The future of the Internet industry in India

The future of the Internet industry in India

It was March 1989, Tim-Berners Lee, a software engineer at a nuclear research lab in Geneva, Switzerland was frustrated. He interacted with several engineers from around the world who brought with them discs of very interesting pieces of information and documentation, but, it was a nightmare for him to gather and use all this information together. He wanted to build this ‘big virtual documentation system in the sky’ where it would be easy to work with multiple documents from several sources across the world. Two years later, on 6th August 1991, the world’s first website and WWW (World Wide Web) was born. It is probably one of the greatest inventions of all time, but, more importantly it was born out of solving a problem that was very real. Since then, the very concept of the Internet has been redefined. Almost 20 years after the Internet was invented, Tim-Berners Lee is confident there is more to come and it sure is going to be very exciting. But, a fundamental aspect that led to the invention of the WWW is still applicable. Solving a real problem holds the key to future Internet ideas and inventions; companies that can solve a problem effectively, will be the ones who will succeed.


The availability of more innovative payment mechanisms will be very useful in India. Cash on delivery, acceptance of cash cards sold through retails channels and payment by cheques are some options. Innovations on the payment mechanisms front are going to be very interesting from an Indian context. – Alok Mittal, General Partner, Canaan Partners a leading venture capital firm.


In this article, we focus on the future of Internet businesses in India. We look at how successful e-businesses overcame their challenges and in turn scaled up their operations to become significant players across industries. In addition, the article identifies the ‘next big things’ in the space of Indian e-businesses. We also explore concepts such as Web 2.0 and enterprise Internet. In a capsule, we are analysing all that has happened in the past, and looking towards all that shall happen in the future.

It has come a long way

Unlike other inventions, the Internet reached India without too much delay. Videsh Sanchar Nigam Limited (VSNL), the government-owned Internet service provider started offering its services in 1996. Within a year, India had 14,000 internet connections. Despite it being initially expensive, people realised the usefulness of the WWW early. Over the next five years, India saw several adaptations of ideas from the west. www.rediff.com  and www.sify.com wanted to be the Indian Yahoo. E-commerce and e-business were buzzwords, but, a lot of entrepreneurs failed to comprehend that a business model based on generating revenues through advertising on the new, digital medium alone was not going to succeed.

It took a long time for people to realise that the revenue model for Internet businesses had to be very different in India. Internet was accessed for services that could not be found anywhere else. Membership-driven, pay-for-service platforms clicked and how. Naukri.com, shaadi.com, yatra.com, the examples of success stories are numerous. “In India, the Internet is still not an entertainment channel. It’s lead driven. People go online to find a job, to find a spouse or to buy an airline ticket without waiting in line for a long time. The alternatives available are not optimal,” says Sandeep Murthy, partner at Sherpalo Ventures and chairman of the board at cleartrip.com.

Profitable ventures have clearly identified a segment to operate out of. Be it job searches, matrimonial matchmaking or travel planning amongst others, each segment presented a problem ‘offline’ that was addressed online. While job search portals bridged the gap between employers and candidates with efficacy, online matchmaking is the new found way of boy-meeting-girl and online travel planning has eliminated the need for an additional service rendered by a travel agency. The success of these ventures lies in breaking past the initial skepticism of the Indian mindset. Practical difficulties have also been addressed with clarity. If bogus profiles have been eliminated by strict screening procedures, payment procedures have been simplified for booking tickets. By constantly reinventing their methods, successful Internet businesses in India have also been able to tilt the scales to their advantage.

 

However, none of these successes were achieved overnight. Even top internet companies in India including Info Edge (which operates Naukri.com, Jeevansathi.com, 99acres.com, and a slew of other portals), People Group (which runs shaadi.com, makaan.com etc.) and Consim Info (which runs bharatmatrimony.com, clickjobs.com, indiaautomobile.com etc.) who are market leaders in certain segments, are struggling with their newer web properties. “It does take time to build successful online businesses. Naukri.com took 15 years to get to where they are right now. Jeevansathi.com is five years old. 99acres is three-years-old. Some of these companies probably did expand aggressively, but, given more time, things should work out. You cannot build a successful Internet business in something like two years,” says Alok Mittal, partner, Canaan Partners, a leading venture capital firm that has made investments in several consumer Internet companies in India and the U.S.

