Sunday, September 9, 2018

CASH BACK OFFER AND THE BUBBLE


We have seen many tech bubbles but we need to understand the recipe for the same and also the upcoming tech bubble in India.  Under penetration have been accentuated with huge growth outlook but the focus have been extensively towards urban and the real population at rural is yet to be focused. The growth of cash back based various apps and their business has now become the fashion of the Tech Industry linked with service. 

This bubble is so big that generating ROI for the long term is a herculean task.  Every service linked app has some cash back offer to attract the consumer at their own end. The completion is so high that Private Equity investors have become blind since they believe that once the data comes into their platform multiple business opportunities can be explored. Well, that’s a fallacy since consumer behavior does not want any shackles and hence it’s a free bird. Private equity is the biggest segment which is at risk from these bubbles.

 Cash Back based purchase is just a mouth-watering marketing tool extensively used for marketing. Free things are a temptation which provokes purchasing even beyond one’s capacity. Cashback is now competition to attract user in one's platform and create a new business model based on drainage of capital.  Users once addicted to free things are always in quest for new offerings. The offering is a never-ending game and hence cash flow based marketing is also a never-ending game.

Business fails to understand that cash back based approach is dependent on Human behavior where once a free approach leads to significant growth in getting consumers initially the human behavior later on shifts the same clients to some other free back offers.                                                                  
For making online payments the consumers have been given cash back to gather the customer data. That same customer data is being utilized for making other products or business verticals. The cost of acquisition will only find justification when those business verticals generate enough cash flow. But the investments made by various PE firms bleeds when the economic scenario does not support the other verticals. Cash back often is being found a bleed of cash for the Private Equity segment.

One of the most common segments where the flood of the new business verticals are pouring into is financial distribution business or advisory business. App based platforms or web based platforms are being opened up by these companies to leverage the data base of the consumers being created through the door of cash back. Now the competition is so much and expertise levels are so high that consumers are now in dilemma to decide where to go.  Everyone has come up with something of the other to leverage on the consumer data. The biggest threat to this type of business models is that when one divert from the core or joins the cash back or payment bank system glaring at the success of the other, the pain of loss is huge. Once the Private Equity segment hits the bumper the slowdown and end of all future driven innovative platforms comes under a question mark.

 I don’t need to name any company as my readers knows much better about the various type of payment platforms and other cash back platforms are available to lure them for  being a client. The day the bleeding of cash would come down the most interesting part would to be to watch out how these companies or payments systems survives during those tough times. Consumer behavior is fragile and can change at any point of time and these changes the dynamics of the business model based on which the initial seed funding was invested.

 The biggest threat is for the Private Equity Segment that they have invested with a long term perspective built with the growth of so many same business models leads to bleak opportunity growth for these businesses to grow into sustainable long term business. Valuations of these companies are made up of a story with bleak long term revenue generation.

The problem is a huge amount of resources are chasing the same industry and this where the disparity of the investments comes into play. Very soon many Service based technological apps will be clubbed together and very few will survive.   From Tourisms to food service industry so many options have come up with huge Private Equity Investments chasing minimum resources with too much capital creates a loss opportunity for the other industries since in a country like a herd mind set is being followed in terms of every subject.


I am scared of these freebies based business opportunity. The problem is in the initial stage when the seed of thought is implanted for these companies and business opportunities.  We need innovation and not copy cat based business model with little tweaks and turns. The real growth of ROI will come when business models are based on innovative products and services.

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