The moot question to be asked is not why Dhingana.com closed its operations but how it ever managed to raise so many millions of dollars from so-called savvy investors.
In hindsight, one should have seen it coming. On paper, everything looks rosy. A population of 2 billion people. All of them crazy about music and cinema. How difficult will it be to get them to pay a few cents each to listen to the music? Very easy! Your projections look incredible on the excel sheet and you can’t wait to invest in this dream opportunity.
The problem that nobody factors in is that people hate paying for anything when it is available for free to download. You want the latest music? One simple Google search and you will have the music playing on your iPhone in 30 seconds. Ditto for the latest movies.
In that scenario, who wants to go to Dhingana.com and pay for the same track of music?
However, incredibly, there was no dearth of so-called savvy investors standing in queue to pump in millions of dollars into Dhingana.com.
Lightspeed Venture Partners could barely contain its excitement as it wrote out a cheque for $7 million (INR Rs. 42 crore) in favour of Dhingana. Other PE investors like Helion Venture Partners and Inventus Capital Partners also rushed in with their money bags to invest in Dhingana.
And to make things worse, Dhingana faced acute competition from several other like Saavn, Gaana.com, T-Series and Hungama.
Even Flipkart, another great loss-making concern, got into the fray with ‘Flyte’, an online music store. Flipkart had the bright idea that if it sold songs for Rs. 6 each, listeners would throng the site and they would make millions from them. Luckily for them, reality dawned sooner than later. In a terse statement, Flipkart acknowledged that it had goofed up:
“We have realized the music downloads business in India will not reach scale unless several problem areas such as music piracy and easy micro-payments etc are solved in great depth. We feel that at present, it makes sense to take a step back from Flyte and revisit the digital music market opportunity at a later stage.”
Dhingana’s bankruptcy and the loss of its investors’ precious money is probably only the beginning. We shouldn’t be surprised to see many others biting the dust.
Anyway, the lesson in this for us (non-savvy) investors is that at the end of the day, when you invest in a business, it has to be a realistic and proven business model and not on fanciful projections that are shown on an excel sheet. As some great man once said “Buy what is, not what will be”.
Meanwhile, what I want to know is what happens to Dhingana’s treasure trove of 4,47,410 facebook fans (assuming many of them are not bots). There are people willing to pay good money for that sort of thing.