Last fortnight, Tata Digital acquired 1mg for $200M, hot on the heels of its acquisition of BigBasket and its investment in Cure.fit.
The Foundation of India’s Taj
Jamsetji Nusserwanji Tata joined his father’s small firm at a nascent age of 20.
The Tatas were a family of many generations of Parsee priests. The apple fell far from the tree for young Nusserwanji Tata who became the first person in his family to try his hand at business.
This was the year 1859, “when the passive despair engendered by colonial rule was at its peak”, as it had been merely two years since the Great Indian Revolt of 1857.
Jamsetji spent the next 9 years learning the trade under his father. He then set up a small trading company with a capital of ₹21,000, which is close to ₹3 Crores today.
Business trips to England had convinced the impressional young man about the potential of the textile business and the opportunity for Indian companies to create a dent in the prevailing British dominance.
He bought a dilapidated, bankrupt oil mill in Chinchpokli, the industrial heart of Bombay, and converted it into a cotton mill. Within two years, he sold the mill to a local merchant for a neat profit.
With early validation on his aspirations to disrupt the textile industry, Jamsetji then travelled to England. The innovative DNA would be sown right from Day 1.
He immersed himself in a deep, exhaustive study of the Lancashire cotton trade. He identified three crucial factors in deciding the location of his new project- close proximity to cotton-growing areas, easy access to a railway junction, and copious supplies of water and fuel.
On January 1, 1877, after three years of hard work, the Empress Mills came into existence in Nagpur. It was also the day Queen Victoria was proclaimed Empress of India.
In hindsight, the establishment of Empress Mills was the catalyst that sprouted three great ideas that consumed the rest of Jamshetji’s life.
Laying the roots for an iron and steel company, generating hydroelectric power and creating a world-class educational institution to tutor Indians in the sciences.
While Jamshetji was not alive to see any of these come to fruition, the groundwork he laid went a long way in making all of his ideas a reality.
One of the pioneering ventures that did come to life during his lifetime was the majestic Taj Mahal Palace Hotel in Bombay.
Completed in 1903, it was an architectural marvel claiming many firsts in the Indian hospitality industry, American fans, German elevators, Turkish baths and English butlers. The culture of being hospitable and giving would become the essence of Tata’s.
The foundation of an organization once created in centuries was getting set.
Starting On the Fastrack
Sir Dorabji Tata, the eldest son of Jamsetji, had three main missions in mind when he joined his father’s business in 1904
Set up a steel plant, develop a world class institution for scientific development and a pioneering hydroelectric plant near Bombay.
Or, actually, just one main mission. Bringing his father’s legacy to life.
Dorabji set up the first steel plant, Tata Iron and Steel Company (TISCO), now known as Tata Steel in 1907. In line with the group’s vision of building a global presence, Tata Limited’s first London office was established the same year, marking the inception of the group’s global platform.
A global company was being built from Day 0.
Dorabji’s commitment to realising his father’s vision was so strong that in 1924 when the steel venture saw some trouble, he poured his entire personal fortune worth, including his wife’s personal jewelry to obtain a loan.
The Tata culture of supporting the business and its people, come what may, started very early from the very top.
Tata Iron and Steel survived the crisis with support secured from the likes of Jawaharlal Nehru and Mohammed Ali Jinnah, the future leaders of independent India and Pakistan
5 years after Jameshetji’s death his vision of a world class institute was finally realised by the establishment of the Indian Institute of Science, Bangalore in 1909.
Dorabji setup Western India’s first hydroelectric plant – Tata Power, in Mumbai in 1910; the first cement manufacturing unit- India Cement Company, in 1912; Tata Oil Mills Co (TOMCO) known for popular soap brands Hamam and Moti in 1917 and the first indigenous insurance company, The New India Assurance Company Limited, in 1919.
Meanwhile, Jehangir Ratanji Dadabhoy Tata, more popularly known as JRD Tata, was summoned back to India by his father in 1925.
Young JRD Tata was obsessed with flying and had aspired to secure an engineering degree from Cambridge before being called back to India. It was of no surprise when, in 1929, JRD became one of first Indians to secure a commercial pilot’s licence.
