Just Dial: New World, New Game for VSS Mani

Image: Mexy Xavier

The 8888888888 number may have immediate recall among generations of Indians but the man behind it, VSS Mani, is reluctant to talk about the voice search service that has made the Justdial brand ubiquitous. He doesn’t even want to be photographed talking on a phone. The image—his image—needs to be carefully presented as one for the future. After a year of being the face of a publicly listed tech company, his caution is inevitable. As is the elevator pitch he has mastered. The 48-year-old first-generation entrepreneur doesn’t miss a chance to whip out his phone—yes, he’s okay to be clicked browsing—and use the Just Dial app to pull up the contact details of an obscure business in your hometown.  

“Who is your family dentist? Look, with one click I can fix an appointment. Do you need new keys made? Here are your nearest key-makers, displayed on the map we’ve built. Want to watch a movie tonight? Three of your friends have already rated this one ‘five stars’—there, it’s booked! Want to test drive a new car? Done!”

After early failed attempts at raising private capital and getting listed publicly, Venkatachalam Sthanu Subramani Mani has earned this ebullience. Just Dial, a company he set up in a garage in Mumbai in 1996 and which now has investors such as Bollywood bigwig Amitabh Bachchan (who put in Rs 6.27 lakh in January 2011), had failed to get an institutional investor until a decade into operations. Mani has really been shown the big money only last year. Just Dial’s IPO in June 2013 created a splash, raising over Rs 900 crore and closing at a market cap of Rs 4,272 crore which, as of August 21, 2014, trebled to Rs 12,186 crore.

Along with his brother and wife, Mani’s promoter group holds 32.99 percent of the equity, currently valued at Rs 4,020 crore ($663 million).

Just Dial’s path to success has been one of persistence and nimbleness, of harnessing a changing Indian ecosystem to potential. Simply put, Mani kept up with the times. And this has been a period of validation for his strategy.

Just Dial began with voice service, reading local listings to callers, before it started its information service via SMS in 2004. In 2006, spurred by India’s growing broadband penetration, it took the “risky” move of going online. “We were known for accurate content and our competitors didn’t have that. If we had exposed our data on the internet, our competitors could have stolen it and used it as their own,” points out Mani. “The other risk was the cannibalisation of voice traffic.” But users had moved online and so did Just Dial.

The web gave Mani the platform to differentiate his listings from that of his competitors through photos, maps, ratings and reviews. As with TripAdvisor and Zomato, user ratings now play a big part in influencing other users. And Just Dial has 45 million of them, adding a million more each month.

It also emerged that many of Just Dial’s users—as was the case with millions of other Indians—were accessing the internet for the first time through their phones. For Mani, inspiration came from home when he saw his previously tech-shy wife using her smartphone more often. He then set about developing a mobile app which hit the market in 2011. The timing was optimal: Consider that in FY13, mobile searches constituted a sixth of internet searches and were less than voice/SMS searches. In FY14, mobile searches grew by 183 percent to a third of internet searches and far exceeded voice/SMS searches.

Just Dial has flourished because it has tracked the tech trend and gone where users are most comfortable—even if it meant stepping out of its comfort zone. This intrepid journey has created a public, profitable, 9,000-employee star. For VSS Mani, though, it’s still only the beginning.   

Focus on Fundamentals
While he speaks English with a hint of an American twang, Mani’s Hindi belies his South Indian heritage. “I’m South Indian but I’ve never lived in South India,” he says. He speaks Tamil with his mother. His Bengali isn’t bad either given that he grew up in Kolkata. He then worked in Delhi for a decade before eventually moving to Mumbai in 1994.

By that time, the idea for starting a search and listings service had already germinated. This was while working with United Database India (UDI), essentially India’s Yellow Pages, in the 1980s. The communications infrastructure in pre-liberalised India was not ready for voice-based search when he founded Askme in 1989. “The telecom infrastructure was not in place to support a telephone-based service,” he says. Mani gave up on the venture in 1992.

After starting another business, a wedding planning consultancy, which wound up shortly thereafter, he put in Rs 50,000 from his savings to begin Just Dial—then a straightforward voice-based directory—in 1996, when the macroeconomic climate had become more conducive to his plans. In a few years, the investors started to take note.

