The conventional wisdom for 2023 is that it’s going to be a challenging year, at least for most businesses in tech in India. Personally, I believe it’s not going to be that bad. Yes, there’ll be more layoffs which will dominate headlines. However, most companies are reasonably well-capitalised thanks to the funding glut of 2021 and early 2022, and I think 2023 will be a “hold” year overall. 

But there will be winners and losers. 

So here are my predictions for 2023. Some of these are broad and obvious. Others are specific and counterintuitive, and I’ll probably get a few of them wrong. And when I do, I expect some of you will take screenshots of this edition and tag me on Twitter at the end of the year. Of course, nobody will notice it, because by then Elon Musk’s Twitter would’ve been transformed into Rediff’s comment section. So joke’s on you. Also, for all we know, China may suddenly decide to invade Thailand and all of this will be out of the window.

Anyway, for the last time in 2022…

Let’s dive in.

When I spoke to a fintech founder recently, he mentioned that right now, companies have made easy, obvious decisions. And that pretty soon, they’d have to face harder, painful calls.

For most companies, their businesses are broken up into three broad categories. There’s the core business, the core adjacent viable businesses, and the non-core big bets. So if you are a company like, say, Uber, ride-sharing is the core business, Uber Eats is the core adjacent viable business, and self-driving is their moonshot. When things turn bad, the first thing that companies choose to kill is their big bets. 

For many companies, this is an easy decision because these businesses are usually worthless. Usually, they’ve been created in the last couple of years to tell a story to investors to raise funding. It may be valuable someday, but right now, it has no value whatsoever. 

You can validate this by asking the question—how many companies actually sold non-core businesses in 2022? Not shut down. Sold. Because you shut down things that are worthless, but you sell things that have value.
 

In 2020, Amazon launched food-delivery in India. Last month, it made a decision to shut it down overnight. It didn’t sell the business, it just killed it. In contrast, when Uber decided to exit the food-delivery business in 2020, it sold Uber Eats to Zomato for a couple of hundred million dollars. When Zomato exited its food-delivery business in the UAE in 2019, it sold it to Delivery Hero for US$170 million. 

I imagine Uber and Zomato didn’t make these decisions lightly. I’m sure there were massive internal debates about whether they could hold on to them a little longer and make them viable. These were legit businesses with traction, but they needed to be sold because Uber and Zomato needed to focus, and probably needed the money. 

Look at all the decisions that companies made this year at the first sign of trouble. Amazon India shut down its food-delivery and its edtech business. Urban Company wound up its Australian operations. Ola killed its used cars business, and its quick commerce venture. Meesho closed its grocery vertical. In November, while announcing layoffs, Gaurav Munjal, CEO of Unacademy, wrote to his employees that, “we have to take a difficult decision either to scale down or shut [verticals]”. 

Scale down or shut. 

Not sell. 

Well, that’s about to change.

In 2023, I believe companies will start calling investment bankers to explore a sale of valuable, viable businesses. Not because they want to, but because they have to. How long before, say, Flipkart starts to wonder if its grocery business is worth something to Big Basket? How long before, for example, Nykaa starts to think whether it’s a good idea to spin-off its apparel business? How long before executives at Cult start asking each other how much additional runway selling the diagnostic testing vertical will get them? These are, of course, illustrative, hypothetical examples. But they are representative of real decisions that many companies will face.

The easy decisions are made. 

2023 will be a year of hard decisions. 

2. Everyone will play profitability bingo 

It’s pretty apparent that the big word in 2023 is profitability. Everyone is going to try to kill, sell, or cut down to try to become profitable. We know this. 

But the problem is that becoming profitable is hard. Insanely difficult, especially if you are a consumer internet business. And for the last two years, most companies (and news publications) have been stumbling over each other to talk up their funding, growth, investments, and headcounts. 

So what will companies talk about in 2023? 

Well, mostly about their progress towards becoming profitable. They’ll need to do this to keep the confidence of their investors, employees, customers, and they have media outlets breathlessly waiting to lap it up. 

And they’ll do this in… er… creative ways. 

With the help of my colleague, Adhithi, I’ve created a profitability bingo. Take a printout of this and stick it on your desk. Over the year, keep an eye on these wonderful financial terms that companies will claim in press releases and interviews.

