to. Key among these is Amazon. Amazon ads is one of the fastest ads platforms and rightfully so. When people want things, they amazon for it, they do not google for it. THis helps amazon in 2 ways: dont need to pay google for the Amazon ad that might have redirected people to Amazon, can charge customer instead for the ad amazon shows to customer. Amazon’s total dominance in products commerce has been the primary reason for Google’s Ads moat (and indeed search moat) being penetrated.

Similarly, why was Google able to penetrate AOL or Yahoo!‘s network effects? They simply had a better product based on Larry and Sergei’s PHD thesis : The page rank algorithm. Deep technical knowledge based moats are most difficult to disrupt. You can cry at the top of Eiffel tower about user privacy, but as long as google is a better search engine than DuckDuckGo, DDG and such like would always remain limited to the eccentrics. Because users (it seems) care more about quality of search than about their own privacy. As long as that remains true, Google’s search moat is supreme. Even if it were to change, the lead they have over the next biggest in terms of just understanding the tail end of search queries (which are the hardest to deal with) is so large, the data advantage so huge, that they would still likely emerge winners even in a user privacy centric world. This is the way in which we need to evaluate businesses’ durable competitive advantages.

Facebook

Someone mentioned Facebook. Facebook’s biggest competitor right now is Google Search and Google Maps. Both are very focussed on small and medium businesses and have created many specific products like GMB (Google My business) to counter the FB threat. ALso, FB has tried to create a marketplace inside it but what they fail to understand is that someone already created eBay and it was disrupted by Amazon. FB marketplaces is unlikely to work. FB’s valuations reflects (among other things) this market understanding of the durable competitive advantages of its products.

Another very interesting thing about FB and indeed most innovators is their ability to disrupt themselves They understand that they need to disrupt themselves or risk being disrupted by someone else. This explains why FB acquired insta and whats app and successfully scaled them. Explains their attempted snapchat acquisition. Explains why Google Acquired Maps (widens the local search [searching for things near you like doctors near me] moat), explains why Google built Discover feature (we will recommend you websites before you even know you want to read it.). This ability and willingness to experiment and disrupt yourself can look stupid or foolish in the short term, but in long term, it pays off, specially as you learn from past mistakes and optimize your processes.

Amazon

What explains Amazon’s valuations (from a DCA perspective purely)? Amazon’s key insight into the business was that

1. They need to share back scale advantage with their users. You’d be surprised but very few platform businesses are able to do this. Amazon keeps adding more and more services to their prime subscription and users are delighted. They front load the costs (value/benefits to users) and backload the profits. This creates 2 illusions (i) in the user’s mind there is the illusion of always getting good and increasing value for money. (ii) for the uninformed investor it creates the illusion of high P/E ratios.
2. They understood that theirs is a highly commoditized industry. By focussing on user experience from the 1st year of operations (many videos available show how obsessed bezos has been with user experience). By this single stroke of genius alone they have been able to create a differentiated offering. Their competitors simply do not understand. It is herculean task to speak to customer support. Nobody wants to do that. By optimizing those workflows amazon creates that goodwill in the minds of customers and in fact they are even happy to pay a small premium for the better customer experience. (several anecdotal examples available here just ask your friends or family).

what they are doing is very basic. And yet, competitors are unable to replicate. Even intelligent ones. AWS is one of the most developer friendly development ecosystem compared to say Google Cloud. Why? It doesn’t make sense. And yet, such are the facts. Google keeps saying “our cloud is better on specs”. Guess what? Customers care more about their experience and are ready to pay up for it.

