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Indian online industry may reach inflection point in 18-24 months: M Swarup

According to Mahendra Swarup, chief mentor of Smile Interactive Technologies Group, the Indian online industry may reach the inflection point in the next 18-24 months when the country is expected to have 80 million internet users. “I think that’s when most of the internet companies will start making profit,” Swarup has said.

According to Mahendra Swarup, chief mentor of Smile Interactive Technologies Group, the Indian online industry may reach the inflection point in the next 18-24 months when the country is expected to have 80 million internet users. “I think that’s when most of the internet companies will start making profit,” Swarup has said.

Mahendra Swarup was speaking during a panel discussion titled ‘Future of Internet’ at the recently held event, TiEcon Delhi 2008. Other members of the panel included Shailesh Rao, MD, Google India; R Ramaraj, senior advisor, Sequoia Capital Advisors; D Shivakumar, vice president and general manager, Nokia India; and Rohit Agarwal, CEO, techTribe. The panel discussion was chaired by Sanjeev Bikhchandani, founder and CEO, Info Edge India (Naukri.com).

Rohit Agarwal, Shailesh Rao, R Ramaraj, Sanjeev Bikhchandani, Mahendra
Swarup, D Shivakumar (from left to right)

According to R Ramaraj, availability of local language content could play a major role in increasing the internet penetration in India. But that’s easy said than done. Comparing the internet scenario in China with that of India, Ramaraj said, in China there is one local language. But in India, there can be no single language. And though English is the major language used online in India, that language cannot be sufficient to bring a vast majority of the country’s citizens to internet.

Clearly, addressing the issue related with the local language content is not going to be that easy. But if India does address this issue successfully, the country would be able to serve as a role model for most of the emerging markets like South-East Asia and Middle East, according to Shailesh Rao.

Mahendra Swarup felt that language is not such a constraint in increasing the internet penetration in India. But if it’s going to be 200-300 million users, regional language content will be the key, he said. Swarup also highlighted the initiative undertaken by the government of India to set up one lakh high speed internet kiosks in the rural areas and said this will play an important role to increase the internet penetration in the country.

Noting that owning a dedicated PC with internet connection may still not be an easy option for many people, Mahendra Swarup said, “My guess is that internet will get the real push when TV gets broadband enabled. Here DTH and Cable operators are going to play a key role in increasing the internet penetration.” Swarup also said that education and games related content may specially be useful to attract more people to internet.

Another major challenge in the way of increasing internet penetration, according to R Ramaraj, is the fact that no standalone ISP (internet service provider) business in India is viable today. “That’s a challenge to make internet more penetrable.” Discussing the role of cyber cafes in India, R Ramaraj said cyber cafes account for 47 per cent of the total internet access in the country. “There are lots of competitions. The service charge has gone as low as Rs 10 per hour or less.”

To cope up with the situation cyber cafes are trying to find new sources of revenue through different initiatives like LAN (local area network)-based games and printing of photos. There are also companies that aggregate PC screens across cyber cafes and display ads on those screens. This acts like a yet new source of revenue for internet cafes. However, the cyber cafes still need to improve the quality of hardware, increase internet speed and provide value added services to make their services more useful to customers. Also they need to differentiate their services to attract more customers and make their business profitable, Ramaraj suggested.

“There has to be innovation in the cyber cafe space,” added Shailesh Rao. “It’s still costly to own a dedicated PC and I don’t think mobile can play the role in a sufficient way. So, I feel the need for innovation here.”

According to D Shivakumar of Nokia, mobile phones can play a major role in making internet a mass medium. But this will require certain innovations from the mobile manufactures as well as the website publishers to ensure that mobile phones with qwerty (computer like) keypads become affordable to masses and mobile web pages have only vertical scroll bar and not horizontal bar when these are viewed on a small mobile screen.

Shailesh Rao thought that the availability of online content related with spirituality, education, government and public health could drive more users to internet. He said Muruga’s company (Murugavel Janakiraman, founder and CEO of the BharatMatrimony group) has already addressed certain sets of needs. (Shailesh Rao might be referring to social initiatives like BharatBloodBank.com and BharatEyeBank.org launched by the BharatMatrimony group, now Consim Info.) “I think we are going in the right direction: the hardware price has been falling… But are we seeing entrepreneurs, startups doing enough innovations and trying new things that could be more useful to more Indians?” Rao said.

