28% GST on real money gaming platforms ‘completely changed’ Zupee’s roadmap: Founder Dilsher Singh Malhi

Zupee founder Dilsher Singh Malhi.

The Indian government's 28 percent goods and services tax (GST) on the real-money gaming industry "completely changed" the product roadmap for skill gaming platform Zupee, founder Dilsher Singh Malhi told Moneycontrol.

"You were operating profitably for, let's say, a certain set of users, but now they might never be profitable under the newer regime," Malhi said.

This policy change led to a sharper segmentation of users at Zupee along with greater focus on "execution excellence, hunting inefficiencies, and plugging even those micro-gaps"

"Every company had to adapt very fast (under the new regime)...How do you design constructs to mould the behavior (of users who have become unprofitable in the new regime), or, if they are profitable, increase their profitability" Malhi said.

He added, "If you are on strong unit economics, you will look at more features to delight your users, like how to make gaming more immersive and all of that. But when there is a fire in the house, you don't make art, you put water on it. Hence, the roadmap has completely changed,"

"Once the business stabilises to an extent, then again, you start thinking about those big projects that you want to bring on," he said.

In August 2023, the GST Council decided to levy 28 percent GST on the full face value of player deposits, irrespective of whether it is a game of skill or chance.

Prior to this, online gaming platforms paid 18 percent GST on the platform fees, also known as Gross Gaming Revenue (GGR). Platform fee is the commission levied by these operators from players for allowing them to participate in a game on their platform.

The new GST regime which was implemented on October 1, 2023 has led to a significant rise in the tax outflow of companies, increasing by as much as 350 to 400 percent, industry executives and other stakeholders had told Moneycontrol earlier.

Several real-money gaming platforms, including Zupee, are currently absorbing the additional tax burden without passing it on to the players, in order to avoid a potential churn in user base.

As reported by Moneycontrol earlier, real-money casual gaming formats were the worst hit by the GST taxation change, as each game or tournament has a smaller number of participants, and people tend to play fewer games on average before dropping out or withdrawing their money, as compared to other formats like card games

Zupee primarily focuses on Online Ludo, offering four different real-money gaming variants, with Ludo Supreme being its flagship format. It also offers real-money gaming variants of Snakes and Ladders and Trump Cards.

Tackling the new GST regime with a full-stack approach

Malhi said the efforts to tackle the impact of the new GST regime required a holistic effort across all aspects, including user acquisition cost, average revenue per user, retention, and player incentives.

"Since the impact was so huge, it can't just be offset by one of the things. There is also no more scope for inefficiency," he said.

For instance, in user acquisition, Zupee’s various teams came together to figure out how to drive more virality through their product, induce more trials, build a good referral programme, and make their performance marketing more scientific among others.

The company also focused on fixing efficiencies around its existing gaming formats before launching new ones, Malhi said.

“People come for their love for Ludo, so you can't tweak the format too much. Hence, a lot of innovation and (cost) savings had to be first achieved while keeping the core format intact” he said.

In recent months, Zupee has built a tournament-like property around Ludo, similar to the ones you see on online fantasy platforms, he noted.

These measures, along with increased revenue on the back of its user base growth, helped the company post its first full year of profitability in the financial year 2024 (FY24).

Zupee reported a profit of tax of Rs 146 crore in FY24, as compared to a loss of Rs 36 crore in FY23.

The company also saw a 36.5 percent jump in its revenue to Rs 1,123 crore for FY24, from Rs 823 crore in FY23.

Future focus areas

Malhi believes there is still a ‘lot of room to grow’ in the current market where it operates, which is skill-based online board games.

However, the company also plans to invest in ancillary services as part of its diversification strategy.

“The focus will be to keep growing without getting too distracted on our core mothership while parallelly planting new seeds…We will look at assets where we can either incubate, build, invest or acquire,” he said.

While Malhi didn't disclose specific information around these new products, he mentioned it will be designed towards strengthening the company's ‘Bharat’ play, which currently accounts for a majority of its 130 million user base.

“India's GDP growth rate will have to come from Tier-2 and Tier-3 cities. So we are looking at this user base, wherever they can engage and entertain and what products can be built around that” he said.

AI for immersive experiences

Zupee is also exploring the use of artificial intelligence (AI) across its various functions such as design, customer experience, data science and analytics among others.

“Driving efficiencies and productivity gains (using AI) is a no-brainer. However, many things that were not possible to design from an immersive experience standpoint have now become possible. So, those games can now come to life” Malhi said.

Founded by Malhi and Siddhant Saurabh, Zupee has raised a total of over $121 million to date and counts WestCap Group, Tomales Bay Capital, Nepean Capital, AJ Capital, Matrix Partners India and Orios Venture Partners among its investors.

The Gurugram-based startup was last valued at $600 million when it raised a $102 million funding round in January 2022.

Other players who offer real-money casual gaming formats include WinZO and Mobile Premier League (MPL). However both of them have taken a platform approach, partnering with third-party game developers to host their games on their respective platforms.