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Depending on who you ask, you will get a lot of cool sounding definitions full of buzz words for Web 2.0. In simple terms it is a combination of two things:
1. It is about user generated content. Majority of the content on these sites is not from publishers but from users themselves using wikis, blogs, profiles, etc.
2. From technology standpoint, it is about the use of AJAX, which is a combination of Javascript and XML to interact with web server asynchronously, so every time something new needs to be displayed, the whole page does not need to be refreshed. As a result, pages get reloaded quickly and they don’t look clunky like traditional web pages.

Turns out that in India we have a bunch of Web 2.0 sites related to social networking, social bookmarking and such. You can find a partial list here. So when you have a Web 2.0 service focused for consumers, where does the money come from? It is all about advertisements. Look at any of the signature Web 2.0 companies in the US like MySpace, YouTube, Digg, flickr, etc, for most of them there is no other source of money other than ads. And how do you maximize revenues from ads? Get more eyeballs. So the bottomline is try to attract huge number of users visiting your site for long long times, serve ads on the side and embedded in the content (the more relevant ads, the better) and make money. Clearly this model works when the user base is large and online ad market is as big to support it.

Now let’s take a look at some of the market statistics in India

Internet usage numbers:
We still have very less number of Internet users compared to say US and even China. The latest report from IAMAI says that 38% of the users are “heavy” (usage of around 8.5 hours per week) users of Internet in India. If you take the total user base of 35 million, this translates to around 13.5 million users. Now most Web 2.0 sites (esp. social networking, social bookmarking, media sharing) are targeted towards college going students and youth which comprises of 60% of the total number of Internet users according to the report, which reduces the target customers to around 8 million users.

Total available online ad dollars:
Another report from IAMAI says that the online ad market will cross $57 million in 2006-07 and will be around $150 million in 2010. Compare this with the current number of the US market that is $12.5 billion and Chinese market that is $500 million today.

Competition:
There is a good number of existing well established players of the Indian online industry who are already behind these dollars. Just to quote some figures from a recent issue of Business Today magazine, here are the ad revenues of the top 5 players.
1. Rediff = $13.21 million
2. Google = $10.44 million
3. Indiatimes = $8.88 million
4. Yahoo = $7 million
5. MSN = $4 million

Its not even worth calculating how much money is left over if you subtract these dollars from available dollars. Of course I do not mean to say that small players cannot come up and give the big players a run for their money (the perfect example is YouTube and Google in video market and in general that’s how companies evolve), but this is just to give a picture of the current market.

How much people care?
The latest report from AC Nielsen survey says that in India Internet advertising is still not as effective as other parts of the world. They have found various reasons for that and you can read the details here, but the point is that this is not a good report from the point of view of promoting online advertising to new players.

Bottomline
So if you put the above pieces together in today’s situation, you have at least 20 players in a market of 8 million users, who are using Internet for less than 10 hours per week vying for a few million dollars of revenues? You can extrapolate the above numbers to 2010 and still the picture won’t look any prettier. I would love to hear any catches in the above analysis, but given this data I would not invest or start something that relies completely on ad for revenues from Indian markets, unless there is a killer app in mind that will acquire a really massive number of users quickly and probably get acquired by a big company. I think in India it still makes more sense to start web services with alternative sources of revenues - more like traditional ecommerce services . Not surprising that most of the VC money is going to such services. Of course there is need for sites where youth generation hangs out or where people share bookmarks or latest stories, but the market is small and it will be very interesting who emerges out as the winner. More interesting to see will be what innovations come out considering these facts about the Indian market, both in terms of type/quality of service and in terms of business models.

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Search engines seem to be the flavor of this festive season in India. There has been quite a bit of discussion on local search engines in the last couple of weeks with the launch of Guruji.com. We covered that in enough details here and here. Two important things came out of the discussions:

1. Search engines will start indexing and providing ways to search local languages content as they become more and more popular on the web.
2. To get mass users to adopt their service in the shorter term, search engines will need to provide alternate interface such as mobile access.

In this post, I bring to light a few services that have taken the first step in doing the above. Note that I am NOT doing a complete review of these services here, I am just highlighting interesting things keeping in mind the above two points.