These words and phrases will make a lot of headlines, but quite frankly, I wouldn’t read too much into them.

So the least we can do is make it into a fun game. 

3. Edtechs will have a mirage year

Contrary to expectations, I think the big edtech companies will have a great year. And they’ll shout these numbers from the rooftops, determined to show investors and naysayers that they don’t need a pandemic lockdown to succeed. I expect companies like Byju’s, Unacademy, upGrad, and Vedantu to report massive growth and reduced losses. Byju’s has already been signalling that it expects to close the year with a big surge in its revenue. Unacademy has been talking about its reduced burn for a while now. And I believe them. At the face of it, these companies will appear to have a good year, driven by offline education and revenue recognition adjustments. 

But I think this will be a mirage. 

That’s because I have my doubts about whether edtech will ever be a sustainable business in the absence of massive venture funding. You can cut marketing spends, make a few adjustments (I’ve written about this), and things will look up in the short-term. Also, thanks to the pandemic, it’s hard to see meaningful trends with edtech businesses. We still have no idea if their gains are accidental any more than if their setbacks are structural. 

The real question is what 2024 will look like for them.

4. Zomato will soar 

I believe that 2023 will be a landmark year for Zomato. By the end of the year, it will have grown its revenue significantly, expanded its market share, and its food business will be profitable. These gains will be hard-earned, achieved at great cost and sacrifice, and most importantly, it will be sustainable. It took them nearly thirteen years, but next year, I expect Zomato will go down in history as India’s first profitable consumer internet business.

Again, there are many structural reasons for this. Food-delivery is a duopoly now, which gives Zomato the space to extract more value from restaurants and consumers. Over the last couple of years, it’s been eliminating distractions and focusing more sharply on its core business. It also killed things that restaurants disliked—Zomato Gold (later Pro). And all of these have helped Zomato. A few weeks back, its growth and market share eclipsed Swiggy, and some investors are starting to feel cautiously optimistic.

Then, there’s the biggest reason of them all. 

Zomato is a public company. And nothing makes a company more disciplined than building in public, with quarterly earning calls. 

Of course, this is not investment advice. Public markets may make you disciplined but they are also completely irrational—it’s possible for Zomato to have a great year and perform terribly at the stock market. You’ve been warned. 

5. We’ll learn the truth about Ola and Uber’s businesses

There are two stories about ride-hailing companies in India. 

The first story is what the numbers and filings tell us. Take Uber, for instance. In its latest filings, it reported a modest growth in revenue, and significant losses. Sure, there’s some progress, but if you look at the balance sheet, there’s little indication that it’s anywhere near breakeven or profitability. 

The second story is what the people working at Ola and Uber say privately. Over the last couple of months, two independent sources, one familiar with Ola Cabs’ internal numbers and the other close to Uber India, have both told me the same story. Their ride-hailing businesses are very, very close to breaking even. 

I’m aware that this is profitability bingo, because this does not make them profitable per se, but I find it interesting that there’s a significant dissonance between reported numbers and internal metrics. One reason could be that annual earnings are reported a year later, so there’s a lag effect. Again, ride-hailing is a duopoly, and as far as I can tell, both Uber and Ola have slashed costs to the point where there’s nothing left to cut. Commissions are down. Incentives are down. Marketing costs are non-existent. And as we all know, service levels have plummeted. All of these have apparently inched them closer and closer to profitability. Again, we don’t know this for sure, but I suppose we’ll find out.  

In many ways, this is illustrative of what lengths companies will have to go to become profitable in India. In 2023, if Ola releases detailed financial numbers in preparation for its IPO, we’ll finally learn the true health of these businesses.

6. 10-minute grocery are back where they started, but with a difference

As long-time readers of this newsletter know, I have a simple, elegant hack to understand quick commerce in India, i.e., Zepto’s homepage. Founders say all kinds of things in interviews, but the homepage tells an entirely different story.  

And here’s how Zepto’s homepage evolved in 2022.

It ended the year with groceries delivered in 10 minutes… followed by an asterisk mark. 

