Read Write Web has an interesting article on the state of innovation in India. I agree with most of what the author says in terms of transition over last ten years. Within the context of technology businesses, which is what the article focuses on, I am not sure of whether concept arbitrage theme (which is where all of internet and mobile businesses are put in the article) is what will remain dominant over 2008 and beyond. Few reasons:
– Mobile will come into stronger play. We are seeing early signs of traction in companies with local innovation, and I think that momentum will become far more evident in 2008
– On the internet, the early pickings of concept arbitrage are gone. While one can still borrow concepts from other parts of the world, those concepts haven’t been huge successes in their host geographies. And hence, the entire model will be revisited and localized heavily. Local search is an example.
In our own polls at venturewoods, entrepreneurs seem to be exhibiting a high degree of optimism that this indeed is the direction we are headed in. The hot areas as per that poll are local language Internet, mobile data services, Ecommerce/Mcommerce, online financial services, digital entertainment and online education – most of these areas are very high on the localization axis (due to infrastructure, regulation, and local content orientation).
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Alok, thanks for commenting on my article and pointing me to this site.
Raghu, that is a great post by Bill Davidow and you are bang on that the need for early stage funding coincides with the declining window for simple concept arbitrage. (Deepak, I am sure that there are still arbitrage opportunities but there is less low hanging fruit. As for Jet, sorry I am a fan; when customer service was often pretty bad they showed the way IMHO).
Let me address the issue of access to intellectual capital that was raised by many who commented directly on my post and here. It is a mixed bag. What I think is still very weak is Indian customer’s willingness to use Indian vendors for breakthrough projects. This makes it hard to bootstrap an enterprise software venture. Sadly I don’t see this changing and both sides are the problem. Indian vendors put their top teams on international projects where the rate is higher. Indian customers want the imprimatur and experience of a global vendor for what will be a make or break project.
This should change as big Indian companies innovate to get to the base of the pyramid. Western comnpanies do NOT know how to sell to the base of the pyramid, so Indian vendors should get a shot. This can lead to completely game-changing models that can apply not just in India but also globlly (BTW, plenty of poor people in America will welcome products that are dramatically less expensive).
It is related to base of pyramid that I see such innovation from companies like Tata, Reliance, Bharti, Jet, ICICI. Sure big companies everywhere tend to do strategic projects inhouse but that still leads to licensing and partnering and there are plenty of exceptions to that rule.
Where the playing field is totally flat is on knowledge and networking. You really can research anything you need online and even making contacts online is now much, much easier. Certainly you need F2F contacts and relationships to close enterprise deals, but the smartest ventures (in India and US) byepass corporate buyers and sell direct online and by phone. Those models don’t suffer from the earlier problem of enterprise sales where an Indian vendor could halve the R&D budget which made up only 15% of total costs and do nothing about sales and marketing which made up 50% of costs.
Look at products like WordPress. Massive adoption online before taking to any corporate buyers. Bunch guys in a remote part of America could just as easily have been from India. It does not need oodles of marketing $$$, just great product.
I do think the breakthough deals will come from people under 30. Here is why a) they have grown up online b) they can live cheaply while they are building their product c) they have grown up with a greater sense of great things being possible in India. Of course 99.99% of people won’t do this, but it only needs a few. When that real spark is identified, I am totally confident that that there is plenty of VC and seasoned management ready to take it to the next level.
Krish,
Thanks for the one-liner, we will try it out. We were looking for a way to get brands to promote indibiz in their advertisements. By the way, do you know that in france they are now talking about “Visual Pollution”, and are trying to reduce the number of hoardings, and encourage more eco-friendly ways of communication. And in the USA, they are talking about legislating “do not track”, on the lines of “do not call”. This might put a lot of companies whose business model is based on tracking consumers online and serving ads, in trouble.
Christie,
Good luck with your initiative. If brands latch on to this idea and spare the uninterested viewers of intrusive, in-your-face commercials, you’re doing the whole world a favor. [But then broadcasters will have to find another way of monetizing their content :)] With broadband / internet penetration catching up, for brands this should be the way to go.
Ask your clients to add a one-liner that goes like “Do you find us intrusive? Find us at leisure on indibiz.tv” .
The advantage of this intuitive one-liner is that it can be inserted prominently on a less expensive print media for a discerning viewer to explore the product.
The state of innovation in india, is in its present state, because most indian companies are not interested in funding/developing innovations outside their companies. The mentality most often is if they can do it, so can i, why pay such a high price. If you look around you will find, that most of the innovation in india is funded by foreign companies / funds, even some great innovations happening in IIT’s that do not see the light of day.The other mindset most of us have is – how can an indian company innovate, how can we develop an innovation for the world. And if the world has not done it so far, its not going to work. We hope to make a beginning with http://www.indibiz.tv, the first interactive video directory for brands and businesses, a totally new way of online advertising that is non-interruptive, and non-intrusive. We hope to create the first major internet brand, made in india. Incidentally, a major foreign company is interested in investing in us.
Concept arbitrage has a place, still. In the financial service industry, where my focus lies, there is tremendous concept arbitrage for nearly everything technology – but with India related twists. For instance, our stock markets are the largest single stock futures markets in the world – and most American tools/software/websites do not have any understanding of this concept and it’s impact, which means if you bring in something that worked there it will not directly translate.
Apart from that – we can have stuff like DVRs. In the analog world of cabled India where advertisements are a horrendous pain – try watching any movie on TV nowadays – why wouldn’t this model succeed? It’s not the lack of money, surely. A full fledged DVR can be built for very little (way less than Rs. 4,000 selling price) and phone connectivity to get EPG data isn’t altogether difficult to do. (Okay so I’ve researched this in some detail) And while it may sound like someone else SHOULD already be there, but the fact is, there isn’t.
I think a large part of concept arbitrage is lost not for lack of funding but because the first question that gets asked is: if it’s so lucrative, why isn’t someone else doing it already? And then, if you make it big, the big guys will trample on you. It ensures people will not even try – and no, VCs aren’t the only ones asking these questions, they come from partners, friends, and the industry stalwarts themselves. Sometimes you need to be outside the industry to be able to can change it.
Coming to the article, I think the author ends it on a bad note. Jet and Bharti are hardly inspirational – both were horrendously expensive and haughty until lower cost competitors shook them up. The more admirable players in the spaces were Kingfisher/Air Deccan and Reliance Infocomm.
Another funda: Our local market is small (tech front). To address a larger (US/Europe) market the entrepreneurs will go there instead. They’ll be classified as US startups then. So people will write articles about how Google could have been created in an IIT dorm room and why aren’t we doing it already. (end sarcasm)
Innovation, I think, should come from offline sources as well, and perhaps some of this is concept arb, just more locally flavoured. Print magazines/newspapers are far more viable than online media in India (compared to the west). Stuff as simple as insulation can be big (think of the poor souls freezing it out in the North at the moment) and not quite that expensive either. Prefab housing, motel chains on the new highways, loan securitisation – lots of things that succeeded abroad (to the extent that they became commodities) are big opportunities today, and perhaps the innovation is simply in moulding them to India.