Vernacular search engines
Raftaar
This is a search engine that indexes Hindi content on the web and provides a way to query Hindi words. It provides two modes of input for entering Hindi words. One way is to enter English characters of how that word would be spelled if it was an English word. Although this is a nice feature to have, not sure how useful it will be in reality because if someone can figure out the English spelling for a word, they most probably will know enough English to understand the content in English itself, unless they are specifically looking for Hindi content. The other way to enter Hindi queries is using the Hindi typepad that is provided on the homepage. These modes may be slow to work with right now, but when Hindi content on the web really increases that much, Hindi keyboards will be more popular after which mode of input will not be a problem. Other than regular web search features, one of the useful things that I think they can do to really improve the search experience is smartly include nearby words in search (words that are spelled very similar, because in Hindi spellings can be tricky). Interesting to know that they are already getting about 5000 hits per day, more details here.

Bhramara
This search engine indexes local language content in Hindi and Kannada. The website mentions that documents that it indexes are manually reviewed to provide the best “seek” experience if you want to browse pages from India. I think while this is a good proof of concept, it will be difficult to scale to a full fledged web search (which is not their plan according to the About section of their site)

PDSText provides a wrapper over Google which I think is fun just to try out. It is interesting to see that Google already has local languages in their index. Although providing search results for real world queries requires much more work than that.

Search engine with alternate interfaces
Onyomo is a local search engine. You can search for places to eat, restaurants, hotels, florists, etc. More about the search later, but they have recently introduced SMS search where you can sms your query and they sms back the search results. This is definetely a great start for providing service on mobile interface.

JustDial is a service where the users can dial in a number and ask their query and get answers to that for for free. They recently raised funding from SAIF parterners, you can read more here. Their approach of building a strong user base is quite interesting. As of today when Internet penetration hasn’t reached mass population (only 10 million power users and around 2 million broadband connections), they are acquiring users with access to phone/mobile. Hopefully a large part of their phone user base will convert to web interface also in the future if their brand becomes associated with local search.

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I first wrote about Guruji.com the day of the press release on Oct 12th. As expected, there has been a lot of news all over the media and quite a lot of comments/discussions here on iLeher because:
1. It drew comparisons with the media and investors’ darling Google
2. Search is hot (all Internet users today search because of the information overload on the web, and every searcher is unknowingly a potential customer)
3. They are funded by Sequoia - one of the most successful VC firms in Silicon Valley
4. They have a smart and experienced team on board

I myself being a software professional working in the field of search, have special interest in the technology and so I have been actively following and participating in various discussions about what could it mean for Indian internet industry. Obviously there has been a lot of speculation whether it will replace Google in India, or just add to the list of previous attempts like byindia.com, khoj.com etc, or they will rule Local search. In this post I summarize what they are doing and what direction they could possibly go. The timing could not be better as just today there was an interview with Anurag Dod (the CEO of Guruji.com) on Podtech India, where he talks a bit about their plans that confirms what I wrote in the first post about Guruji.com about indexing local languages.

• I do NOT think they compete head to head with Google India in WEB search. Their homepage has only two tabs “India” and “Local”. They are optimized to support search for Indian content, which is not always what Indian searchers are looking for. For example, there may be a student who wants to search for the latest trends in their research area and in that case a localized search engine will be of little benefit.

• I like to think of them more as “Local” search engine, which I think is a big opportunity. Local search in two ways:
• Local search at India level: If you wanted to find out about the latest happenings about Bollywood or research projects happening in Indian Universities, etc. Search results rankings can be tweaked to improve the relevance based on various factors like whether the result is coming from a site containing mostly Indian content, what people in India generally like etc. One interesting scenario is for a query like “Taj Mahal”, you may not necessarily get the best result from an Indian or India related site. You may find the best info on Taj Mahal from wikipedia (which is predominantly not an Indian or Indian content related site), so should the India specific search engine include that result or not?
• Local search at individual city level: If you wanted to find out what are the local Thai restaurants in your area, the max you could find today is the yellow page listings from different sites. This is where Guruji.com can help by providing the information in a much richer format. It can provide listings (like it does currently), maps, the restaurant websites, sites talking about reviews, etc. One notable player in this area is Onyomo (more on this later)

• Probably more important feature is support for searching local language content. I wrote about this on my earlier post and Anurag confirms this in the interview. India has at least 5-6 major languages used by a non-trivial number of people (there is no English newspaper in the list of top 10 daily newspapers in India) and it is only a matter of time that there will be more and more sites hosting content in these languages. Currently Google/Yahoo do not support that and having this will position Guruji in a unique position, so they can search all Indian content regardless of the language.