Vaibhav Global

What explains VGL’s ability to grow topline at 2x the industry and industry leader? There are 2 reasons for this:

1. They consciously operate at half the price point of their competitors. They are able to do this while being more profitable by having labor, manufacturing, power cost arbitrage (india is cheaper). You’d be surprised by how many people, even in developed countries like USA, want inexpensive products. Anyway the whole game is discount jewellery, you’re not buying the brand (tiffany’s), then it is better to be at half the price point of your largest competitor.
2. By being a closed platform (controlling for products and not selling 3P products) they are able to ensure a more uniform quality customer experience and optimize for the full life cycle: think of it as an optimization algorithm. You create a product X, you sell it, gather feedback (both qualitative and quantitative) and then improve the product (arbitrarily) based on the deltas. Platforms ability to do this is limited to what the 3P seller is willing to do. Vertically integrated players are able to do this much better.

Saregama

As someone rightly pointed out above, being customer facing enables you to understand end user very well and optimize for their needs directly. And intermediaries would not always be willing to share that granular data with you. This and what i said above about willingness to experiment are key reasons i love saregama’s music IP platform. They experimented with Carvaan. Only Music IP company who can actually understand user behavior patterns at a granular level. Amazon would be happy to even sell echo at a loss just to get the same data. I can see same pattern pay out in Saregama, all this user behavior data would enable them to outbid their competitors who have to rely on intermediary (streaming app’s) analytics, whatever they choose to share.

Ease my trip

IMO, aggregators are the lowest of all platforms for 2 reasons:

1. Network effects do not play out as users tend to compare their purchases unless there is a huge user experience advantage for 1 co over the other. That is not the case with flight booking aggregators.
2. Users life is made even easier by meta aggregators like skyscanner. It’s a race to the bottom. Your user is not on your network, the relationship is transactional in nature. Meta aggregators make this even easier.
   I would say lowest quality of DCA lies with pure digital aggregators like PayTM, EaseMyTrip etc.

e-pharmacy and sastasundar

1. Most e-pharmacies are unable to get high customer retention and relationship is transactional. There is clear ways in which they can create a differentiated product: higher product availability, faster delivery times, but this area seems mostly commoditized to me.
2. Reason I like SastaSundar is due to their hybrid phigital model wherein the customer establishes a somewhat similar relationship with HealthBuddy as a RelationShip manager at a Bank or such like. The storefront also enables higher higher word of mouth marketing. They are clearly able to capture some part of market which doesnt obsess over delivery speeds.
3. In general i think differentiated experience offering OR scale are the only way to succeed in aggregator space. SS is going more for former right now IMO although they do have plans for aggressive expansion when they are able to raise funds.

Disc:

1. I am invested in Vaibhav Global, Saregama and Sastasundar and thus positively biased. Cannot speak about businesses I do not understand.
2. Work at Google. All the knowledge shared is public knowledge.

[d.investor]

Is Jubilant Foodworks a platform business?

Let us divide the business into 3 parts-

1. QSR- They buy commodities like cheese, flour, oil, vegetables, electricity and man power and turn it into consumption ready product.

2. App/Website and IT infrastructure- They have their own app and website along with a powerful IT infrastructure which manages customer data,store specific data, area specific data etc. The app and website provide users with a seamless and easy ordering experience, while the IT infrastructure helps the company in optimising inventory and strategic opening of new stores in high demand areas and predicting customer behaviour.

3. Delivery platform- We all must have ordered from Dominos till now and we know how robust and fast their delivery is with their promise of delivering an order in less than 30 minutes. Their in-house delivery system is one of a kind and even ITC partnered with it during the 1st wave although we don’t know how effective this partnership was but it is proof of the potential they have on their hands.

Now lets us look at how Network Effect plays a role in Jubilant Foodworks

1. Crowd attracts crowd, you must have watched how crowded restaurants attracts more customers. The more the number of people who prefer Dominos over any other Pizza restaurant the more they are likely to affect the preference of their friends and family.

2. With more number of stores the inventory management, inventory costs and the delivery experience become more effective and cost less thus further increasing the competitive advantage of the company and improving margins and further improving the reach of the company.

Dis. I am not invested in Jubilant Foodworks and these are my personal thoughts

[sahil_vi]

My whole life effort, is to explain how every business is platform business.