In 2006, after two unsuccessful attempts, Just Dial finally got in private equity investment through SAIF Partners. The swiftness of the deal surprised Mani, who received the term-sheet for a Rs 50 crore investment over breakfast the next day. Then the floodgates opened. US hedge fund Tiger Global put in Rs 77 crore. The two firms had effectively bought the stake of internet entrepreneur Raj Koneru who had invested Rs 6.5 crore in 2000. “We haven’t used a single rupee of the money we raised in 2006-07,” says Mani. “Since then we’ve grown our top-line by around 14x.” In 2012, Just Dial raised a further Rs 327 crore from Sequoia and SAP Ventures before it went public in 2013 and its investors partially cashed out. According to VC Circle, at the time of the IPO, SAIF, Tiger and Sequoia sold stakes worth over Rs 700 crore, at multiples of 10x. Even so, Tiger Global still holds over 13 percent, with SAIF and Sequoia having over 9 percent each.

Image: Mexy Xavier

They have been impressed with the way Just Dial, over the last 17 years, has mirrored India’s telecom evolution by moving from a voice-based service to text messages, to online, to the app. The core business, however, has remained the same: Lead generation—the more you pay, the more potential customers we will send your way.  

The model is simple. Just Dial lists nearby businesses to users for free, and charges (annually Rs 17,596 on an average in FY14, with packages as high as Rs 60,000 for ‘premium listings’) to promote paid listings above others. Those who advertise, therefore, get increased visibility while regular businesses simply have an online presence and access to Just Dial’s 14.5 million users (up almost 50 percent from 2013). It had 2,77,950 paid campaigns for the quarter ending June 30, 2014, a 25 percent increase from 2,21,500 last year. This reflected in the operating revenue for FY14 which was up 27 percent to Rs 461.29 crore. An April 2014 report on Just Dial by Motilal Oswal says, “Vendors have upgraded their subscription packages given the huge success achieved in base packages and still manage to achieve similar paybacks in two to three months time.” More significantly for Mani, Just Dial’s net profit too increased by 76 percent to Rs 120.62 crore in FY14.

The Necessity of Profit
Profit is a golden word for Mani, not just a badge of honour. He has always deemed it a necessity and tried to inculcate that attitude into the company’s culture.

When the business began, it could only expand by using internal accruals as it was starved of external funding. Each new branch had to be profitable within six months. That mantra hasn’t changed.

For instance, in 2004, Mani was increasing headcount and needed 150 additional computers. But it was clear he would require up to 300 more PCs soon after. This was before he had got his first institutional investor—SAIF Partners—on board, at a time when “keep costs low” meant “maintain profit margins”. But did they really need high-performance machines, he wondered? The market price for new PCs was Rs 35,000, but banks were selling them second-hand, at Rs 1,800, to the junk market. “If they work for us, we will buy them now and, in a few years, buy state-of-the-art ones when we are a much stronger company,” he reasoned and bought the old PCs even though he had funds available to buy the new ones. “My prediction proved right,” he smiles—and when the time was right, he bought 700 state-of-the-art machines.   

Mani no longer needs to perform a balancing act with his finances. But even though he drives a BMW 7 series and an Audi Q7 today, old habits die hard: He is frugal when he needs to be. When he had to upgrade his software, current CTO Sandipan Chattopadhyay (then a vendor) told him the easy route was to buy from Microsoft or Oracle, but the smarter, cheaper and more challenging option was for Just Dial to build its own open-source software. “I got involved hands-on in the project. If I had the ability to code, I would have done it myself,” he says. “Today we have a completely indigenous system used by 9,000 employees. Across smartphones, tablets and computers—imagine the kind of license fees we would have paid for that software!”

He claims Just Dial has been profitable since inception and this is what has attracted retail investors. “Companies that burn money, burn money forever—that is their culture,” he says, before adding somewhat prophetically, “companies that earn money, earn money forever. That is our culture.”

The stock is up 171 percent since it listed last year, compared to the Sensex’s 33 percent rise.

The numbers are even more impressive when you consider that many of India’s billion dollar internet companies are loss-making. Ecommerce giants like Flipkart, Myntra and Snapdeal posted big losses in 2013. Funny then, that online retail is the space Mani wants to get into. But, he says, he has chosen a different path.