The bottomline is that it will take some time for the verdict to be out. There is no doubt that there is a lot of potential and work to be done in the Local search area. I also think now that local search is becoming common in India, Google/Yahoo/MSN will try to make an entry and that’s when things will really start getting heated up. Love to hear your comments/thoughts here.

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Online ticketing is big. It’s clearly leading the ecommerce industry in India. IRCTC (online railway ticketing) is the biggest player followed by air tickets. Not surprising that there are so many travel portals funded by the biggest VC’s in India. A quick look on Google Trends proves that search volume for tickets is quite significant in India (relative to other countries)

Search volume for railway tickets
Search volume for air tickets
Search volume for bus tickets

We had a chat with the three co-founders (Phanindra Sama, Charan Padmaraju and Sudhakar Pasupunuri) of India’s first vertical for online bus tickets called redBus.in. They launched the site just a couple of months back in August 2006 and have already partnered with 30 bus operators in India and are doing great in terms of sales. Below we share their experiences, insights and our thoughts on their business, industry and consumer trends.

1. What inspired you to start this venture?
This venture has come out as a result of a necessity. Last Diwali one of the co-founders was looking for bus tickets to travel home and missed the bus because of getting too late in buying the ticket. Thats when the idea struck that it would be really useful to have a service where people can buy bus tickets online.

iLeher: May sound clichéd but is still very true: “Necessity is the mother of invention”

2. Overview about how the company evolved from idea to “live” state?
Started off with talking to travel operators to understand how the industry works. Surveyed the bus operators and travel agents to figure out the logistics. Convinced the bus operators about advantages of online tickets sales. Provided the software needed to maintain their tickets inventory. While some operators signed up for real time tickets inventory update to redBus, most of them agreed for providing tickets to redBus on a quota basis.

iLeher: Market research, partnerships, logistics. Most important factors in ecommerce.

3. How does your team look like?
3 business dev and marketing people, 2 software people and 3 customer support agents. All currently based in Bangalore.

iLeher: Proves that writing code is easy, but evangelizing, selling and keeping customers happy is more challenging, especially in emerging markets. Makes sense to invest in resources that will help in changing the mentality of the people about ecommerce in India.

4. How is your company funded so for? Any plans of raise more funding?
Pitched the idea at a TIE Bangalore event and got $25,000 seed funding and mentoring from 3 TIE members.

iLeher: Just as important as money is networking and good mentoring to stay focused in the right direction.

5. What is your business model?
Commission from booking tickets and ads on the site.

iLeher: Easy question for an ecommerce site. Try asking this to the latest Web2.0 Social media startup.

6. How is redBus doing so far? Any feedback from customers?
There has been a growth rate of 100% every month since inception. Ticket sales for this month as of today (Oct 17) is already more than double the sales from the complete month of September. Customers have given very positive feedback and they have questions mostly around security of credit card payments over the web.

iLeher: Reassures the fact that people in India are really getting more and more comfortable with doing online transactions.

7. What are some of the key challenges in your business?
Making sure that assigned seat (during e-booking) remains when passengers board the bus. There is a lot of travel on weekends, but on other days occupancy is less.

iLeher: Shows that tech savvy are buying more tickets (since they tend to travel more on weekends). Need for more distribution channels for the people without Internet access?

8. What are the marketing strategies that you have been using?
Email distribution lists, pamphlets on bus stations, posters inside the busses. Google adwords (surprisingly number of clicks resulting from that is not very significant)

iLeher: Although Search Engine Marketing is small right now, its coming.

9. What do you have to say about competitors like Yatra Bus ticket service?
redBus has a big early mover advantage. Yatra started their bus ticketing service only recently. redBus already has partnership with 30 bus operators and are expanding fast. Yatra has very less partners compared to redBus.

iLeher: Big player doesn’t necessarily has big advantage. I don’t particularly like comparisons, but still just to illustrate: Google video v/s YouTube.

10. What is the payment method most used by users?
There is a 50-50 split between credit and debit card. Plan to introduce mobile payment soon.

iLeher: Good to see more usage of credit cards. Mobile interface can work wonders in India, considering the subscriber base.

11. What are the challenges of running a business in India?
Other than the obvious issues of Internet penetration and customers being hesitant of doing credit card transactions online, evangelizing and educating the customers is a big task. Working with different service providers such as lawyers, CA’s is not always a breeze. Things do not always get done as fast as you would like. Coding gets done fast, but there are lot of other variables and things can get delayed to them.

iLeher: We hope that as the markets become mature, other processes to support online business will start getting more and more streamlined in India.