The story of an entire sector summarised in exactly one character. That humble asterisk mark tells everything you need to know. 

I’ve been obsessed with Zepto for a while now because it’s the only true quick commerce company in India. Dunzo is a bit different—it has been around longer, runs a marketplace, and does not rely on speed as a differentiator. Blinkit, well, used to be a grocery startup, then got acquired by Zomato. Swiggy Instamart is a similar story. 

But Zepto is a 10-minute grocery delivery company. It’s always, unabashedly, been a 10-minute grocery delivery company. And all over the world, especially over the last few months, quick-commerce companies are imploding, unable to reconcile their costs with a viable business model. And that’s why, back in August, when Zepto changed the message on their homepage, I wrote that 10-minute grocery was finally dead in India and how Zepto was on its own. 

Well, turns out I was wrong. 10-minute grocery delivery isn’t exactly dead, but it’s back… in a different form. 

As 2022 ends, quick-commerce companies have chosen to stick to their core areas. In fact, recently, Dunzo shut down dark stores in areas which weren’t working well for them. Blinkit did something similar last year. It scaled back operations in areas where it could not meet the 10-minute mark. I imagine Zepto and Instamart are making their own calculations. And they’re doing this by choosing optimisation over expansion. They’re focused on their strongholds and trying to grow by eking out efficiency gains. And they are choosing to do this by focusing on their best performing areas… for now. 

The problem was always about doing 10-minute deliveries at scale. If you choose not to venture into the difficult areas, well, doing 10-minute deliveries reliably is possible. 

And I expect this to continue for most of 2023. 

7. Jio will be back and Disney+Hotstar will fade

For a company that was constantly in the news in 2021, Jio has been completely missing this year. I barely wrote about them, because quite frankly, there was little to write about. 

Well, all that changes next year. 

Because Jio has the biggest media property in the country—the Indian Premier League. And if the Fifa World Cup is any indication, Jio Cinema will finally be Jio’s first major successful consumer app. Advertising. Subscriptions. It’ll do everything. Of course, there’s no guarantee that it’ll make money off this eventually, but it’ll finally put Jio back on the map. 

Also, Disney+Hotstar is in for a difficult year. The IPL rights are one thing, but there are other problems coming its way.

I’ve already written several times about how streaming companies in India work differently—telcos control the distribution, and I’ve gone as far as to say that Disney+Hotstar isn’t too different from cable television. If that’s true, well, then content and distribution control your destiny. 

And Jio has both. 

8. Everyone will converge on lending 

You probably know this, but the reasoning is simple—there’s always been only one way to make money consistently in finance. Credit and interest. Expect this to blow up next year. 

Every fintech company, and I mean everyone, will be involved in lending in some form or another, through a combination of licences, complicated paths, and weird partnerships with NBFCs. This will reach ludicrous proportions. Don’t be surprised if even WhatsApp starts offering you interest-free loans. 

It’s going to be a busy year for the RBI. 

9. At least one major Indian crypto exchange will fail

Like I’ve written before, from a regulatory standpoint, crypto is cursed, and practically dead in India with little chance of coming back alive anytime soon. Combine this with the broader crypto crash, and well, it’s not looking good. 

Despite this, there are an incredible number of major crypto exchanges. CoinDCX. WazirX. Coinswitch Kuber. Zebpay. Unocoin. I don’t expect all of them to make it until the end of 2023. Some will merge, likely with each other, and do a complicated acquisition with coins and tokens which the rest of us will never understand. Alternatively, some may just pivot into something else entirely—Coinswitch is already moving into wealth management. 

One can argue that’s like jumping from the frying pan into the fire, but hey, at least the fire won’t kill you slowly.

Thank you for subscribing and reading me this year. As I enter my fourth year of writing The Nutgraf, I’m happy to say I’m still enjoying doing this every week. A big reason for that is because subscribers like you tell me how I’m doing, what’s working and what’s not. I read every single one of your emails, so do keep writing. 

On that note, let me wish you a Merry Christmas and a Happy New Year. Hope you have a great celebration.

We won’t be publishing next week, but I’ll see you all back in 2023. I have some big things planned. You’ll see. 

Regards,

Praveen Gopal Krishnan

[email protected]

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