Home > Entrepreneurship, India, Technology, Telecom, Venture Capital / Private Equity > India – The Online Opportunity – Part II

India – The Online Opportunity – Part II

December 1, 2009 Leave a comment Go to comments

A few months ago I first attempted to size the online audience in India. The analysis sparks several questions: is now a good time for online entrepreneurship?  And for backing web entrepreneurs?   Although we have had serious domestic web players in India since 1996, we have not seen the rise of local web powers like Baidu, Sohu and Sina.   Most of the broken promises can be blamed on the lack of basic Internet infrastructure: broadband connectivity and access to personal computing. 

The major stumbling blocks have been a combination of Indian circumstances and bureaucratic ineptitude.   The larger of these are worth examining for signs of change.

  1. Access to computing:  The personal computing revolution has been led by US and Japanese innovation.  The evolution of computing has followed Moore’s Law such that despite the advances in manufacturing and several orders of magnitude of scale, computer prices have always hovered around $1000 for mainstream units for several years now.   This has always put computers beyond the reach of the masses in developing economies.  However, incomes in India have been rising (McKinsey presents a good summary) and an increasing but small segment of the population has incomes comparable to the PC consuming class in developed markets.   PC ownership is now up to 1 in 30 as per IDC with over 36M in use.  Since a majority of these computers are not individually owned, the actual number of PC users is significantly more than 36M.
  2. Lack of broadband access:  The 90’s were primarily about dial-up connections in India and like every other market, adoption of an online lifestyle has been pending widespread broadband access.  Telecom operators have rolled out xDSL but the copper-addressable capacity limit for the country is 7m lines — these are the number of addressable PCs that are within acceptable distances of telco central offices to allow speeds over 256kbps.  Wireless technologies have tried to fill the gap but spectrum deficiency has cramped both voice and data networks.  In short: broadband growth has been hamstrung in every possible way.  However, there is renewed hope since Wimax, 3G and mesh services have finally started appearing and several fiber-to-the-node projects are also underway.
  3. Bureaucratic bungling:  Successive governments have fumbled when trying to address infrastructure problems rampant in the country.  The auction of spectrum for 2G services in the late 1990s was idiosyncratic and subsequent auctions for additional spectrum, 3G licenses and Wimax have not materialized.  However, there has been a sea change in the government’s attitude off late with recent administrations making it a policy initiative.  We should see Broadband reaching both urban and rural users over the next few years.    Concurrently, decades old tariff regimes have been changed such that computers and parts now cost the same in India as they do elsewhere. 

All indications point down a path to faster and better Internet access for several million PC users and signals immense potential for value creation.  Although global majors like Google, Yahoo and Facebook  now dominate traffic to and from India there is reason to believe that they do not represent all of the future.  Other markets with strong regional content drivers have seen local portals grow and do well (T-Online in Germany and a host of Chinese portals come to mind).   

More importantly, value creation is made possible soon after a critical mass of infrastructure is in place.  I present below a case study on China and link their investment in broadband infrastructure in the early part of this decade to the creation of several billions of dollars of shareholder wealth.

As always, full-screen mode works best.

India is probably where China was in 2002 and if it follows the same trajectory of investment and Internet adoption, the market should be able to support several large domestic web properties in addition to the global majors.  That would make this a great time to be launching capital efficient venture funded startups (unlike the past decade).  The leader board as it shows up on Alexa and Vizisense today may not mean much in three or four years; growth equity investors may have to wait till the story unfolds a few years.

  1. December 16, 2009 at 8:04 am

    The first point, access to computing, may be the first to be successfully addressed as smart phones reach more accessible price points.

    I expect that we will see some startups (that are not specifically focused on mobile usage) optimize their mobile web experience before polishing their desktop one. iPhones
    and their web apps are just one indicator of this.

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