Archive for December, 2006

10 predictions for year 2007

Written by: Vivek Garg

On Dec 31st, 2006

I have been thinking about the predictions that I want to make for the upcoming year. Predicting is a tricky business unless you are inspired by Nostradamus. First few things that come to mind if you tried predicting about the consumer Internet industry in India are : “mobile 2.0 will lead the way to web 2.0” or “more investments in booming industry” or “we will see increased M&A”. These predictions are either extended state of our present or they are generally true. So with the risk of sounding really stupid from iLeher camp, we put forward 10 specific predictions for year 2007. We tried to make them as specific as possible. Remember predicting is tough. But I am hoping this will get the dialogue started and we could encourage others to dare predict what they think will happen in future.     

1. Broadband growth in India will continue to disappoint by not showing an exponential growth. As against the target of 3 million broadband connections till 2005 end, only 0.18 million were achieved. At end-October, the total number of broadband connections stood at 1.92 million. The target till 2007-end is 9 million and 143 million by end of 2010.

2. WiMax will not be able to solve the last mile challenge; instead we will see a realistic alternative in cellular. Surge in WiFi enabled devices will increase the number of ways people get online.

3. Airline tax cuts will boost travel industry further in 2007. Better taxation model will lower the net cost of flying around in India. This will increase the volume for travel portals. Too many players will lead to lower margins on each transaction.

4. Introductions of DVR in Indian markets with onset of Set Top boxes and DTH – people will no longer have to sit through painful ads to watch their favorite soaps. Set-top boxes will increase the market share of VOD. Find a detail post on various movie distribution channels here .

5. Online maps and local data will become commonplace. People will start using street maps and peer reviews of local destinations. It will lead consumers to online directions and use of map for their travel. This will benefit local search players like mapmyindia, burrp, onyomo. Google has recently started offering street level maps in India. At least a few of the big players like yahoo/msn/google/rediff/indiatimes will start offering local search in India.

6. ATMs everywhere will become a platform for ad placement, movie tickets and quick data shopping. This will cause increased computer literacy of Indian populace. Indian Railways is already extending the use of Internet to assist passenger’s book e-tickets over the ATM.

7. Mobile payment and mobile ticketing will hit mainstream. This will lead the ecommerce players to take mobile interface more seriously.

8. We will find Indians spending more time playing games (mobile, PC and console). will find itself well positioned. We will see players entering the gaming arena.

9. At least some online DVD rental companies and travel portals will realize the importance of offline presence and will tie up with local retailers and local travel agents for convenience of non-Internet savvy population.

10. iLeher will continue building a community of young professionals trying to make sense of the complex web of events relating to Indian Internet industry. Read our about page if you are interested in being a part of this community.

Your comments/suggestions and predictions are most welcome.     

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Movers and Shakers of Year 2006

Written by: Madhur

On Dec 27th, 2006

It’s that time of the year. Everyone is writing about the best of 2006. We thought it would be nice to look back at the happenings in the industry in the past year. Here is a collection of news that made the headlines in 2006.

THE News
The biggest event of the year was undoubtedly the IPO of Info-Edge (group owning Naukri, 99acres, JeevanSathi). This event has heralded a new era in the consumer Internet industry in India as it became the first Internet company ever to be listed on an Indian Stock Exchange. We hope to see some more companies to follow suit in the coming few years to keep the rally going. Some of the probable followers include the Shaadi group, BharatMatrimony group and the online travel companies.

Lot of money has poured in the market in 2006. As Venture Intelligence reports, VCs have made 53 early-stage investments in start-ups in India worth $355 million during the first nine months of 2006. That’s still nearly twice as much activity in that period than the two previous years combined. Here is a partial list of the investors and their portfolio companies.The leading sector in terms of investments has been without any doubt – Travel. Makemytrip, Yatra, TravelGuru, Cleartrip are some of the big names in this sector and all of them have already taken their second rounds of funding this year. The biggest of the VC’s from Silicon Valley including Sequoia, KPCB, Matrix, Norwest, etc. have made their presence felt in India. Some of the other companies that attracted big investments included online DVD rental company SeventyMM, leading community portal Sulekha, India specific search engine and online tutoring company TutorVista.