E-enabling vs ecommerce
As internet penetration increases in India, Mani wants to move Just Dial from a platform where users can connect with businesses to one where they can search and transact with businesses. He calls this ‘e-enabling’ and the service has been branded ‘Search Plus’. According to a July 2014 Nomura report, Just Dial has 1,45,000 establishments participating in Search Plus, which was launched in December 2013. Nomura estimates that this service should account for roughly 14 percent of its overall revenues by FY19, from almost nothing today.

This differs from the “Amazon model” used by many other ecommerce players in India, who take on the responsibility of sourcing, storage and delivery themselves. Mani simply wants to be an intermediary between businesses and users. His argument is that there are already brick-and-mortar vendors who are able to take orders online and provide better service than ecommerce websites who have to use external delivery services and aren’t accountable for the performance of the product or after-sales service. As he points out, “In America, after so many years, ecommerce is only six percent of business; 94 percent of it is offline.”

His model, to that end, is asset light: There’s no need for warehousing or unsold stock burning profits. “Most of these [ecommerce] companies will burn cash forever and most investors will chuck them. The day they show that topline growth is plateauing, there is a freefall in these stocks,” he says. “In the gold rush, it’s the guys who sold the shovels and the tools that made most money.”

At present, Just Dial’s 20 Search Plus verticals are the “tools and shovels”, allowing users to book appointments with doctors or order food and pay the vendor directly. “Doctor’s appointments (400 per day) and food orders (1,200 and 600 orders per day on weekends and weekdays respectively) are the two most popular offerings [on Search Plus],” says a Barclays May 2014 report. Just Dial earns Rs 2 per doctor appointment and 2-10 percent of the restaurant order value from its vendors. These revenues, however, are merely a bonus. For instance, on online food delivery, Goldman Sachs estimates that by FY16, Just Dial will earn an 8 percent commission on the average Rs 400 order. But at 1,200 orders a day, that is still only Rs 1.4 crore a year which is not even one percent of the company’s current revenues.

Mani, however, is optimistic about margins on higher-ticket items like electronics. For instance, Just Dial also allows users to buy mobile phones online, directly from vendors through its Search Plus model. “Through the app, you can buy a Samsung phone, get same-day delivery along with Just Dial’s guarantee and manufacturer warranty, pay by credit card and choose an EMI plan,” says Mani.

For the time being, however, Just Dial’s CFO Ramkumar Krishnamachari says that cash-on-delivery is preferable. “Credit card penetration in India is just three percent and people are reluctant to use them anyway,” he points out. Rather than expecting consumers to enter card details each time they transact, Just Dial is trying to get people to spend online through their soon-to-be-launched service, JD Cash. JD Cash will act as an online wallet from which users can instantly buy goods and services from vendors. The money will be credited to the vendor by Just Dial the following day. Potentially, therefore, Search Plus could bring online transactions to India’s myriad SMEs in the near future.

Ravi Adusumalli, managing partner at SAIF Partners, says the company’s strategy of getting into ecommerce is a ‘natural extension’ of its current business model. “I don’t think it’s a risky step... Just Dial already has a lot of traffic. It is not trying to be a Flipkart or Amazon—it’s a marketplace model, there is no inventory,” he says. “Ecommerce is a large market in almost all geographies. Just Dial has a brand name, a huge customer base and traffic for trading. It will be a growth driver in the years to come.” 

It’s All In The Directory
Mani wants to use Just Dial’s core strength—its unparalleled directory of vendors—to connect users with nearby businesses they wouldn’t necessarily have known about before.  “Nobody does services in the online marketplace in India—everyone does products,” says an analyst with an international bank. “Educating SMEs about using the internet is not easy and Just Dial has executed this well.”

With a 2,000-strong information gathering team on the ground (likely to double in two years) armed with iPads and sourcing geo-located data about vendors every day, Just Dial is hoping that India’s microentrepreneurs will adopt it as their online sales platform.

And with a large sales team already established, Just Dial’s foray into Search Plus appears highly scalable. “A Samsung mobile dealer will not become a paid subscriber. Neither he nor Samsung need the advertising,” says Niket Shah, vice president-Institutional Equities at Motilal Oswal Securities. “But Just Dial can use its existing team to sell products at a marginal extra cost.”

