Why Carousell’s acquisitions make sense

Sometimes, it’s better to make big, bold moves than suffer a death by a thousand cuts. [View this email in your browser]( Editor's Letter Dear {NAME} I came across a [great article]( that talks about why most online advertising is a waste of money. (It’s a long and somewhat boisterous read - you’ve been warned.) One important takeaway is this: It’s hard to track if your advertising budget is well-spent. In fact, the industry may be built around the flawed practice of marketing to people who are already going to buy your goods. If that’s the case, why bother? There’s plenty to debate here, but I’ll get straight to my point. In my opinion, the nature of advertising explains why the US$850 million classifieds player Carousell has been busy snapping up peers across Southeast Asia. Before I go on, [we recently unpacked its financial numbers]( for 2019 here, so do take a look at that. Anyway, Carousell could’ve gone at it alone, allocating budget towards advertising its regional businesses. But that might be a waste of money as it's difficult to dislodge competing brands or sites that are well-established among their users. There’s also diminishing returns in trying to promote a brand as well known as Carousell. Rather than reaching a marketing stalemate, Carousell probably thought that all things considered, it would be more cost-effective to buy properties that have built a significant user base. And it probably did so much more cheaply last year compared to if it tried now. All of this is valued in Carousell’s balance sheet - it tacked on US$302 million in intangible assets as a result of the acquisitions. Whether this amount is justified is subjective, though the important thing is that the buyouts certainly don't involve forking out upfront cash, though it will entail integrating the teams and shareholders, leading to operational costs. Advertising, ironically, is most effective for those who don’t really need it. If a business is seeing organic growth and strong retention, advertising could supercharge it. On the other hand, no amount of marketing can save a fundamentally weak business. Our next two stories could offer up some lessons here. We looked at the [history of Singtel’s successes and failures in reinventing itself]( and among its shuttered services include consumer apps that competed against Netflix, Amazon, and other global giants with tremendous built-in advantages. Prying consumer wallets away from them will be a tall order - even for Singtel, a US$36 billion giant. We also examined [Vietnam’s intense e-wallet war]( which has 34 players battling over a saturated market. Because consumers have been conditioned to switch to the e-wallet that offers the best incentives, the competition has become a race to the bottom. There’s nothing wrong with discount wars in themselves, but for players like Momo that don’t own a broader ecosystem, they could be playing with fire. Shopee has been known to spend a lot on advertising, but it’s counting on creating a virtuous cycle that sucks in users via its ecommerce marketplace, [food delivery business in Vietnam]( and sister company Garena’s stable of games. While Shopee is not profitable, it has been reducing the amount it spends on marketing for every order. For now, shareholders seem satisfied by its progress as parent firm Sea is trading at an all-time market value of over US$70 billion. Anyway, that’s it from me for now. If you like our stuff, [do subscribe to access our content]( (It will of course make our marketing efforts worthwhile). In addition, Core and Live subscribers can attend the upcoming TIA Conference at no additional cost - just RSVP at [conference.techinasia.com](. Check back next week for more insights! Cheers, Terence Chief Editor To ensure that you don’t miss out on the biggest tech news and analysis, add newsletter@techinasia.com to your address book, contacts, or safe sender list, or move us into your inbox. Tech in Asia’s newsletters are handcrafted daily with love ❤️ and powered by sometimes good coffee ☕. Copyright © 2020 Tech in Asia, All rights reserved. Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](.