Why Is Facebook Entering The Hyperlocal Services Market In India?

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Facebook (NASDAQ:FB) is testing its hyper-local services website in India, which provides information relating to local businesses based on the user’s selection of a particular area and service. The listing includes nearly 80 services, ranging from plumbing, beauty, home care to event management.  User ratings and reviews are included for each service. The hyper-local services listing market is intensely competitive in India, with players such as Urban Clap, Housejoy (where Amazon has stake) and QuikrServices already operating in the region. However, Facebook could get a competitive edge in the country, given its wide reach and over 2 million registered small and medium enterprises in India.  With strong penetration in the U.S., Facebook is looking at emerging economies such as India for future growth. We believe entering the hyper-local services market will enable the company to increase its advertising revenues in the region and better monetize its growth in emerging markets.

.See our complete analysis for Facebook

Better Monetization Of  A Large User Base In Emerging Economies

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We forecast Facebook’s ARPU (average revenue per user) from international advertising to be around $8 in 2016 and the corresponding figure for U.S. and Canada will be around $52. However, growth in international users will be much higher compared to that in the U.S. and Canada over our forecast period.

While advertising revenues in emerging economies are relatively low, due to lower per capita income in these regions, Facebook is exploring all avenues to monetize its strong user base, in our view. The company is tapping into the large number of small and medium enterprises that have their pages on its platform. While encouraging these businesses to advertise on Facebook is one strategy, by listing their businesses on its services page, the company can generate additional revenues in future.

The hyperlocal services market has seen a lot of capital inflow in India in the past few years and various start-ups operating in this space have cumulatively raised $180 million in funding, according to start-up tracker Tracxn. On an average, hyperlocal platform operators in India receive 4,000-6,000 orders daily. While this sector is highly unorganized in India, the opportunity in this segment is being pegged between $100 billion to $ 400 billion.  Several players such as Urban Clap, Zimmber, Housejoy are already operating in this space and these platforms charge around 10-30% commission from service providers for each transaction. While Facebook has not started charging service providers for using “Facebook Services” yet, the company is encouraging users to review and rate each service provider on its platform. Facebook’s monetization strategy from this market is not yet clear but the potential for revenue is significant, giving the expected growth in the Indian economy.

While the hyperlocal services market in India appears to be crowded, Facebook does have a competitive edge given its penetration in the region and popularity. Facebook has more than 125 million users in India, making the region Facebook’s second largest market globally. The company also appears to be focusing on the quality of service providers by including a review and rating option for each listed service provider on its platform. We believe entry into this space can open another monetization opportunity for Facebook from its growing user base in India.

 

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