Opportunity presented itself a year later, in the form of a proposal for an airmail service connecting Bombay, Ahmedabad and Karachi. He leveraged his mentor, John Peterson – a Scotsman who previously served in the Indian Civil Service- to convince Dorabji Tata of his ambitious goals.
In 1932, Tata Aviation Service, later rebranded to Tata Airlines, was established. The first flight in the history of Indian aviation took off with JRD himself as a pilot.
At the time of Jamsetji’s death in 1904, the fledgling Tata Group had owned the Taj Mahal Hotel in Bombay and three textile mills.
With Sir Dorab’s astute leadership and JRD’s passionate acumen, the Tata group added an integrated steel plant, three electric power companies, a large edible oil and soap company, two cement companies, one of India’s leading insurance companies and an aviation unit to the Tata umbrella.
An unparalleled super-business was being created. But it wasn’t to be without hiccups.
Building Steely Resilience
The years that followed presented tests to Tata’s businesses, in airlines, steel and JRD’s new adventures.
There were no ground or air aids, no navigational or landing guides that could help pilots navigate. In spite of this Tata Airlines won the commendation of the Directorate of Civil Aviation for the year 1933-34 who exemplified them for punctuality.
JRD Tata nourished Tata Airlines until 1953 when the Indian government led by Jawaharlal Nehru nationalised all air transports and facilitated the forming of Air India.
While it was a decision JRD fought against, he was not one to hold grudges and he led the national carrier as chairman till 1978.
In parallel, while committed to his pet project in the airlines industry, the aspiring engineer in JRD was working on the next of his adventures in business.
JRD felt that because of the Tatas’ involvement in Steel, they had the competency to establish an engineering complex unprecedented by Indian standards and move into heavy engineering products. The timing seemed especially fortuitous given that World War 2 had just ended.
What followed was the establishment of the Tata Engineering and Locomotive Company (TELCO) in 1945 with the intention of making not just boilers or locomotives but eventually also road rollers, tractors and other equipment.
The new industry brought its own challenges. The boiler-making crew in the factories were entirely made up of tough Pathans from the North-West who fled India post the riots in the Partition.
The dearth of skilled crew members left the boiler plant paralysed.
The next thing that was tried out was manufacturing locomotives. More than 10,000 locomotives were sold to the Indian Railways. But they soon realised that the company’s sole customer was the Indian government who could beat down prices to any level.
This vulnerability at the hands of the railways led to a partnership between Daimler-Benz and the Tata Group. The Tatas were now going to manufacture trucks. The collaboration created a benchmark of quality standards for the TELCO engineers which guided them for decades on, even after the partnership ended.
JRD Tata was pivotal in the Tata group’s expansion to varied industries, apart from aviation and locomotives, he also led diversification into chemicals and beverages.
The seeds for Tata Tea were sowed in 1962 with a joint venture with the James Finlay Company for manufactured packed and instant tea for the domestic and global markets.
Innovating, creating new businesses, and being at the cutting edge of technology would get deeply ingrained in Tata’s ethos.
Software before Salt
With the start of the second half of the century, Tata was instrumental in paving Technology to India.
India’s first digital computer, Tata Institute Fundamental Research Automatic Calculator (TIFRAC), was developed at the TATA Institute of Fundamental Research in the 1950s and operational by the 1960s.
India became the first country in Asia to build digital computers. It was in such high demand that it was used in two shifts each day.
At that time it was well ahead of any western computer.
Many scientists that developed the computer would later go on visiting appointments to universities in the United States to exchange knowledge.
This was the start of Tata’s entry into technology and paved the way for Tata Tech 1.0.
By 1968 with the new wave of industrialization, Tata remodeled their Tata Computer Center into Tata Consultancy Services. Under the leadership of J.R.D Tata, he appointed FC Kohli, TATA’s most trusted aide, to lead the firm.
TCS Now had to start from scratch and their first acquisition was a mainframe computer ICL 1903 in 1970.
Next year in 1971, TCS would bag their first overseas contact from a middle-eastern power generation and distribution company for management consultancy services.