The only one that we know of is the acquisition of web2.0 companies Bixee and Pixrat by MIH networks. We hope to see more activity in this sector in order to sustain the bullish web2.0 scene and the overall ecosystem.

Although we raised our own concerns about the sustainability of web2.0 companies, this has been the most active sector because of obvious reasons – low barrier to entry both in terms of technology and investment. Following the trend from the West, loads of startups are trying to make a mark in social networking scene including photo sharing, video sharing, news/events sharing. Here is a partial list of companies trying to fight it out to acquire whatever small percent of users and advertising revenue that is available in the Indian market today.

Fun facts and figures

  • Airline ticket customers formed 40% of online shoppers in India, followed by books comprising with 29% and music at 24% of the total purchases. 30,000 Indians buy travel tickets online everyday.
  • The number of online shoppers in India rose 7% to 3.49 million in the first half of 2006 from 3.27 million a year earlier.
  • High-speed connections in India more than doubled to 1.92 million at the end of October from 690,000 in the year 2005.
  • Desktops account for 80 per cent of the total personal computer market as compared to 20 per cent of laptops. The latter will grow at over 100 per cent from 431,834 units sold in 2005-06 to 863,668 units in 2006-07 as compared to desktop sales growing at 22 per cent from 4,164,724 units in 2005-06 to 5,676,111 units in 2006-07.
  • The number of total Internet users in India stands at 35 million currently; out of this 10 million are considered to be “power users”.

Overall, 2006 was an active year full of excitement in the industry among investors, entrepreneurs and of course the users of the Internet themselves. The year has kicked in the enthusiasm required for bootstrapping the so called “Silicon Valley in India“. 2007 is going to be very important to take these early developments to the next level towards realizing the Silicon Valley dream. At the risk of sounding obvious, increase in Internet penetration (esp. broadband) is on the top of my wish list for 2007. Without the Internet users equipped with good connection speed, industry cannot go much further. Other than that I think eCommerce really needs a boost because that is the main driver of the Internet economy. More eCommerce, more advertising dollars, more business models and more companies.

Where do you think the industry is heading from here? What’s in your wish list?

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Online movie distribution – a disruptive force?

Written by: Vivek Garg

On Dec 20th, 2006

Recently I got to spend a lot of time at home with little work at hand. Along with gears of war on Xbox live I wanted to watch lot of hindi movies. After finishing new titles from the local Hindi movie rental shop, I decided to give a spin. I took a $3.99 subscription for unlimited movies for 3 days. I watched 4 Hindi movies with DVD/VCD quality online. They support 1 mbps and 512 kbps bitrates. After a few hiccups like clearing the browser cache, windows media player update and lowering the bitrate, I got the no jitter streaming to work in full screen. I hooked the laptop to my TV and audio receiver and voila, I was enjoying new titles that are not in stores with better quality.

At my corner store, I pay $1 for VHS and $2 for DVDs and these are 2 day rentals. It turns out that unlimited $3.99 subscription works out great. With heavy broadband penetration in US and not on time availability of VHS in local store, I wonder if these players are going to disrupt the business model of local stores in US and in India eventually. Let’s look at the players involved in this media distribution game, and the ones that can potentially disrupt existing channels.

1. Brick and mortar rental stores. These stores offer local distribution. People in the same locality go to the store, rent a movie for limited time. Advantage is no hassle local access. Disadvantage for these stores are limited shelf space, bad quality and late fees.

2. Online DVD rental companies (Seventymm, Madhouse) are already gaining popularity in India. For more players, look at this article by Anurag Gupta. They have obvious advantage of unlimited shelf space. DVD players are increasing in India every day. Estimates say that number will reach 50 million in 3-4 years. Here is the transcript of Rishi Navani on talking about their investment in Seventymm.

3. Cable TV, IPTV, video on demand (VOD). You can buy movies at a click of your remote. It will take some time for the infrastructure to develop in India, but this can be potentially disrupting to online DVD rental space. Disadvantage is the initial investment cost to the end user. Ideally, this will be the best option for home users. TV and remote rule the living room and any solution leveraging this can use it to their advantage.