12. How has TIE-EAP program helped you?
TIE was really helpful from day one. It was a source of continuous mentorship and direction. It provides a great network of relevant and useful people in the industry.

iLeher: Network, network, network

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I am sure you have read a ton of news on how so much money is flowing into the new hot Internet ventures today, how VC’s are betting on India as the next big explosive growth market and how startups are springing up all over the place trying to be the Expedia, Match.com, Myspace, et al of India. Check out the compilation in the Resources section for just a few of them.

In this post, I am going to give you the flip side of things. Inspite of the almost unanimous agreement on the tremendous opportunities and potential that Indian markets have, there are certain things that investors have expressed concerns about. Below, I have culled together some of the major issues that investors and companies have been talking about in recent times.

Internet population and penetration
Inspite of the much quoted number of 37 million Internet users in India, the actual number of “power users” to be considered for ecommerce purposes is still small at around 10 million. This is much smaller than compared to other markets such as US and China. Due to this reason, an additional challenge for any Internet service company is to provide alternative interfaces like mobile or even physical kiosks.

Perception of the consumers about customer service
As Rahul Khanna of Clearestone Venture Partners notes - In the ecommerce sector, Indian sites have not had a really good reputation for providing the best customer service. Consumers are not confident that if they buy anything online, whether there will be options for returns/exchanges and/or getting their money back. In other markets like US, this is least of the concerns. People pretty much take it for granted that returning/exchanging items is not at all a hassle.

Valuations of the companies are too high
Sunny Burra of Linus Capital is concerned that there is too much cash chasing in India and the valuations are out of whack. He says “(For company) in the US, if you take the multiples, typically it’s an average of 4-6 times EBITDA, and here, for a company of that sort, they’re asking for multiples like 3 to 4 times revenues. Being an investor, it’s a little hard to digest.”

A related concern expressed in one of the research reports by Delhi based Evalueserve states that “In India most VCs want to continue to invest in Indian start-ups in areas they are most familiar with, i.e., in IT, telecom and Internet products and services. So, it is not surprising that eight consumer-travel Internet websites have already been funded in India, and given that this sector only accounted for approximately $152 million worth of booking transactions in 2005, and given that this number is likely to grow to only to $1.2 billion by 2010, the actual revenue and profits earned by this sector even in 2010 are likely to be $75 million and $9 million respectively, which is miniscule by any standards!”

The research goes on to mention that “Also, since the Bombay Stock Exchange (BSE) has been growing quite rapidly (in spite of the recent 20% drop) and a company with $20 million in annual revenue can be easily listed on it, many Indian entrepreneurs would rather list their companies on BSE than give up a substantial share to the VCs.”

Finding and retaining the ‘right talent’
A number of investors have talked about this issue during the “Investing in India” conference hosted by International Business Forum in San Francisco.

Sumant Mandal, managing director of Clearstone Venture Partners, describes the “scarcity of middle management,” as one of the problems. Kleiner Perkins Caufield & Byers partner Ajit Nazre describes the same problem as “Indian startups often had the wherewithal to write the code to make an Internet service work, but not the skills to package that service and sell it to consumers.”

Even the much sought-after and hot company Google has also expressed the same concern. They have had a much harder time finding and retaining the right talent in Bangalore compared to other places in the world. It is not surprising that they have put the “We are hiring” line on the home page of Google in India.

The research report by Evalueserve also talks about the same issue. “We also found the entrepreneurs in India generally lacked expertise in marketing, sales and business development areas, especially when compared to their counterparts in the US. Most start-ups have to compete for talent not only with other companies who are exporting similar or dissimilar products and services but also with many Indian domestic companies. In fact, finding and retaining the ‘right talent’ has become an issue not only in marketing, sales and business development but also in research, technical and advanced development areas.”

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Rediff reports the launch of Guruji.com, a web search engine focused for Indian markets. The venture is funded by Sequoia Cap India and some angel investors. Reading this article immediately brings up the question if the company is trying to emulate what Baidu.com did in China. Baidu is the leading search engine in China with more than 60% market share, while Google has around 25%. So what were the factors that led to Baidu trashing the seemingly unconquerable behemoth Google in United States?

• The biggest reason: It has always obeyed the censorship laws in China. Google, for a long time maintained its position that information should be free and unrestricted. Turns out they finally gave in thanks to receding market share and have agreed to provide indication when the content is restricted.
• Baidu was founded in 1999 on the eve on Internet burst in United States when Google still wasn’t big.
• It implemented paid search advertisements model before Google in China. So they already had a good revenue model.