The correct question to ask is not “Is JF platform business”, it is “How scalable are JF distribution value-addition and supply chain”:
Answer is: It is not at all scalable: making pizzas (value addition) will always be a linear process. 0.1/1 on being a platform business due to scalability being limited. JF could never grow 100% in a year, true platforms (1.0/1.0) can.

Also we should not confuse moat/durable competitive advantages with platformness of a business. Jubilant has a brand moat. But it is not a platform. The whole point of going over the motherson sumi example was to say that no, we cannot just apply that definition to any and every business and claim they are platform businesses. We need to carefully evaluate scalability. You know what would be a platform business?

If Jubilant could enable pizza makers to match to pizza buyers. But that is exactly what zomato and swiggy do and are platform businesses (aggregators). I havent covered zomato/swiggy in my posts, but as i have said i dont have high opinion of aggregators unless they can create differentiation the way amazon did. Zomato is trying, 100/100 for that. But havent seen any success yet.

To conclude, no, dominos and motherson sumi are not platforms (platformness = 0.1/1.0 or something very low).

The picture is not yet complete. I will add 1 more post which will complete the picture. We are missing the most key element, the value addition of the business.

[Harsh04]

i am curious about platforms like easemy trip…

how do they add value to my ticket purchase ?
I mean, what makes a certain customer to go ease my trip and not directly to the airline website ?

[kb_snn]

Platform Business are monopolies and provide good profit making opportunities if they are not highly regulated .

Railway Platform , Airports , Expressway ( Mumbai - Pune ) etc are Physical platform business which once build can create exponential value as users ( traffic ) ,vendors and network nodes increases . But problem is they are hugely regulated on what can be charged , how they operate and levies to Government etc …

Digital platform business are more attractive today as they are less regulated as they span multiple countries , but as world gets together and creates regulations ( like digital fee / levies ) these business will have attractiveness similar to physical platform

What are physical platform business in India

Mandi , Ports , Road , Rail , Currency , bank ( banking products like cards ) , Physical exchanges, Market places like Malls , Public services - Car taxi stand , Religions/ Faith places - temples , mosques , church etc … , Entertainment places - Circus , esselworld , wonderala etc

What are digital platform Business in India ( like in physical)
Market places like Amazon, Flipkart , Banking & Payment platforms - UPI / YONO , Public services - Uber/ ola etc … , entertainment platform : Netflix , Dream 11 etc so we can see them to like physical platform serving similar needs .

The difference in business attractiveness is because of regulation - digital platform don’t pay full societal cost currently which will change over time

[sahil_vi]

@Harsh04

how do they add value to my ticket purchase ?
I mean, what makes a certain customer to go ease my trip and not directly to the airline website ?

Compare across different airlines. Higher cost savings and larger choice. Also more options. Flights leave every 1 hour when comparing on EMT versus indigo where they would leave every 2-3 hours.

[vjf_0907]

Would you consider IRCTC as a platform business?

The company has pivoted from a ticket booking monopoly for inter-state travel on Indian railways, buses and airlines to integrating hotels owned by the Govt and private sector to become a one stop shop for the Indian domestic traveler.

They also launched a co- branded card with SBI to reward frequent railway travellers. While primarily a monopoly, the business can create a network effect to connect hotels and airlines directly with end customers.

[sanjeev_thakur]

I tend to distinguish platform and a marketplace. Both might appear same and can have network effects but IMO there are fundamental differences.

• Marketplaces exist to bring sellers and buyers to one place - be it Amazon in it first decade (now It is different beast altogether) or an actual market.

• Platforms provide value which was not intended to bring sellers and buyers to one place. Google exists because of search. Rest all is built on top of that. In indian context, railway station is a platform (no pun intended). Trains come and go. Rest of the economic activities are byproducts.

[sahil_vi]

Valuation Addition

@sanjeev_thakur thanks for the great segway. Your example is not accurate because the difference is non-existent. Google is a marketplace for searching. Think about it: On Amazon, you search for products to buy, on Google you search for information. Both are information retrieval and ranking problems, fundamentally. Both have their own set of challenges. But you have brought up a good point which I alluded to in my last post.

