Answer Happy

It was in December 2015 that Nithin Kamath was contemplating thegrowth plans and future strategy ofhis company. He recollected how Zerodha had been instrumental indisrupting the Indian BrokerageIndustry and had been growing rapidly for the past five years. Themost disruptive thing which gotthem going was transparency and consistency in the pricing of theirfinancial products. Majortraditional broking houses had the reputation of opaqueness in thestructure of brokerage charged bythem. Due to their complex and customizable offerings, theirbrokerage scheme had become hard foran average retail investor to grasp. Zerodha’s standardized anduniform offering along withtransparency in the form of brokerage calculator allowed investorsto calculate brokerage up front andhelped them gain mileage in the initial years. Moreover,traditional brokers tried to leverage theiradvisory services. However, there was a dearth of qualifiedspecialists and given the volatile nature ofthe stock market, blame of any loss was often pushed onto advisoryservices. Zerodha decided toeliminate the advisory service facility which aligned well withtheir overall strategy of one size fits all.This significantly reduced operational costs for them as well ashelped them avoid any such blame andbad reputation.Zerodha decided to opt for the scheme of zero brokerage on equitydelivery trades. The idea behindthis was to get the virality going in the mind of customers. Themessage they wanted to send across tothe customer was that there was no harm in trying something that iscompletely free. It was targeted atthose customers who were relatively new to trading and wereapprehensive of the trade brokers aswell as financial markets.Kamath was at the same time wondering if these competitiveadvantages were sustainable for futuregrowth of the company. He felt that there was a possibility thatthey might be easily mimicable andreplicable. In that case, a new competitor would easily be able toerode Zerodha’s market share andprofits in future by coming up with similar offerings.HOW TO MAKE IT SUSTAINABLE?Kamath started an incubation center by the name of Rainmatter,which was an offshoot of Zerodha forthe purpose of investing in fintech startups. He decided to investin startups that would pitch them ideasfor growing the capital market in India. Zerodha had a large andloyal customer base and the fintechstartups would get access to the Zerodha customers to test theirnew product. One such proposalwhich was already lying with him was a startup called smallcase. Itwas a startup that planned toanalyze the impact of any major change (say GST, a bad monsoon,etc.) on companies and identifywhich companies would benefit from it. It was meant to create abasket of such stocks which retailinvestors could purchase through Zerodha’s platform. Such toolswould make it easier for an investorto connect to capital markets.Zerodha also came up with a platform called Coin which allowedpeople to buy a mutual fund directly.They didn’t earn any brokerage or distributor commission out of it,but their idea was to get acustomer to start investing. Once people started investing inmutual funds, they would see benefitswhich would empower them to move towards investing in capitalmarkets. With the objective ofmaking markets accessible to everyone, they also decided to launchZerodha Varsity. It was aneducational platform to teach novice investors about basics offinancial markets. The plan was tomake the most optimal use of search engine optimization so that theplatform always came on the topin any google search results page related to financial markets’basics. This would aid them inpromotions by increasing the brand recall while at the same timecontribute to the expansion of the
pool of investors in the Indian market.Finally, after two months of beta testing, Kite - its officialversion, had been hosted on PlayStore andAppstore a week back. Kamath had high hopes from Kite as it was ahighly intuitive web-basedservice as well as mobile app which targeted to make tradingexperience simplified (See Exhibit 1).Mobile apps were much stickier than website and were thereforeexpected to yield much higher growthfor company in coming years. Zerodha by that time had multipleplatforms each serving a suitablepurpose and making trading experience easier and more intuitive.(See Exhibit 2)If Indian market had to grow, it was essential to get the masses toinvest in stock market. Were theinitiatives planned by Kamath and his team going to be successfulin meeting this objective? Thebigger question was whether they would be able to create asustainable competitive advantage throughthese initiatives (answer the question in the context ofcompetitive advantage and sustainablecompetitive advantage)? Was there anything else that they can dowhich would fit with their strategyas well as aid their future growth?