4. Online streaming (, With broadband penetration increasing in India, 1.9 million by end of 2006, this can be the most disruptive in this space. In his interview Rajjat Barjatya says that Rajshri Media is currently focusing on the NRI community. And rightly so, given the current infrastructure in India. PC penetration is still less than DVD players. Computer skill set is required vs. DVD rental which can be operated using mobile phones & courier services. Biggest advantage is that producers and banners can choose this as their distribution channel (e.g. Vivah) and one can watch new movies before their DVD comes out.

We have seen this game played out in US. Netflix (online DVD rental) successfully crushed Blockbuster (local store rental chain) and now Blockbuster is using innovative, in store exchange programs along with online DVD rental to come back. VOD is already becoming an important player and Netflix has plans of online streaming. We will see how this game will turn out in India where we have huge gaps in number of television sets, DVD players and Mobile phones versus PC and broadband connections.

Along with the distribution channel, each player will have to figure out the best subscription model that suits the market best. Like every subscription model, they will face the issues of SAC and Churn. Who do you think has the best subscription model in this space right now? Given the Indian market, who has an advantage in this game? If you have a bunch of money, where would you invest right now?

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Offline presence

Written by: Madhur

On Dec 18th, 2006

I’ve referred to this multiple times in the past. Off the top of my head, here and here. I think offline presence is very very important to build a large user base esp. if the service is targeted towards general masses (as opposed to say social networking site that is targeted towards teen and youth demographics) Every Internet usage report that comes out, we get to see the same thing coming out – Internet penetration is still limited to bigger cities, main mode of access is still not home – more than 50% of the Internet usage is seen from cyber cafes, offices, schools.

Today announced that they will be opening 600 property shops throughout India. I think this is a very good strategy. Real estate market is not limited to 10 million active Internet users in India. So in order to reach out to real critical mass, this should be a great move. If properly executed, their target audience will be orders of magnitude more than an Internet only shop. Of course we know that the Internet usage will only rise from this point, and the offline presence will help them in building a brand which will seamlessly transfer to the online world as well. I have talked about this with a few players in the industry about their ideas on adopting this strategy and the common issue is that this strategy is a little complicated to execute right in terms of logistics as well the fact this can be quite capital intensive. Agreed, but I think this is where we will see some real innovation in the Internet industry in India – how the logistics are handled to mix the online-offline service mode, how offline presence can be made in a cost effective way (collaboration with existing retailers or even cyber cafes, adopting the franchise model, etc.)

Some of the other players who are already doing this is with their Shaadi Point and BharatMatrimony with their offline centers. I’ve been informed that (DVD rentals) is planning something similar, although I haven’t seen them doing that just yet (they do have other means such as phone, SMS, though). If I have to take a guess, I think we might see some of the online ticketing sites adopting this strategy considering how competitive this space is getting and the fact that there are already so many offline travel shops/agents (hence opportunity for consolidation).

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If mobile is the future of Internet, which companies are ready for it?

Written by: Madhur

On Dec 14th, 2006

Much has been talked about the potential of mobile in India. You can read some details here, here and here. We have ~150 million mobile subscribers compared to ~40 million Internet subscribers. In the month of September itself, India added 6.2 million subscribers. The total number of subscribers is going to touch 200 million by 2010. The SMS traffic is going to touch 180 billion in 2010. India happens to be among the top 10 registrants of the .mobi domain. You get the point. Mobile is huge. So I compiled together a list of consumer Internet companies that are taking mobile seriously and have taken initiative on making their service available on mobile platform. Note that there are tons of other companies that provide value added services for mobiles, mobile software etc., here I am concentrating primarily on Internet companies that are leveraging mobile as an alternate medium of providing their service. I was actually amazed to find out that you can do so much even without having data connectivity – just by using simple SMS. My sense is that still none of these have really gained a lot of traction among the masses, but they are taking a step in the right direction and hopefully someone will figure out the magic formula of making the users addicted to their service on mobile.

Local information (probably one of the most handy services)
Onyomo provides search by SMS for local (yellow page type) information
Mapmyindia have their service available for Airtel customers

Travel Tickets (One of the hottest segments in the Indian markets)
FlightRaja has flight booking via SMS.
IndiGo has a mobile service for browsing and booking tickets.
Rediff is providing their FareSearch service for mobile

Social Networking
Yaari has a mobile service using which users can browse profiles on mobile and connect with each other by exchanging messages.