Platform businesses are businesses which are highly scalable. But the most key ingredient which needs to be highly scalable is the value addition of the platform/business. This is where algorithms shine, and physical world becomes cumbersome and slow.

Once Google creates a search algorithm, it will only spend time on perfecting it, improving the metrics. Google spends very little incremental time and money on servicing every request. The processing part of the business is highly scalable. Can the same be said for Domino’s? Definitely not. You cannot scale pizza making arbitrarily fast enough. With cloud services like AWS, If i have an awesome search algorithm today, i could create a search engine to rival Google’s today, and if it truly was better (this is of course the hard part), then the scaling would be handled by AWS, no capex required, capex converted to opex. While dominos and the such like try to become asset light by not owning the store etc, the value-addition of the business is not highly scalable for sure. Not the way amazon and Google are.

One can also appreciate why Tesla, with their most advanced robotics driven manufacturing is as closest to being a platform company as a physical hardware manufacturing company cab be. Another example here is Apple’s hardware business. This definitely has the characteristics of being a highly platform business, because they handle R&D and design in-house (which are more scalable) then outsource the linear part (manufacturing) to Chinese companies. A discerning reader will appreciate that although apple does not do the linear part, it still exists. All that outsourcing does is converts capex into opex. A truly platform business like Google has very tiny opex per user interaction (imagine how much computing power + electrical power it takes to facilitate 1 search). This is negligible compared to ad revenue they generate on the search query.

With this piece in place, we are ready to characterise or comment on all platforms (i mean all businesses) we know (I will cover valuations in the next post).

Please find below my understanding of each business, in terms of its platformness and durable competitive advantages. Note that just because a business is less platform like, does not mean that it is a bad business. Also note that these are my subjective views. I could be wrong.

Company/Attribute	Platformness			Durable Competitive Advantages
	Distribution	Supply Chain	Value Addition
Google search	9/10: Android (let the world distribute a gateway to your product), google search app (highly scalable)	9/10: crawl the web. Web wants to be crawled to reach the world	10/10: Highly scalable Ranking Algorithm: perfected over 2 decades	9/10: the algorithm is great. Investment in core R&D for decades, largest search corpus, google understanding of tail queries (my annecdotal experience)
Amazon Retail	5/10: highly optimized through decades of experience, but still linear. If number of orders went up 10x, amazon could not cater to them.	6/10: ditto as distribution but a little easier since dont need to handle returns and smaller pool of suppliers than customers	8/10: ranking algo is the secret sauce, cut a couple of points only due to their own brands which require manufacturing	8/10: great customer focus, build differentiation in a commoditized service space, highly optimized distribution and supply chain logistics, gaining market share from google in ‘product search’
Uber	8/10: users can download app, one time investment in app, then some in digital advertising.	9/10: for drivers, there is really no choice due to dominance of Uber/ola	8/10: highly scalable matching algo: key risk: not enough drivers leading to bad customer experience. Vice versa. Dominance in 1 market does not transfer to new markets	7/10: the matching algo has no secret sauce as far as I can understand, easy to replicate. Producer (drivers) are incentivized to list on all platforms including Ola
Netflix	8/10: users can download app, one time investment in app, then some in digital advertising.	5/10: manual, need to evaluate each series and tv show and continue to do so.	7/10: highly scalable matching/recommendation, but manually need to physically make each tv show and movie	10/10: Have successfully distupted linear programming. Total moat in terms of disruptive TV shows and movies and the way people spend time. netflix and chill is a term
domino’s	3/10: linear, delivery boy driver. Not as optimized as amazon	3/10: linear, need to talk to negotiate with each supplier. Not as optimized as amazon	5/10: need to physically make each pizza, however one can see some network effects due to social acceptance. Everybody likes dominos so everybody likes dominos	?/10: Not qualified enough to comment on. Personal annedotal evidence is that nothing comes even close to domnino’s taste.
Vaibhav Global	8/10: users can download app, one time investment in app, then some in digital advertising.	3/10: linear, need to talk to negotiate with each supplier. Not as optimized as amazon	5/10: product selection is the secret sauce, cut some points due to all products requiring manufacturing	8/10: Able to wrestle market share from largest competitor (QVC) due to much lower selling price, vertically integrated platform, much higher profitability, applying learnings from UK and US to rest of world (germany 1st)
Saregama	10/10: All streaming platforms have to tie up with largest catalog owner. Distribution is assured. Best distribution.	5/10: linear, but concentrated producers so scalability is easier. Also decades of relationships with some of them	?/10: Value addition is the DCF of future cash flows. Dont know whether they use ML here or not. That is most scalable solution.	8/10: highly innovative business, not afraid to experiment & fail, only music label house which has B2C presence enabling insights from user behavior, good capital allocation