Take the ‘Reverse Auction’ model, for example. In a traditional auction, potential buyers would bid against each other to secure a purchase. In a reverse auction, users enter their zip code and potential vendors in the neighbouring areas bid increasingly lower selling prices to woo the buyer. For instance, a consumer interested in buying a Samsung smartphone gets competing offers from the first seven vendors to sign up and gets to judge the best price, real-time. Though reverse auctions are used globally (by large corporations to purchase raw material, for example), Shah says this concept is being executed for the first time in India. Just Dial makes 2.4 percent of the sale and its large SME directory can help users get the most bang for their buck. The extra revenues from Search Plus will become important, especially as local search increasingly plays out on the mobile phone.

But as mobile search traffic increases, Just Dial must also manage its paying customers. Vendors would typically get a database of Just Dial users to monetise and sell repeatedly to, but voice traffic is falling. In its traditional voice service, a user gets a list of seven vendors who, if they are paying customers, get the user’s contact information too. However, with mobile internet searches, due to privacy rights, vendors do not get user data. Just Dial is banking on the growth of their Search Plus business to offset this problem and give vendors deals as well as leads. And this is just one of the many aspects of growing pains that Mani must manage.

THE CHALLENGE OF GROWTH
Though Mani is adamant that Just Dial will remain a search company first, it still faces stiff competition when it moves into certain areas of ecommerce. “The grocer you order from over the phone is delivering home and collecting cash—why not give him an option to take the order online?” asks Mani. “We tell the grocery store, if you put your price and availability in our system, you’ll have new customers coming to you. That’s when they sign up to the next level.”

Consider the scope of activity in ecommerce today. In the grocery space, established startups such as ZopNow, BigBasket and LocalBanya have studied supply chain, buying behaviour and delivery models closely. In the online food delivery market, Foodpanda, JustEat and DeliveryChef have already tied up with a number of restaurants, even going as far as partnering with them for promotional discounts. Fashion is the largest category in ecommerce, one in which Just Dial isn’t present. Then, while Just Dial has tied up with Booking.com for hotel bookings, analysts are asking ‘why wouldn’t travellers go to Booking.com directly’? The same question applies to MakeMyTrip, with whom Just Dial has also partnered. “In India, people like to go to specialists,” says Shah. “Search Plus is not organic—you have to grow through someone else.”

But the sheer breadth of Just Dial’s directory, built over almost two decades, may stand it in good stead. Plenty of plumbers, car repair shops and chemists aren’t even online, let alone conducting ebusiness. This is who Just Dial was made for, say analysts. Whether it turns into a ‘Jack of all trades, master of none’ or a one-stop shop for everyone remains to be seen. Investors are hoping for the latter.

It is not the potential upside alone that has brought in blue chip global funds like Tiger Global and Sequoia and SAIF.

For one, there are no listed competitors in India. “Though competitors like Getit (established in 1986), Sulekha.com (1998), Asklaila (2007), Askme (2011), Yellow Pages services and Google made an entry into the local search engine space, they were unsuccessful with most of them making losses,” says a 2013 Motilal Oswal report.

Like Just Dial, India’s other listed internet companies—MakeMyTrip and Info Edge—have also outperformed the Sensex.
 
But not everyone has jumped on to the search bandwagon. For instance, Accel Partners, one of the most prolific consumer internet investors in India, has not yet invested in a single local search business model and may not even back a general search engine. Subrata Mitra, a partner at the firm, says investing is a function of finding the right team and believing in the scope of that industry. “We haven’t come across a company that wowed us in the search engine space,” he says. “We are looking at niche plays though.”

Internationally, however, listed local search companies have attracted investors. In the US, Yelp has a market valuation of $5.93 billion even though it has always been loss-making. Along with China’s 58.com (valued at $4.01 billion) that has only turned a profit in the last year, both search companies have seen similar high stock performance over the last year.
 
“There is a huge buzz around consumer internet firms not only in India but also in the developed markets. The potential is huge. It’s an industry where everyone wants to participate,” says Deepak Srinath, director, corporate finance—technology, Allegro Advisors, an investment bank.

Also, the fact that there are only two consumer internet firms (Info Edge being the other) listed in India helps Just Dial in the way investors perceive its valuation. “There is very little choice for public investors in this space and therefore, the stock seems inflated. It is, however, a clear market leader. It can only be compared to companies in the Western world as there is no precedence of such businesses in India,” he says.