It was to organize stores and build a computerized inventory control system.
The next five years, Mahalingam, a young CA who had joined TCS along with the six-member team of coders, started writing the specifications for a common process like financial accounting, share registry work, and operating software on behalf of the customers.
They had to partner with companies in the United States to distribute and export their software to their partner clients overseas.
In 1976 TCS was an eight-year-old start-up and had a few overseas contracts.
Seeing TCS’s humble beginnings motivated a few Indians to start up – Hindustan Computer Limited (HCL), Infosys, and Wipro entered the IT and computing industry.
While much of the world dominated the secondary manufacturing sector, India had slowly moved into a treasury software service sector, with TCS leading the way.
In 1989 TCS signed the then-largest deal of $10 MM deal with the Swiss Securities Clearing Corporation (SEGA). This was the world’s first real-time domestic and cross-border securities clearing and settlement system.
TCS had now mastered the art of building technology for capital markets and soon built the core trading platform for the National Stock Exchange. India now had a technologically backed trading system.
The creation of TCS would turn out to be a prescient move, 50 years ahead of its time. J.R.D continued to still strengthen the core of Tata.
Tata continued to form new companies; Tata Finlay in 1962, Tata Consumer Products in 1964, Tata Salt was introduced in 1983 by Tata Chemicals and Titan Industries Limited in 1984, and Tata Elxsi in 1989.
He took the Tata Group from 14 to 95 companies by 1990 taking the total market value of the group to $5B USD, then the next highest valued company in India. It was followed by ITC and HUL with a market value of ~ $700MM USD.
With a passion for giving back that was ingrained into Tata, J.R.D was also involved in Philanthropy unlike other companies of this generation.
J.R.D Tata didn’t just build companies, he built Modern India.
Liberating a Jaguar
By 1990’s as Tata Group had companies in almost every sector, India was also young and growing.
But unstable government, loose monetary policies had led to a monstrous macro-economic crisis back home in 1991.
Licence Raj was collapsing, and India was only weeks away from defaulting on its external balance of payment obligations. The socialist government liberalized the economy to foreign entities for global capital markets.
Many of the Tata companies started underperforming in this crisis and an aging J.R.D Tata planned to step down in 1991 after running the Tata Groups for 52 years.
While JRD realized that many companies had started facing financial issues, someone had to fix them after he left. He named Ratan Tata as his successor.
Young and dynamic Ratan Tata had recently turned around the National Radio & Electronic Company, a dying radio maker, into a leading satellite communications provider in the country.
In 1991 Ratan seemed the ideal person to lead the Tata Group.
But he had an arduous task at hand. As the group was facing heavy foreign competition, Tata Group was completely decentralized. He had limited control in hand and adapting to new foriegn competition was a challenge.
A few of Tata subsidiaries were bleeding money, and he had to centralize the group and take control. This was in stark difference to JRD’s loosely held conglomerate.
Ratan sold a 20% stake in the Tata Sons, bought ownership in the Tata Subsidiaries, organized the Tata companies in 7 sectors and centralized the group.
This was not well taken by many of the leaders of the then individual companies. Russy Modi, India’s best man-manager who led Tata Steel was the first to be against the control of power.
But the centralization of the groups helped the Tata Group to keep up with the constant innovation in all their sectors.
After the reorganization in 1995 Tata Steel and Tata Motors crosseed $1B in market value. TCS was gearing up for its best years.
But Tata Group’s other subsidiaries that JRD had started were still either losing money or were relatively new. Tata had to grow, but the domestic Indian market was not enough.
They now eyed the overseas market.
Tata decided to go on a shopping spree for both Indian and domestic companies. The next decade would be acquisition and synergizing with their Indian counterparts.
In 2000, Tata tea was valued at $114MM and acquired the 140-year-old Tetley Group for a whopping $450MM. This strategic acquisition was to scale overseas as well as serve in a tea-drinking nation.
Two years later, Tata Groups acquired 25% of Videsh Sanchar Nigam Limited from the Indian government and later acquired more stake giving birth to TATA Communication.
