I write a blog about Indian web 2.0 space (whatever exists of it!) and its reader base is somewhat different from the Venturewoods community; I am cross posting this so as to get reactions from the audience here.
I had been internally debating whether or not this post made any sense. What precipitated my decision in the affirmative was this piece of news that I read on ContentSutra. As things stand today, I can sense a general environment of conjecture about Indian Web2.0 amongst its thought leaders. There is a continuum of opinions, with people’s reactions ranging from cautious disbelief to speculative anticipation. Different people (or organizations) seem to be taking divergent positions and while everybody has a right to a course of action that best serves their own interests, I wonder what this collectively means to the Indian Web 2.0 entrepreneurs themselves. For there is a not insignficant number of people who have Web2.0 as their ‘occupational karmabhoomi’. Many of them are betting their lives & careers on Web2.0 and/or committing significant resources to carve out their livelihood in this space. Hence this issue needs much closer introspection, at least for the sake of that specific group.
Let me piece together a bunch of recent news item, or some of my own observations to give you a sense of what I am driving at. (My apologies if this looks a little sensational, but I need to do it thus, to get my point across)
Avnish Bajaj Says Social Networking Is “A Waste Of Time” In India – Avnish Bajaj, given his experience, surely knows quite a bit about the Indian internet industry; so when he voiced his concerns, you have to accord credence to his views. He did clarify later that he was referring to pure SNS sites. In fact its not just online social networking, he has earlier expressed general skepticism about Indian Web 2.0, probably because of the low internet penetration figures and immature state of the industry.
Sequoia Capital invests 7 million in Minglebox – Sequoia is a big name in venture funding of internet startups. They have internationally backed some of the biggest names in this business, so when their Indian arm invests a sizable sum in a SNS startup, that hasn’t really set the roads on fire (as yet) and is just one in an increasingly crowded space, you have to notice it. Personally I think this decision makes sense for them, for as an investor you have finite choices and if they have to bet on somebody in the Indian SNS space, their choice is better than many of the others. But my main point here is that they are certainly not as skeptic as Avnish about Indian Web2.0.
Canaan Partner says Web 2.0 not high on its priority list– Canaan said that while they are looking at the software & internet space, they are not hugely kicked about Web2.0; they are more aligned towards transaction based models. Canaan with Alok at the helm of its affairs, surely knows a thing or two about the Indian internet space.
Media/Entertainment industry hots up to internet (incl Web2.0) – One recent trend worth noticing is that the big Indian media companies (having huge reach through their TV channels)– Times, NDTV, CNN IBN, Reliance Entertainment are getting their internet act together. They obviously think that the internet is the next big medium after the television. In fact, its not just Indian media companies but foreign ones as well. Take the case of MIH India, which has been promoted by a South African media house, Naspers. MIH is committing serious advertising money to their products and surely they are betting big on this space. I must add that the media companies are eyeing the internet space in general, but it’s safe to assume that they are partly influenced by the buzz around ‘web2.0’.
No dearth of VC money for internet space – You would agree that there is more venture capital money available for the Indian internet space that what the market can absorb. (in fact in India, that’s probably true not just for venture capital but for big ticket private equity as well); and the blame for this clearly lies with us- the startup guys, the entrepreneurs themselves, for not creating enough compelling products & services that can be considered ‘investment grade’ by owners of the capital.
My question is – for young, inexperienced first time Indian web 2.0 entrepreneurs, who are mostly bootstrapping or meagerly angel funded, and who dream of making it big on the Indian internet scene, what should they make of this?
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Amit – On your summary of different opinions; I would take it a positive sign for young entrepreneurs. And it’s good that VCs have different views/hypothesis and they invest according to their individual experiences and research. Otherwise nobody wd hv invested in MingleBox. I agree people you mentioned have credentials under their belt. But all of them are not after one industry, one company, one sector.
While Bajaj firm will not buy a SN story but there is always a Sequoia to put a bet on that. So let entrepreneurs do their work and VCs will do their own.
-Mukul
Amit,
Budding entrepreneurs MUST realize that the success of web applications would pre-suppose deeper penetration of affordable broadband devices and wider adoption of internet if they have Indian customer in mind. They should build such an application as could deliver a cheaper alternative to an already cheap something to gain customer traction.
Despite all the hype surrounding VAS, they must realize that average Indian customer is a poor guy, struggles to make a living and uses his mobile phone only to receive calls and give *missed* calls (smart guy – that’s why the ARPUs are declining). He has to eek out a living within a low budget and listening to music or watching a movie on a mobile figures nowhere in his priority list. Ask them not to try building high end features enabled only by smart phones for this customer.
A surefire formula for success is to get back to basics – think of ways to significantly reduce the cost of healthcare, education, housing, power, gas, travel from the current levels.
In short, put more money in his pocket before trying to pick it.
It’s too early to predict whether the second wave of dot coms in India are headed for a boom or a bust. Given usage patterns of Internet and Mobile, there definetely is a market that is waiting to happen.
IMHO, the best way to validate an idea is to stay afloat for 8 to 15 months – gather feedback, gain some amount of traction and take a shot at prospective business deals/ partnerships. Business models as well as core offerings often evolve with traction. VC money is expensive – ‘validation’ is key to qualifying as ‘investment grade’.
The possibility of internet in India becoming mature market in the coming years makes it worthwhile to take this risk of burning personal monies (which should not be too high if one is smart enough to stay small and spend wisely).
this is an excellent summary of the current web 2.0 scene in india. my uneducated guess is that sequoia is going long on the volatitlity of the entire web 2.0 space through minglebox. the risk is that the sns space takes off but minglebox doesn’t. the way i see is it that $7mn is a small amount for sequoia so they are just making sure they don’t miss out on the boom. you will notice that both bajaj and canaan are funds which have only a silver of funds under sequoia. for them a fascination with web 2.0 can be more costly, so they are rightly sceptical.
VC’s the world over generate their best returns in a bubble environment when they exit their investments when the capital markets or other entities are hungry to but into the VC’s investments. i believe that minglebox funding is partly designed to touch off a frenzy in the web 2.0 space which might make it easier for sequoia to exit. $7mn is a lot of money even for a company to use up even in the US in the first stage let alone India.
My final observation, the canaan guys,bajaj and you(amit ranjan) who actually have run/are running internet companies in india(web 1.0/2.0/1.5/whatever) are a lot more cautious about web 2.0. that tells me something.
If the customers and/or users of the new web2.0 (or any other) service(s) would be willing to pay from their pocket (not necessarily now, maybe in future), then there is definitely a value in providing such a service.
On the other hand, if the revenue model of the web2.0 service is solely dependent on attracting eyeballs and depending on Adsense – or any other form of ads for that matter, then I’m not too sure if it is worth doing – unless there is a substantial amount technological innovation involved. Otherwise there is nothing that stops another similar service from springing up. Today, I would guesstimate that over 70-75 % of the entities in the web2.0 space do not offer any tangible benefits to their users.
The point I’m trying to make is that it may not be wise to decide whether to offer a service based only on the fact that it is/is not a web2.0 service.