Online Real Estate has a service that allows users to send free SMS through the website to individual property sellers, buyers and agents for inquiries on properties listed on the site.

Jeevansaathi has matrimonial search via SMS.
Supposedly BharatMatrimony is going to launch a mobile service soon too.

Jobs has a mobile product called Insta Hire. Apparently, it enables recruitment over mobile phone and reduces the lead time in connecting a recruiter and the candidate. allows you to send your resume (stored beforehand on their servers) urgently to recruiters/employers.

The country’s all leading newspapers and channels already provide news alerts on mobile phones including Times, Hindu, etc.

GMail is available to mobile users via GPRS
MSN provides its Hotmail service via SMS to about 70% of the Indian mobile user base and plan to cover the remaining market soon.

Books search
Oxfordbookstore has SMS search for their inventory

Online Lotto
Online lottery company Playwin Infravest has launched the Mobile Lotto in Mumbai. Currently the service is available to the subscribers of Orange and BPL Mobile in Mumbai.

Paymate is a company that enables payment with single SMS. They initially plan on offering their payment service in collaboration with Rediff, Naukri, Cleartrip, Jeevansathi and 99Acres.

Online ticketing sites are now providing mobile ticketing via SMS as well as via special barcode on the mobile screen itself. A swipe of the mobile screen over a scanner is all that one needs to gain entry to the event. These type of services are powered by companies like Convergelabs and Moveo.

Let me know if you come across any interesting service being provided by Internet players for mobile users.

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where is the investment dollar going?

Written by: Vivek Garg

On Dec 9th, 2006

I discussed “no money for early stage” earlier and I said there is not enough money flowing into early stage investment. I also cited a couple of reports that corroborated my thoughts. But after that post, I found following comment on mercury news.

In India, VCs have made 53 early-stage investments in start-ups worth $355 million during the first nine months of 2006. That’s still nearly twice as much activity in that period than the two previous years combined, according to Venture Intelligence, a Chennai research service focused on private equity and venture capital activity in India” .

This statement directly contradicts where I was going with my entire theory as it seems that there is a lot of dough flowing into the market. So I wanted to look into this in more detail. After talking to some people, I got mixed comments and I thought it would be best to contact Arun Natrajan of Venture Intelligence. According to Arun, Over 90% of early-stage investments went into IT & ITES companies. Among sectors, Online Services, Mobile VAS and BPO (high value and vertically focused) companies are attracting the most interest.

Top 10 companies in terms of amount raised are Travelguru, PharmARC, 24X7 Learning, Mauj Telecom, Applabs, Bubblemotion, Newgen Imaging, Secova, Billdesk, Seventymm. I am trying to compile a list of investment funds to understand what really constitutes early stage for a startup. To start with, I created this table in our resources section, from various sources to give us a start on different firms and their portfolios. I don’t see a lot of online services companies here. Where is the money going? I want to investigate various portfolios from seed fund, early stage and later stage to understand where money is flowing and which companies are making best use of it. Let us know if you know of any such funds that are not covered in the list.

In comments to the post “no money for early stage“, an interesting question was raised. How much money is good enough to bootstrap a web2.0 startup in India and how much money is required for subsequent stages? It seems there is not one good answer. $355 million in 53 startup means ~$6 million each but Arun says this amount varies hugely by sector and the inclination/ability of the company to bootstrap. Travelguru has taken in $25 million, while Seventymm has attracted $8 million. The number is also driven by the VC industry’s economics: given their growing fund sizes, they can’t be bothered to deploy anything less than $2 million per investment. Santosh from argued for somewhere like $500,000 to bootstrap which looks more realistic to me personally. All this makes the line between seed, early and later stage funding blurry to me. I think the most essential is bootstrapping and with low startup costs for internet companies, a lot of people are turning to self/angel funding instead of going to VCs. Like onyomo and redbus founders told us that VCs are waiting on sidelines for traction. And they will get in sometime after early stage (midstage anyone?). Once their concept is proven it is the series of rounds (we can call it early or later), that will make or break the companies in longer run. Collecting more data will shed some more light on sector and willingness of VCs to participate in these rounds.