Meanwhile, as acquisitions were taking place across Tata Group, the dark horse TCS was growing rapidly.
The chain of events that TCS would start, would reverberate for the group’s next decades. Unbeknownst to even Tata, the group was beginning to pivot into a tech company.
TCS would be at the center of that pivot.
It started operations in China, becoming the first Indian company there. A year later, in 2004, TCS became the first Indian software company to cross one billion dollars in revenues. It went public in 2004 in the largest IPO in India, raising nearly $1.2Bn.
As TCS scaled, the group’s ambitions continued to be global.
Three years later, in 2007, Tata Steel acquired Corus for nearly $12B, giving birth to Tata Steel Europe.
In 2008, Tata Motors would unveil the world’s most affordable car and envision every Indian to own a four-wheeler. Simultaneously, they entered the luxury car market and acquired Jaguar Land Rover from Ford Motor Company for $2.3B.
But right then, the 2008 financial crisis hit the world. It particularly hit the Tata Group as most of their businesses were asset heavy, and they had to restructure.
It was then that TCS’s importance grew even more as they were asset light, western companies outsourced more. TCS led the way for the Tata Group with N. Chandrasekran taking over as CEO & MD of TCS from S. Ramadorai.
It would turn out to be a landmark moment in the history of Tata.
Making a Tech Titan
The mark of the new decade marked new initiatives for the Tata Group.
Ratan Tata had turned around the fragmented Tata Group into the old behemoth but now controlled by Tata Sons. Under his reign, the Tata Group grew 40x in revenue and 50x in profits.
Tata Group was truly a global company with 65% of its revenues from over 100 countries.
He believed that he had done his part, and time had come after nearly 20 years of leading the group, and he was looking for his replacement.
After two years of searching, they appointed Cyrus Mistry to lead the group. Cyrus’s family business, Shapoorji Pallonji Group, owned an 18.3% stake in Tata Sons, the largest individual shareholder.
During the transition phase, Tata Group continued to innovate and launch new companies and products.
The next, Tata Global Beverages struck a JV with Starbucks, and the next five years would be the fastest rollout of stores in Starbucks ‘ history.
Tata re-entered the airline industry with Vistara and AirAsia India after it founded Tata airlines, a.k.a Air India, 74 years ago in 1946 and was forced to nationalize the airlines.
While this seemed all well on the outside with new markets and industries, there was tension inside. Both Ratan Tata and Cyrus Mistry had a conflict of interest in running the mega Tata Group.
What had started as a perfect replacement soon started to seem like a mistake.
Cyrus wished to eliminate unprofitable assets like Tata Nano, Tata Docomo,and British Steel rather than turn around these companies. Ratan did not take these well as the Tata Group always found a way out but did not sell its assets and default on its promises.
In 2016 after years of court trials and discussion with the Board, Cyrus Mistry had to leave the position and it was an acrimonious exit. It would play out for years.
For a beloved brand that kept its house in order, this was as dirty as it could get.
In came Ratan Tata himself to fix the flaws. He took over as interim Chairman. By this time, the world was witnessing a technology shift, and the Tata Group and Ratan were well aware of this.
Ratan was now convinced that even India was going through this technology revolution, and he believed that the then CEO of TCS Chandra was the right man to lead the group.
It wasn’t just technology doing the talking, TCS’ numbers were incredible.
During Chandra’s reign, TCS was making nearly 75% of Tata Group revenues. Chandra would go on to become the first non-Parsi to become the Chairman of the Tata Group.
Tata now had a leader directly from its technology division. The company was on the brink of another technology shift with the digital revolution.
Chandra understood this technological shift, similar to what he had witnessed with the computer revolution when Tata Group had started TCS.
It was time to put Tata Tech’s 2.0 vision into action.
Breaking into the Tech CLiQ
But as Tata Tech 2.0 was being launched, there was a hitch.
Tata seems to have a Walmart problem. Walmart realised they didn’t have the data to personalise to change shopper experience, unlike their emerging competitor Amazon which started as an internet first company.