Unfortunately, most of these factors do not hold for Guruji.com. Global biggies like Google and Yahoo already have their presence in search engine market in India. There are no major censorship laws in India. Obvious question then is what is the value add that they could provide to users to stand out among the crowd?
From technology point of view, I think they can be following:

• One thing that they are already doing which Google or Yahoo do not provide is local search. Local search is a very useful (and popular in other countries) feature and they could use the early mover advantage here.
• If they can index content from local languages and make it searchable. Reason: As the number of Internet users keeps increasing in urban as well as rural India, more and more players are going to start (or already starting) providing content in local languages. There needs to be a good way to let users input search terms in other languages and provide best results.
• Mobile penetration in India is already huge and is growing at alarmingly high rate. If they provide mobile interface to search the web, they can attract at least 5 times more customers immediately compared to Web only interface.
• If they can target the demographics of the Indian population and serve up their results accordingly. For example according to NYTimes [free registration reqd], analysts say Baidu is playing to a different audience than Western Internet companies because the Chinese are far more interested in entertainment than news, books or car rental rates.

Other than the above features, following factors could also play a role:

• Ecommerce and Search Engine Marketing is still small in India. So potentially if they can innovative other business models?
• This may be far-fetched for Search but still just to speculate: If they could use the concept of “Assisted Internet”? Lot of online players in India these days have offline centers/kiosks where they help people with their services. An example is Shaadi Point by Shaadi.com. This is primarily to cater to the audience that do not have access to Internet at home or have not used computers enough to do things on their own.

We will wait and watch what happens, but more services and competition is always good for consumers!

Update: The Hindu has some more details on the company.

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From TOI: Indian Railways plans to provide Internet connectivity in passanger trains in India. The facility will be first provided in premier trains like Rajdhani and Shatabdi and will be later rolled out to other Express and Mail trains as well. So the day is not far when you can use your laptop and be connected to the world while travelling across the length and breadth of the country in Indian trains.

In some ways Indian Railways has pioneered the ecommerce boom in travel sector by being the largest revenue generator in e-ticketing. Lets hope that with this project, they kick start an era of ubiquitous Internet connectivity in India.

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As the About section of this blog says, the aim of this blog is to provide news and analysis of the latest happenings in the industry, I realized I have been mostly doing the second part i.e. “analysis” more than the “news” part. From today I am going to start publishing top news in “weekly digest” format. Once every week, there will be roundup from last week on the latest and the greatest happenings in the industry. And then there will be regular “analysis” type posts commenting and speculating on the consequences of the happenings. I think this should provide the readers with a good overall grip on whats going on right now and whats coming in the future. In addition to this, I will also keep updating the Resources section which will be sort of a one-stop shop for looking up info about the current companies and startups. Please comment what you feel about this format and if you would rather like to see something else or in some other format.

Alright without any further ado, here’s the buzz from last week:

BusinessWeek has an excellent article on the resurgence of tech entrepreneurs in India in its last week’s issue. It comments on how the number of startups springing up is increasing every day since the last dot com bust. And why will this not happen when all the top VCs from Silicon Valley and other places are lining up to fund the best of the best companies. The article goes on to give examples of a lot of new startups and in the end also cautions that we need to invest more in research in academia and produce at least one big winner (e.g. Skype) to keep the party going. Read the full article here [free registration reqd].

Interesting war of words between MonsterIndia and Naukri. MonsterIndia president claims in a interview with BusinessStandard that they are bigger than Naukri based on certain figures. Naukri responds back saying how those numbers do not exactly mean that.

ContentSutra reports MakeMyTrip raises $10-$15 million in funding from Helion ventures, Sierra and SAIF partners. Once again proves how hot is online travel segment getting. Check out the resources section - in travel sector we’ve got all the big VC’s, including Sequoia, KPCB, Norwest, Reliance cap, etc.

More VC money flowing in. Web18 group (moneycontrol.com, commoditiescontrol.com, cricketnext.com, compareindia.com, jobstreet.com, yatra.com, tech2.com has raised $10 million from Tracer Capital.

MIH India launches a new social networking portal called ibibo. This is another sector that has just too many players (check out the complete list here). It will be interesting to see who emerges as India’s MySpace and Facebook.

Rediff has an interview with Mahesh Murthy, entrepreneur and CEO of Pinstorm. He talks about entrepreneurship, search marketing and growth of Internet in India.

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