Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

Internet in India – Still “Nice to Have”

Posted by Arun Uday on May 21, 2007

Generally speaking, there are two kinds of products and services – the “Nice to haves” and “Can’t do withouts”. Talking specifically in the context of India, one way of looking at the market here is that it becomes attractive only when the product or service graduates from the “Nice to have” to the “Can’t do without” category. There are advanced markets in the world, where even the “Nice to have” consumer base is large enough to sustain businesses on those themes. But, India being a value conscious market, as an investor, I’d be interested only if I see that a product has the potential to become a “Can’t do without” in a reasonable time frame. And I feel, internet in India, is still largely a “Nice to have” rather than a “Can’t do without”. And here’s the reason why.
I am not really so worried about the infrastructure issues like relatively high h/w costs or the lack of penetration of bandwidth etc. There is ample evidence to suggest that such issues pretty much get addressed with time. Rather, if there is any one problem that’s really been a stumbling block for internet adoption in India, it is the lack of compelling applications for the domestic market. Some of the analogies that people typically give in connection with the expected boom in Internet in India are two similar waves in ICT sphere that we have witnessed in the past viz. – the cable and mobile revolutions. However, one of the important differences between those and the internet is the fact that language and other localization problems didn’t pose as much as a challenge in either of those cases as compared to the internet. In the case of mobile phones, of course, there is no question of any problems of language. In the case of cable television, we see that it really took off only when regional language channels starting with Hindi were launched. However, for some reason, the same is not happening in the realm of internet. As I mentioned in my previous Tata Motors related post, it is only when the masses from the lower layers of the economic pyramid, and from the second and third tier towns participate in any phenomenon, does that become a wave. As long as it is restricted to economically well off sections of the society or to the large metros, the chances of it becoming a wave are limited. And I don’t see enough compelling applications and content being developed to cater to these masses, which is the real reason why the internet in India has not really delivered on the growth promises. It seems like a little bit of a chicken and egg situation here. Localized applications are probably not getting developed since internet penetration in the semi urban and rural hinterland is still not up there, and till the time there are no relevant applications, people in such places have little incentive in investing in a PC or an internet connection.
So, whats the solution then? I think this deadlock will be broken only when large players with deep pockets – the Yahoos, MSNs and Googles of the world invest in developing the market. If they are serious about growing the domestic internet market in India, it is absolutely imperative that they not be obsessed with only the suave urbanites but also simultaneously look at building applications that are relevant to the other less sophisticated user bases mentioned before. I suppose, once that ecosystem gets seeded, other startups and smaller companies can then join the party, and thats when we can expect a wave in internet adoption in India.

3 Responses to “Internet in India – Still “Nice to Have””

  1. Jitesh said

    I largely agree with what you say.

    But I feel slightly different about how internet in India could go from ‘nice to have’ to ‘must have’.

    The only way is to develop better applications that suit people in India. Applications that can solve India related issues. Most of the applications that we have today are clones of their US counter parts. But things work differently in India thanks to culture et all.

    The biggest hurdles that web applications in India will continue to have atleast for some time are:-
    1. Geographic location & addresses are not standard.
    2. Online Payments are still a big issue(I could not find a single good and cheap payment service in India. Cheap as in setup fees; is important atleast for startups)
    3. Not good enough UI and User experience designers.(I may be wrong here.)

    – Jitesh

  2. anonymous said

    For average middle class or higher income middle class groups in India, broadband is the least priority. Here are the reasons why

    – There is always a Internet Cafe in the street side corner shop, with tolerable and near decent Internet connectivity
    – Where is the power (electricity) when you need to surf?
    – Privacy at homes is lacking, whereas in the Internet cafe one finds it.
    – Indians love porn. 90% of the traffic from Internet cafe’s is porn.
    – One needs to buy a PC, printer, a space/table/chair for the PC etc., In addition to the monthly broadband charges. Most middle class Indians live in less than 1200 sq ft of space.

    ——-

    WiMax will thrive in India. All one needs is a phone to get content.

  3. Ramu K C said

    I believe WiMax holds lot of promise for broadband in India.

    BTW, Arun Its a nice read…I agree that applications should suit the mass requirements. But what about the fate of those applications which address those mass requirements like rail, bus reservations, online trading etc..

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