In 2019, N Chandrasekaran, re-organised the 30 listed companies and 1,000 subsidiaries within 10 verticals. IT, Steel, Automotive, Consumer & Retail, Infrastructure, FS, Aerospace & Defence, Tourism & Travel, Telecom & Media, Trading & Investments.
He called the reorganisation a 3S strategy – Simplifying, Synergising, and Scaling. A cornerstone of this new reorganization was the creation of Tata Digital.
Tata Digital aimed at making products to enrich consumer experiences, leveraging its massive distribution.
Appointing Pratik Pal as the then CEO of Tata Digital was the start of building Synergies across various entities of Tata Sons. Mr. Pal had been with TCS for 27 years, was the Global Head of Retail, Travel, Transportation, Hospitality and Consumer Packaged Goods.
Tata Digital set out to build for the needs of Indian consumers and businesses. But where to start was the question.
Throughout its history, Tata’s decentralised ways of working were both a boon and a bane. It allowed the creation of new businesses with their leaders, but also resulted in loose control. This constant tension had led to multiple re-organizations.
The brick and mortar brands like Westside, Titan, Tanishq and Croma, had an offline as well as a limited online presence through their own websites and ecommerce platforms.
Bringing them all together, it could potentially create an ecommerce platform.
The group’s first foray in ecommerce came through the creation of Tata CLiQ, with Q to mirror a magnifying glass indicating the brand’s focus only on best brands and products for consumers with an impeccable taste.
To differentiate itself from Amazon & Flipkart, it followed a no cashback strategy right from the start. But due to its focus on the luxury segment, Tata CLiQ lagged behind in the race to compete with the likes of Flipkart and Amazon which had gained appeal due to high discounting and cashbacks on products sold.
However, despite noticing growing ecommerce penetration, the investment in Tata CLiQ by end of 2019, was still only a fraction of what Amazon & Walmart had. CLiQ only got about 10% of fund infusion compared to Flipkart and only 5% compared to Amazon ahead of festive sales in 2019.
In 2020, Tata CLiQ pivoted from being a marketplace to becoming a direct seller holding its own inventory. Tata was not going to give up so easily.
Throughout its history, Tata was known to reinvent and re-innovate.
The shift to inventory model was also made in the hopes of getting higher margins by improved logistics costs. Unlike their foreign rivals, Tata wasn’t tied to complex e-commerce regulations for FDI.
Fast track to January 2021, ahead of the Super app launch news, Tata CLiQ got a fund infusion of Rs. 3500 crores which was almost 20 times of what it had got in 2019.
Setting aggressive growth targets for the future, Tata CLiQ was being positioned as an “omni-channel-multi brand retail player” in India.
Tata’s digital game was finally getting serious, and set its sights on building a “superapp”
Trust a Super App
The inspiration for building a super app was not in the west, but in neighbouring China.
WeChat, which was started in 2011, built ecommerce, logistics, payments and everything else on the app. The concept of mini-programs bought more than a 1000 apps within the WeChat app.
Wechat allowed companies to lower their cost of acquisition by coming onboard to Wechat through mini-programs, it’s not that Chinese consumers had an inherent liking for a layered all-in-one app.
By 2019, WeChat had more than 230 million mini-programs. These mini programs are basically apps created by third parties within the Wechat app. In Dec 2020, there were more than a billion active Wechat users in China. Since Google & Facebook were banned in China, Wechat got its moment to rise and shine.
In Indonesia, Gojek worked because all the services it provided were sort of interlinked under a bucket of “on-demand location based services”. Gojek started with ride sharing, and eventually expanded into 18 verticals viz. Food delivery, courier services, ticket booking etc.
Seeing their success, Indian platforms tried.
There were startups who failed (Hike messenger), who got acquired (Tapzo by Amazon), and who are still running the race (Paytm/Flipkart).
However, unlike for Wechat, the Indian market is open and unlike for GoJek, each vertical has hugely diverse needs. The customers already have specialised apps for services so unless there are strong incentives to turn to a super-app, the idea might just be a pipe-dream.
Lack of unit economics, lack of market pull and an inability to cater to such diverse needs made building a super app hard. Tata’s super app, though, was decades in the making.
