Indian startups save $200 million in tech costs, $800 million in ad spends in fiscal 2023

Indian startups: Bracing for a funding winter

Indian startups will be able to save approximately $200 million in technology costs and $800 million in advertising and promotional costs in FY23, as they cut expenses to brace themselves for the funding winter, according to estimates by market intelligence firm Unearthinsight.

The total technology spending in FY23 is expected to dip to $2.3 billion from $2.5 billion in FY22. Advertising and promotional spending is down to $3.5 billion in FY23 from $4.3 billion in FY22. These numbers are based on a survey of over 2000 startups by UnearthInsight.

Within technology spending, cloud spending fell across startup sectors including enterprise tech, fintech, E-commerce/online retail, healthtech and Edtech. While all the segments showed single digit YoY drop in tech and cloud spending, E-commerce/Online retail saw a double-digit decline of 18 percent in YoY technology spending and 16 percent YoY in cloud spending.

According to the data, few growth-stage startups like Meesho and DealShare have brought cloud expenses down by 50 percent. Overall, startups across the board are cutting cloud expenses by 20- 30 percent. Early-stage start-ups see the lower dip compared to growth and late-stage start-ups.

To survive the funding crunch and manage tech costs, startups are also renegotiating contracts and looking for ways to optimise cloud costs with service providers like Amazon Web Services (AWS).

Technology and cloud spend saw a double digit YoY decline for e-commerce and online retail startups.

Gaurav Vasu, founder and CEO, UnearthInsight told Moneycontrol that the drop in tech spending in the E-commerce segment was driven by inflation impacting new customer addition and average spending by each customer, apart from the funding slowdown.

“They (e-commerce startups) need a lot of money to sustain and run. They also need a lot of follow-up rounds at decent valuations, where technology spend is critical for them. Though the largest costs would still be returns and other areas,” he added.

According to Vasu, enterprise tech and fintech will not see significant dip in technology spending. However, Edtech too would see a major impact as students have started going back to classrooms, Vasu said. “We don’t expect tech spending to go down further in FY24, we expect it to start recovering in the current fiscal,” he added.

Earlier, cloud service providers AWS, Microsoft Azure and Google Cloud Platform (GCP) had reported slowdown in year-on-year deal win by annual contract value in the fourth quarter of calendar year 2022. All the three hyperscalers had reported single digit YoY growth.

In the January-March quarter of 2023, Google's cloud unit posted its first-ever profit of $191 million in Q1, while sales increased by 28 percent YoY to $7.45 billion. Alphabet CEO Ruth Porat mentioned during the call that they continue to see slower growth of consumption as customers optimised their cloud costs reflecting the uncertain macro environment.

AWS too remained cautious, warning of a possible slowdown in the cloud business during its earnings call recently. AWS, which accounts for the bulk of its parent’s revenue, had an operating income fall 21 percent year-on- year (YoY) from $6.5 billion in Q1 2022 to $5.1 billion.

Gaming an exception in Ad spend

Advertising spends are down across startup segments by 18.7 percent.

Advertising spend is expected to drop by 18.7% YoY in FY23, according to UnearthInsight's estimates.

Fintech startups saw a drop of $108 million in YoY ad spends estimated to come in at $900 million in FY23, e-commerce had reduced Ad spending by $388 million YoY reaching an estimated $1.1 billion and edtech’s ad spending was down by about $100 million, touching $350 million in FY23.

Fintech and Edtech segments' reduction was driven by cost cutting across large unicorns and soonicorns, the data said.

Among all these cost cuts on ad spending, gaming startups became an exception seeing an uptick of $138 million instead, in overall spending estimated to be $980 million for FY23, an increase from $841 million in FY22.

In FY22, about $471 million of the gaming advertising spent was incurred by the top three gaming/ fantasy startups including Dream11, Games24x7 and MPL. Vasu expects a similar trend to play out in FY24 as well given the ongoing IPL season and other sports tournaments these startups back already.

Last year, during the peak of the funding winter in August, Moneycontrol had reported that start-ups have reduced their marketing spends by around 30-60 percent. Sectors like fintech, edtech and cryptocurrencies had seen the maximum decline.