Responding to the question why there are not many profitable online businesses in India, Mahendra Swarup said, “Online media is going to be consumed in the same way as it has been with the traditional media. Only 1-2 companies will make real money.” According to Swarup, making an online venture profitable is a question of scale. “We need at least 80-100 million internet users to make an online venture profitable. I think that’s when most of the companies will start making profit.”

On being asked when the Indian online industry would reach the inflection point, Mahendra Swarup replied, “I think it’s not very far away. It would be when we have 80 million internet users. I think it’s 18-24 months away.”

D Shivakumar added, “In any business vertical, the third position holder doesn’t enjoy more than 10 per cent of the total market share, whereas to be profitable a business needs to have at least 15 per cent market share. Hence, one needs to identify what the niche is and serve that niche.”

According to R Ramaraj, Indian online entrepreneurs have not looked at the global market to reach the scale. Echoing his thoughts Rohit Agarwal wondered, “Why we have not created content that could be used in Singapore, UK etc?” Of course, there are exceptions like TutorVista. But, surely, there could be more such examples.

“We have not cracked the real online business,” Rohit Agarwal opined. He went on to ask, “What exactly is the internet business?” As if to answer his own question, Agarwal continued, “What’s the kind of services for which consumers are willing to pay?”

Shailesh Rao offered suggestions that could help online entrepreneurs to make their ventures profitable. According to him, the entrepreneurs and startups should not try to do too many things. “If you do you won’t have much hope,” he said. Rao also suggested that online entrepreneurs should try to keep their team size small, may be 10-15 people; start light; use open standard services; and play for scale.

Mahendra Swarup saw a bright future for the e-commerce in India. According to him, e-commerce is probably the largest opportunity. Earlier, there were issues like the lack of effective backend operations and logistics which were hampering the growth of e-commerce in India. But, according to him, things are now changing. He also said that the huge number of ads that are being displayed across media would create such a large demand that traditional retailers won’t be able to fulfil and so there will be a great opportunity for the e-commerce players. Moreover, in Tier II and III cities, where big retailers cannot reach, e-commerce can play a significant role.

While responding to a question on the future of horizontal portals like Yahoo, Indiatimes, Rediff and Sify, Mahendra Swarup said, “When I was at Indiatimes, horizontal was the way to go. But many horizontals have rediscovered themselves over the years and the ones which are still around are now more of an email provider. No one really goes to them for content or anything else except email.” He went on to add, “I feel most horizontals probably won’t exist in the next couple of years.” According to him, horizontals need to focus on the verticals and rebrand them in order to remain in the business. Swarup also said that mobile content is the way to go.

Commenting on the future of internet search, Shailesh Rao of Google said, “The litmus test for search is you should have only one result. Unless it happens there is going to be continuous innovation in this space.” On this Sanjeev Bikhchandani asked Mahendra Swarup, “Can someone disrupt Google?” To this Swarup replied, “I don’t think so. But I give them credit to giving entrepreneurs room for innovation. For many years to go, entrepreneurs will do well if they develop a product in the Google eco-system; a product that revolves around Google.”

Discussing the future of social networks, Rohit Agarwal said, “We don’t really need internet to connect with our network.” According to him, social network has not really happened in India.
This is because no social network has launched a killer app that could add real value to people’s life. He cited education and health care as possible areas around which social networks can develop innovative applications that could drive a large number of people to internet.

R Ramaraj of Sequoia Capital touched upon the issue of current economic downturn and the difficulty being faced by entrepreneurs in raising funds. “The challenge is across all industries,” Ramaraj said. “However, good ideas and good entrepreneurs will still get funding even in this time. There is money available as VCs (venture capitalists) have already raised money.”

Sandeep Murthy of Sherpalo Ventures added, “For early stage ventures the bar is going to be higher. Money is there but consumers would not be easy to get. So, VCs are going to be very careful now.” If that is the case, then what should entrepreneurs do in this trying time? “You have to cut cost,” Murthy suggested. R Ramaraj echoed, “The risk appetite of VCs is really very-very low. Conserve cash and be selective, that’s what LPs (limited partners) are going to do.” And that’s what entrepreneurs would do well to follow: cut cost and conserve cash!

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