Disc: Invested in Saregama, VGL, work at Google (all data/inference is public info or experience as a user).

[sahil_vi]

@vjf_0907

Would you consider IRCTC as a platform business?

It most certainly has high platformness. And the durable competitive advantage is regulatory moat. However that is also the risk. Government could ask them to reduce ticketing fees or allow paytm to directly offer ticket booking in which case irctc customers go away. That is the fragility of regulatory moats. If valuations are high, risks are not priced in and thus margin of safety low. If valuations are low, opposite is true.

[bovera]

Ed tech is a field in which platforms may emerge. They have the advantage of acquiring the customers at very young age. Possibility for value addition is enough in terms of expanding from kg to PG services. Next few years will decide who will be the Netflix of Ed Tech.
Netflix may have durable competitive advantage in the context of global Indians. But as person living in tyre III city, I vouch for home grown ones. It will take time for clear winner to emerge.

[Rationalinvestor]

@sahil_vi whats your opinion about just dial? They have huge data bank to operate like indiamart? Also some tycoons looking to the stocks also.? Will that deliver? Low valuations compared to other peers help or not ??
Disc.not invested

[sahil_vi]

I don’t know the answer, finding the answer is something I am not interested in because just dial does not interest me as much as other businesses. What I can do is point out pointed questions you can try to find answers to in order to answer this question of what will happen to just dial.

1. What % of the market has IndiaMART captured already? How is it growing? Is the growth secular and high (it should be imo)?
2. What is the differentiating factor or durable competitive advantage of jd mart when comparing to IndiaMART ?
3. How strong is the JD mart sales/marketting team? What is their distribution/customer acquisition strategy?

Even with these questions answered we would only be taking an informed bet regarding future of jdmart. Sorry I cannot help more.

[Ashusharma]

Thank you for this very good discussion.

Rearding Netflix, It is heavy capex. They generally own content so they spend to buy content. Due to rivals also started their apps, so some good content is not available to them which means they have to produce their own content more. So heavy capex. During these lockdowns, content creation laggef and so their sales.

Perfect example here is Youtube. YouTube hardly produces anything but its revenue is alnost equaling Netflix.

Cheers

Disc: Not invested in any of the above names and this is not an investment advice.

[Ajjugattu]

@sahil_vi sir, is iex platform business. It has some govt restrictions on terms of regulation. Do you think they can scale? There are other power exchange that are coming up for competition. Can they beat incumbent who has 98% market share? Your views will help.

[karunbirsingh]

Although question is for Sahil I will also like to share my thought process-

1. If other players come they will also have same set of restrictions
2. Power exchange biz is a secular megatrend and more than one company can sustain
3. IEX would have gathered experience during last few years of operations which would be helpful in dealing with new competition

[troll]

The article below talks about various types of network effects, including network effects in platform businesses.

1. Direct nfx
2. 2-sided nfx
3. Data nfx
4. Tech nfx
5. Social nfx

The Network Effects Manual: 13 Different Network Effects (and counting)