VCs gun for Google wannabes

The battle for a slice of the local search pie is getting bigger.
Even as Yahoo and Microsoft gang up to ride on the latter’s search engine Bing to take on Google globally, a host of start-ups are fighting it out on the local turf across platforms — online, voice, SMS and of course print. Many of these smaller firms are backed by venture capitalists (VCs), who see a huge market, based on the growing propensity of Indians to search for local listings on the net or on the phone.

According to Sachin Maheshwari, principal at Draper Fisher Jurvetson (DFJ), most VCs have either invested in a local search company already or are keenly eyeing the space.

Local search companies are also connecting individuals as well as SMEs and customers across all formats.  

So much so, it is search that is driving internet traffic currently.

“We see a huge upside potential in the local search business as traffic for these services has been increasing over the last few years. It’s a space that we are aggressively looking to invest in,” Maheshwari said.

For instance, local search and classifieds company Sulekha.com sees 10 million new visitors every month, as compared with 6 million last year.

“The market is currently around Rs 300 crore. Assuming 1 million SMEs start using our services, we expect the market to go beyond Rs 2,000 crore in the next few years,” said Sathya Prabhakar, president and CEO of Sulekha.com.

According to Rahul Chandra, founder and investment advisor at Helion Ventures, the revenue models for the business are advertisement and lead generation.

“Many SMEs are now looking for leads to potential customers. This helps SMEs channelise their energies to target their marketing efforts at the right audience,” Chandra added.

VCs say the ecosystem for local search is still underdeveloped and as the awareness levels of its utility rises, the user base would inflate further.

Bejul Somaia, managing director at Lightspeed Venture Partners, said local search in India is still evolving and there is a lot of potential business waiting to be tapped. “The concept is successful in the West, but local search business models in India will likely look quite different from those in other markets,” he said.

Lightspeed has invested in Bangalore-based AskLaila.com.
The space has seen good interest from VCs this year with Sequoia Capital investing in Just Dial, Helion Ventures in GETIT and Nexus India Capital in OLX.

Late last year, Yahoo Inc picked up 30% equity in Just Dial’s competitor, Info Network Management Company Pvt Ltd, better known by its brand name Call Ezee, for an undisclosed amount.

Google is the other player in the voice-based local search market, kicking off its services from Hyderabad and Delhi last year and adding Mumbai and Bangalore more recently.

However, entry barriers like low margins, long gestation periods and huge capital requirements means there are few new entrants that look attractive.

“Though there is considerable VC interest in the space, a lot of investments are going into reputed players who are receiving second-round investments,” said an investment banker.

Helion’s Chandra said the mindset to dig deep and work closely with SMEs makes the space unattractive for many start-ups.