Google-Backed ShareChat Posts Rs. 4000 Cr Loss!

Hey there,

Google-backed Sharechat Posted Losses of Rs. 4000+ Cr! 📉

Will this $5B TikTok Clone Ever Turn Profitable?

First, here is some context: ShareChat, a vernacular social media platform, along with its short video entertainment app Moj, raised $255 Mn from giants like Google, Times Group, and Temasek during FY23. Their total fundraising has now crossed the $1.5 Bn mark.

Chasing the dream of making billions through advertising revenue, ShareChat and its competitors have been burning a lot of cash. This includes payouts to creators, spending on Google and Meta ads, and buying out competitors.

Here's a breakdown of what led to ShareChat's and its peers' downfall:

1. The Value of Originality:

TikTok's exit due to India-China border tensions led 100s of Indian entrepreneurs to start copycat companies to grab a pie of the $20 Bn market left behind.

2. Lack of a Strong Moat:

While ShareChat copied TikTok's vision, they missed out on learning from the sophisticated AI technology that powered TikTok's highly personalized video suggestions.

This technology was key in offering highly personalized video suggestions, which translated into more effective and profitable ads. Unlike TikTok, sponsor companies didn't see significant returns from advertising on these platforms, making them less appealing for user acquisition.

3. Overplaying the 'India Story':

In the absence of other unique selling points, these clones heavily marketed their Indian origin leading to a hollow strategy to raise funds.

Just, look at these names:

➼ Moj—Short video app by ShareChat | Made in India

➼ Chingari—Original Indian short video app

➼ Roposo—India’s own video app

➼ Trell—Short video app made in India

➼ Bolo Indya—Short video app made in India

➼ Josh—Made in India | Short video app.

4. Fleeting Creator Loyalty:

The relationship between creators and these platforms was more transactional compared to TikTok's approach. TikTok had a large team dedicated to managing creators.

In contrast, Indian startups struggled to establish a professional system of “content, performance, and reward.”

As a result, they kept paying creators to stay and create content. When the funding stopped, so did the content creation, leading to a drop in user acquisition and retention.

This series of events has led to ShareChat's current situation.

With such massive annual losses and only Rs. 1200 crore in assets, the company faces a challenging future. They might survive for another year with their current resources, but the long-term viability is questionable.

It faces two paths: either somehow generate significant revenue against its massive expenses or raise more funds to delay the inevitable.

✍️ Jargon of the day

Moat - Let's take Patanjali as an example to understand moats. Patanjali sells natural consumer products like cosmetics and food items.

So, moat for Patanjali is its very strong brand name and reputation for Indian-made, natural ingredients products. This brand reputation makes customers trust its products more compared to little-known rivals. Even if a new company makes similar natural cosmetics and undercuts Patanjali's prices, most consumers prefer to pay more for the established Patanjali brand. This brand loyalty is a moat that keeps competition at bay.

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Cheers,
Karthik