Challenges in an Indian context

Despite India being a hub for the information technology industry, the availability of talent to further Internet businesses was a concern. “When cleartrip was starting out in 2004, we did have a problem with finding talent. The product development space in India had not evolved, and it was definitely a challenge,” says Murthy. While this challenge has been overcome, certain others continue to perplex Internet entrepreneurs.

Broadband penetration Broadband penetration is still very low in comparison to international markets. There are less than nine million Internet users in India with high-speed connections. In a market where there are 300 million people in urban areas, Internet penetration will pave the way for future e-businesses. But when is the question? Murthy answers: “If you look at the telecom industry in our country, it took us about five years (from 2000 to 2005) to get to 50 million mobile users. After that, we have seen around 50 million users being added every year, sometimes in less than 6 months.” So the year 2005 was the influx point. And when the Internet industry will reach there is hard to predict. “Reality is that no one knows. Almost every research report got their telecom prediction numbers wrong. But when it happens it’ll present a huge opportunity,” feels Murthy.

Safe online payment mechanism Along with figuring out business models and ironing out technology-related challenges, innovations need to happen in certain areas. Consumers are very apprehensive about using their credit cards online. “The availability of more innovative payment mechanisms will be very useful in India. Cash on delivery, acceptance of cash cards sold through retails channels, and payment by cheques are some options. Innovations on the payment mechanisms front is going to be very interesting from an Indian context,” says Mittal.

Merger of online and offline models

A closer analysis of a shaadi.com or a yatra.com reveals that these Internet companies are not only targeting people online. They are diversifying and starting offline operations as well. Shaadi Centers are brick-and-mortar centers where non-Internet savvy customers are assisted in putting up online profiles. Yatra’s holiday lounges are for customers to walk in and plan their travel in discussion with a travel expert. Services commerce companies like Suvidhaa Infoserve that sell services through retail outlets are offering to collaborate with online partners. “The integration of online and offline channels is something that is very different from what we see in the west, but it does seem like its working in India,” says Mittal. Murthy adds:  “In India, companies believe that a large number of their customers are offline, and they are going after them, which is understandable. At cleartip.com we’re analysing the offline option though we’re focused on the online model for now since we understand the challenges very well.”

When asked if something like an amazon.com  (online shopping) will work in India, Mittal says, “The biggest challenge for online retail will be the logistics infrastructure in the country. Both supply and distribution logistics need to evolve for online shopping to be a success.” In the U.S., people buy from amazon.com because of the cost advantages and for buying products that are not available elsewhere. Clearly, everything from supply chain and inventory management to delivery services is world class. In India, the logistics systems in place are yet to allow for such a cost advantage.


In India, the Internet is still not an entertainment channel. It’s lead driven. People go online to find a job, to find a spouse or to buy an airline ticket without waiting in line for a long time. The alternatives available are not optimal – Sandeep Murthy.


Indians also have a very different mindset when it comes to shopping. They like the touch-and-feel factor that completes a shopping experience. “In India, something like a futurebazaar.com may work. Since it is owned by Future Group, the biggest retailer in the country, they have their supply and logistics infrastructure in place. Obviously, the last-mile distribution will be an incremental challenge,” says Murthy. One aspect remains clear; the integration of online-offline mediums is going to evolve across several sectors. Whether it is online shopping, selling financial products or helping customers find a spouse, there is space for further growth. If we see an explosion in Internet penetration, there are several companies ready to capture the market.

What is in store?

The next big areas of growth are not easy to predict. Sanjeev Bikhchandani, the founder and chief executive of Info Edge (the parent company behind naukri.com) says, “Classifieds, online financial services including stock trading and selling financial services online and education will be big. But, the key is someone has to execute. There are not very many natural areas of growth available. These areas will have to be created, and will evolve over time. Jobs evolved as a big category probably because our execution included putting 200 people on the sales force.”

It is fairly clear that jobs, matchmaking and travel have taken off in the Internet space in India. Online stock trading has seen growth as well. As mentioned before, most of these ventures are driven by the fact that, the offline alternative is cumbersome and inefficient. And for Internet companies, success is not dependent on the resolution of a challenge, but on their business model and understanding of how Internet works for their target audience. And as Bikhchandani rightly adds, “Solve an unsolved problem, being a me-too will not work in India.”