As always, your comments are most welcome. Also, read more on seed, early and later stage from our trusted sources powered by Google custom search which I use extensively for my own research.

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Online photo printing – PicSquare or MeraSnap or something else?

Written by: Madhur

On Dec 6th, 2006

Last week, had a talk with the founders of two players in the online photo printing service – MeraSnap and PicSquare. While I think that this service is useful and has much clearer business model compared to some of the Web2.0 ideas, this market is already getting overcrowded. The list of companies (eYaadein, RangeelaPhotos, PhotoMasti, 123shots, iTasveer, add more here) is getting bigger every day due to the inherent nature of this business – low barrier to entry for companies and no switching cost for customers.

So the natural question is what can these sites do to gain an edge over others, esp. considering the specifics of operating in the Indian market? I posed this question to both the companies, but didn’t get a convincing answer. (although I do understand that they may not want to reveal whats in the works) Obviously, providing top notch customer service goes without saying and both the companies mentioned this point as their main strength. More and more of these companies are now providing options for personalized gifts such as mugs, tshirts, etc. with your photos. These are good features, but it is clear that the winner has to really provide something that will keep users coming back to use their service, and not switch to another serivce easily (to avail that Re. 1 difference). So here is my attempt at thinking up some features that could differentiate one from the rest of the crowd:

1. Internet penetration is still small, so go offline: I think the offline angle should be there in any Indian consumer Internet startup if they plan to build a large user base today. People in smaller towns also own digital camera. Imagine if they could drop off their memory card into any of the local offline centers (maybe self-owned or tie up with cybercafes, etc.) and pick up their photos without having to even use their credit card for payment. I think that can really give them a big upper hand in acquiring customers who do not have Internet access or have slow access where the upload speed sucks.

2. Mobile penetration is huge, so go mobile: If I could download any of my stored photos from their server on my mobile (with GPRS or Picture messaging), wouldn’t I love to show them off to my friends and share them. This can really help spread the word about the company in a viral way.

3. Web2.0 features: Yes you can share the pictures with friends with these services, but none of these sites provide the tagging/sharing/browsing features of photo sharing sites like Flickr or Webshots. Isn’t it a pain to upload to Flickr for sharing and using some other service for printing?

4. Basic editing features: Would be nice if they can even provide one simple “Feeling Lucky” feature from Picasa for correcting the photo before printing. If you don’t know about this feature, what that does is with one click of a button, it removes the red-eye, adjusts brightness/contrast thus making the picture much more nicer to look at. This type of feature is esp. useful since since people have intentions of printing the photo, when they are using one of these sites.

Invite your comments/ideas.

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Silicon Valley in India?

Written by: Madhur

On Dec 4th, 2006

Mercury News is running this special series on India’s rise as a technological powerhouse, with a lot of Silicon Valley entrepreneurs returning to India as Venture Capitalists. Some of the striking points from the article:

“It took the valley 30, 35 years to get where we are today”, observed Ash Lilani, head of Silicon Valley Bank Global, which has an office in Bangalore and assists VCs looking for overseas investments. “We are trying to replicate that in India in two years”.
-Not sure what is the magic formula here!

In India, VCs have made 53 early-stage investments in start-ups worth $355 million during the first nine months of 2006. That’s still nearly twice as much activity in that period than the two previous years combined, according to Venture Intelligence, a Chennai research service focused on private equity and venture capital activity in India.
-We are trying to find out how many of these are related to consumer Internet industry, will report back here when we get the details.

Evalueserve, a Saratoga-based market research firm, estimates that more than 40 India funds have been raised, or are being created, by U.S. VCs. Silicon Valley Bank, though, figures the number to be closer to 24, with about $1 billion flowing into start-ups during the next few years. Either way, investors are now sensing India’s economic ascension is arriving.

-You can read more details here.

The report also outlines some of the risks of a tech bubble. Some more points include the lack of labor laws, the fact that judicial system moves slowly and the fact that there is no concept of preferred stocks.
-We had covered some of the concerns here.

In the end, the article talks about some of the rural possibilities coming out of entrepreneurial activity. For e.g. a Hyderabad based CoOptions Technologies.

Also they have compiled a list of VC’s along with their portfolio companies in India and a good slide show here.

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