Having built distribution across almost every vertical imaginable, it understood a variety of supply chains. Building software since the early 1970s, it was building the technical prowess to make everything digital.
Massive distribution, deep expertise, and technical know-how were now being bundled into a superapp.
The app which was earlier planned to launch in December 2020, planned to combine grocery, lifestyle, electronics, healthcare, finance, under a single “omnichannel” platform.
For growing each segment within this app, Tata has a choice to build or acquire. The philosophy of giving autonomy to its entities continued to be the theme in its recent acquisitions as well.
In May 2021, Tata Sons acquired a majority stake (64%) in the online grocery platform, BigBasket. Next in line of acquisitions was 1mg, where the group is said to have acquired 51-60% majority stake in the 6 year old startup..
After covering grocery, healthcare and pharma, Tata Digital was said to be acquiring a significant stake in the hyperlocal delivery platform Dunzo. Bringing in Dunzo could help Tata become more horizontal.
There are speculations about Tata Digital adding an array of Fintech services like insurance, credit, mutual funds etc. under its neobank vertical.
But even if it’s Tata, the road is not going to be easy.
The company has historically failed in its highly technical endeavours. Building a tech giant is not easy. Some of the world’s most talented people have failed trying to build super apps. The competition that Tata faces in each vertical is incredibly intense.
But the culture of innovation, providing autonomy and a monster distribution are aces in Tata’s pack.
From Bombay to Browser
Innovation is the reason why the Tata Group has been able to survive for 150 years.
A DNA of constantly reinventing itself is necessary to survive for so long. Even today, a dedicated innovation platform exists for Tata employees. The goal of the platform is to remove the fear of failure.
It is a key ingredient in succeeding in tech’s merciless disruption. The behemoth knows it will need all the help to achieve this digital future.
In the journey to launch the Superapp, Tata Digital has been rumored to seek global investors for raising $2.5Bn.
It is looking to bring in financial and strategic investors from global tech companies for competing with the likes of Jio, Amazon and Flipkart. Among these investors, Walmart could invest $20-25 Billion for its super app.
The story that inadvertently started in the early 2000s was now taking a fresh turn. Nobody would have imagined how important TCS would be to Tata’s reinvention.
But in hindsight, it is clear that TCS will be the cornerstone for Tata’s newest expedition. The tech pivot that started in the early 2000s had culminated into TCS being the dominant force in Tata’s group.
The world’s largest IT firm contributed to Tata’s 75%+ of profits, 80%+ of market cap, and twice the value of the next 27 companies.
It also contributed to giving Tata Sons its first non-Parsi Chairman. TCS’s 20 year journey to becoming Tata’s crown jewel was Tata Tech 1.0.
Tata Tech 2.0, has begun with its recent set of acquisitions through which it brought top entrepreneurs to its ecosystem. With Mukesh Bansal, Harish Mennon, Prashant Tandon and maybe many more to follow,
Tata Group is counting on its age-old mantra of creating an ecosystem for innovation, steeped in an unparalleled culture.
Chandra’s tech mindset will be key to the super-app’s success. TCS has been building platforms and software for years. TCS launched its SaaS platform for Financial services back in 2019 for automating end-to-end asset servicing. TCS also launched a SaaS based solution to protect enterprises from Cyber risks.
What this indicates is that although Tata has been snapping up consumer tech companies, it is a mammoth in B2B. Its giant presence in everything large business could be a massive unlock of value for it.
Imagine having Tata Steel or Tata Motors as your platform’s largest customer.
Some call the Tata group, the salt to sea conglomerate, some call it coffee to cars conglomerate. There’s no denying the fact that no other company touches the Indian consumers the way this group does.
Its legendary culture, relentless innovation and inclination to autonomy will be a great pull. As entrepreneurs build tech businesses, Tata could be the platform for them to get instant access to anything they want.
In the fight for becoming India’s first successful super app, Tata has all the chops to become your one stop shop for everything.
By Abhinav, Manshi, Mehak, Keshav, Shelley, Shreyans and Aviral