Just Dial traded at an impressive price-to-earnings ratio of 102 as of August 12, 2014, although this is down from 209 in 2011. (Analysts at Barclays, Goldman Sachs, Nomura and Motilal Oswal see this dropping further in the next few years, as revenues increase at 25-33 percent annually.)

Significantly, though, the word from Dalal Street is that good governance, not just market euphoria, is the key reason why Mani has got the financers flocking to him.

GOOD GOVERNANCE and growth
You can see that Mani takes pride in his clean reputation. “I haven’t bribed anyone in 20 years—no matter how many notices have been filed against us,” he says. “Before the IPO, some rogues filed an FIR against me, cooking up stories. We went to court through Mahesh Jethmalani. The FIR was quashed and one was filed against the initial accuser. We paid 10x more than what we could have bought that person for. When a company goes public, a lot of these people come to extort money because they know when you threaten a firm during that sensitive period, it succumbs.”

Analysts also say Just Dial takes negative feedback from stakeholders positively. For instance, Just Dial didn’t share specific search traffic data from the last quarter (which included the new Search Plus traffic too) because it would have clouded quarter-on-quarter comparison. But on analysts’ request, Just Dial bifurcated the data for a realistic comparison.

A stable senior management team also indicates to a well-governed company. Just Dial’s first employee, Rakesh Ojha, who joined in 1995, is still around as country head—Business Development today. Ajay Mohan, group vice president, joined in 1996; Jyoti Ahuja Gandhi, senior vice president, is there since 1998; Srinivas Koora, deputy-CFO and Prashant Nagar, vice president, since 1999, and Sandeep Kanchan, chief product officer, since 2001. Even Mani’s executive assistant, Subramanian ‘Subu’ CS, has been with him for the last eight years.

Getting the office-shy CEO to come to work is not easy for Subu. Mani prefers to work from home—a largely unregimented schedule means he gets to see more of his family and less of the boardroom.

That’s not all other CEOs would be envious of: Mani’s travel has diminished to just 6-7 business trips a year. He even found time to write the screenplay for a Bollywood film his wife Anita is making.

Meritocracy Wins
It’s easy to tell, talking to Just Dial employees, that Mani is an inspiration for his people. Koora has worked with him for 15 years. “If you want to take initiative, you get the freedom to execute. Mani is there to guide you when you’re going wrong,” he says. This flows from Mani’s willingness to disrupt and experiment with his own model to try new ideas.

CFO Ramkumar Krishnamachari says this ability to adapt has spawned a meritocracy where unsuccessful ideas are quickly jettisoned. For instance, they experimented with a pay-per-lead model (where vendors paid Just Dial based on how many potential customers came their way), which was inherently leading to a conflict with vendors, so Just Dial moved back to its subscription-based model (where vendors pay a flat fee). Similarly, in 2013, it experimented with zero down-payments from customers, sticking only to monthly instalments. The quality of sign ups was dubious so it dropped the idea. Mani is always talking about constant “small changes” and they don’t apply merely to external policy—internal functions have benefited too.
 
Koora points to Just Dial’s open source platform ‘Genio’ as a case in point. For example, the earlier system for activating a contract with a customer after the payment was made was a lengthy process. The in-house tech platform allows the company to activate the contract as soon as the bank clears the cheque. Similarly, with thousands of employees collecting data from the streets of India, keeping track of every member was difficult. Genio, says Koora, allows every manager to keep a tab on team members. The bottom 10 percent—the worst performing employees—are sent to training programmes.

“Don’t cut cost, cut wastage” is the mantra, says Koora. Internal performance, it seems, is just as important as stock performance.

Ramkumar Krishnamachari, CFO at Just Dial

A Real Ambition
That the stock has done this well is a surprise even to Mani but, then, he’s always believed in himself. And, points out Allegro Advisors’s Srinath, “The high market cap and valuation will persist if the company continues to deliver on its numbers quarter-on-quarter”.

Just Dial is counting on just that. “I wanted the app to be the most useful app in a person’s life. How can we get people to find things just by a couple of clicks?” Mani says. At the same time, he is respectful of behemoth Google, which could prove to be a huge competitor if it decides to invest more in local search. “The world’s largest search engine has not changed its home page in many years and it is still the most useful and relevant,” he says. The consensus from analysts and sources within rival companies is that local search is labour-intensive and pivots on the ‘feet on the street’ model, something Google doesn’t currently have. (Despite repeated attempts, Google declined to comment.)

However, another competitor, Sidharth Gupta, co-founder of GETIT Infoservices, points to a different factor. “Ten to twenty percent of listings become redundant every few months (for instance, restaurants closing down and so on),” he says. “You need to know which 10-20 percent has changed—and this costs the company significantly.” He sees a likely consolidation in the market in the future. “In the past, there were multiple regional players and they were relevant. Over time, however, with mobile internet, web and travel, the country is much ‘smaller’,” he says, “It’s only a question of time before small regional-only players lose relevance—either get consolidated (via, say, acquisitions) or fall by the wayside.”

Shailendra Singh, managing director, Sequoia Capital, says Mani has created “clear leadership in local search”, an important and defensible category in the consumer internet space. “Even more impressive, he has built the company frugally, registering consistent and profitable growth over the last many years and without taking unnecessary risks. Such patience and perseverance in building an enduring enterprise is quite rare in today’s world where large financing rounds and high burn rates are the norm in most categories,” Singh says.

Small wonder, then, that Krishnamachari is confident of taking on competition. “We’ve been around for 17 years. Many companies with solid financial backing have tried [to compete in local search],” he says. He points to Network 18 (of which Forbes India is a part) which sold its stake in YellowPages.co.in and Askme to GETIT in 2013. Yahoo shut down its voice search service Ezee Call in 2012. “It’s not just having the data and online presence,” says Krishnamachari. “Capturing user mindshare is key. Just Dial has sustained and grown that.”

And this is at the heart of its success. Just Dial has an innate customer connect across India that will be hard to replicate—both for competitors entering the Indian market and for Just Dial as it expands abroad. The markets are a fickle mistress—a one-time Rs 10 crore advertising and data/content acquisition spend last year left profit growth flat for that quarter. Creating a brand name in the US, Singapore and Dubai will be far more expensive.

For competitors, the long term opportunity may not be in matching Just Dial’s strength of listings, but in niche, peripheral processes. Take Chennai-based startup Frilp, for example. Just Dial’s success showed them that many people in India were looking for information about businesses. While Just Dial users can search and discover nearby businesses, the next stage of actually deciding which one to use is currently influenced by user ratings and proximity (including those by friends) —what Mani calls the “shift to social”.

However, as Frilp co-founder & COO Senthil K says, “There is an inherent error of averages in ratings and, more importantly, ratings are highly subjective. What is 3-star for a food connoisseur might be 5-star for a common man.” Rather than list everything, Frilp tries to give users a smaller number of more relevant results, based on information from their social networks. “You might have preferences which may not match that of the crowd. That is where recommendations from friends and credible people come in handy.” That being said, it was Just Dial’s success that dialled in the opportunity for the startup. This focussed approach may be just what the investor ordered.

As for Just Dial, now flush with funds, the future will be about how ambitious it wants to be. Cash and investments stood at Rs 663 crore for FY14, up from Rs 510 crore the previous year. There are plans for global expansion and it has already acquired significant listings in the US—Mani’s smartphone is out on the table before you can ask how, displaying movie listings in New York City.

Mani knows there are enough ecommerce companies specialising in key markets here in India, let alone in a highly developed US. Does he focus on search or transaction? Does he enter developing markets where mobile internet penetration is high and established competitors don’t exist? With armies of stock analysts watching his every move, how much does he spend on advertising and content acquisition? “In five years, I want to be the global destination for local search. Not just in every town and city in this country. Not just search, but search-plus-transaction,” he says.

As it stands, having built a successful company and taken it public, one stage of his journey is over. Mani is at a crossroads, much like in 2004, when he had to move into a larger office. He came to his current office space in Malad, a Mumbai suburb, and the builder asked him to take the entire floor. He needed only 6,300 sq ft. The builder told him he could utilise more as the business grows. Mani told him, “I don’t think in my entire lifetime my business will grow to the level where I’ll be using the entire 6,300 sq ft, let alone the whole floor.”

Today, Just Dial is using 60,000 sq ft in the building alone, he points out, laughing. “Such wonderful vision I had!”

(Additional reporting by Deepti Chaudhary)