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According to this study, when the question “Have you heard of Internet?” was thrown at few people from lower socio-economic class Indian society, around 75% of population responded with a NO. I bet this number would be much smaller when the question asked is about phone/mobile rather than Internet. Internet has been around in India before mobile phones hit the market. What could be the reason for such less awareness of Internet?

I think the answer is clear - 70% of India is still rural and agrarian and given their day to day lifestyle, having Internet access would not add any value to it. The next question then is, whether there really exists any real use case scenarios that rural India cares about. Sam Pitroda made the concept of long distance telephony commonplace with the introduction of PCO’s. In retrospect, its easy to see how the concept made sense. PCO’s created employment and enabled people to communicate in a way like never before. Does there exist a similar “gap” today that Internet can fill?  Here are a few notable initiatives that companies are taking:

1. ITC’s eChoupal Initiative: An innovative rural distribution framework that makes use of computers and Internet for procurement of soybeans from rural India. You can read the details in this article over at India Knowledge@Wharton, but it essentially enables the farmers to go to Internet kiosks and check prices and help them make a decision to sell their produce at the local market or directly to ITC. Mukesh Ambani group is planning to setup a similar farm-to-storefront infrastructure to tap into the rural market.

2. Online giant Google also realizes the enormous opportunity in rural India and is planning a number of initiatives to tap into the market by creating customized content including weather updates, crop patterns and other local data.

There are other similar initiatives that different companies are taking. Some of Internet based services (esp. related to weather, crops, jobs, train-tickets, better means of communication, etc.) can be very useful in improving the lives of the rural people. The mode and ease of access is going to be key. Its hard to expect people to have PC’s in the villages. Its hard to expect villagers to understand a complex computer keyboard. Clearly, noticing the ever increasing mobile penetration, providing customized, easy-to-access content on the mobile platform seems like the way to go. But of course, figuring out the business model could be tricky. What do you think? How much can people in rural India really benefit from such services? Does there exist economically viable models (both for villagers as well as the Internet entrepreneurs/companies) that can add value in the life of a common villager?

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[via Atanu]

Internet is still a niche market segment in India, a point borne out by the numbers. Anand Sridharan, in his analysis of the current state of the Internet in India, captures the reasons behind it and also takes a look ahead as to what it takes to increase the usage of Internet in India.
It is well understood that if the Internet economy is to really take off in India, it has to reach down from the upper (and upper-middle class sections) and penetrate the lower middle class. This is the population segment that the mobile phone market has been able to penetrate and consequently made India one of the fastest growing mobile markets in the world!

If cheap (”Made for India”) handsets and ever-reducing call charges have made the mobile ubiquitous in India, can the Internet (and computing) industry in India ride on the equivalent - cheap computers and affordable internet access? Novatium, a Chennai-based company co-founded by Rajesh Jain and Ashok Jhunjhunwala, seems to think so. Novatium which aims to provide “Computing for the next billion” uses thin computing to reduce costs for end-users. Thin computing, in Novatium’s own words, is “the process by which the complex computing tasks move to a central server (s) and the client desktop is relatively simple to just access what is being processed. The client desktop also becomes the interface between the human and the complex processor of the server. Some of the immediate benefits that this process delivers is a hugely manageable, secure and optimized computing setup”

MSNBC/Newsweek features Novatium.

What do you think? Is this the way computing will reach the next billion? Does Novatium have what it takes?

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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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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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In 1990, less than 5 million homes in India had telephone connectivity. At that time, I am sure naysayers would have easily doubted the growth of telephones due to cost, illiteracy, majority of rural population etc. But with the introduction of PCO’s (Public Call Offices), the telecom landscape changed completely. Today those yellow black booths are ubiquitious. They are available in every street of every little towns and villages. Cost has come down considerably and more than 300 million people use PCO services.

Project Saksham, that is being undertaken by Microsoft and Hughes could bring about the same phenomenon to Internet penetration. This project plans to set up 5000 broadband enabled Internet kiosks in India across 200 small towns and villages. The kiosks will be run by local entrepreneurs and will also provide crash course on IT literacy for kiosk operators.

I think if the project is executed to the plan, it can bring about a revolution in terms of computer literacy, internet penetration and source of information for common man. Literacy should not be a problem even in small villages as it will not take much time for application and web services providers to come up with apps in localized languages and native look and feel (Companies like Yahoo are already taking a step towards that). Once that happens, the possibilities are endless. For a common villager, it can provide advanced weather information, news, tips of the trade for different businesses and jobs in urban areas. Ecommerce applications like online bill pay, online ticketing, ordering things not available locally can greatly enhance quality of life. For students it can be a source of education, finding information about Universities, career opportunities etc. This will obviously be a great boost for the Internet ecosystem in India.

Lets just hope this project does the same to Internet industry in India that PCO’s did to telecom industry.

Update: Business Standard reports that BSNL is taking on a similar initiative to connect rural areas with broadband access. Its great to see more than one player seeing value in this kind of project.

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Couple of days back attended a talk at Stanford by Sabeer Bhatia on planning and development of the “Nano City” project. This has been in news last week, but he revealed a lot more details in the talk, which I will list here. The impressive thing about this project is of course the grand scale at which it is being planned. The project is much bigger than a typical SEZ, both in terms of the area being planned and the amount of investment planned. The idea of this project is to develop a complete ecosystem that promotes research, innovation and high quality development in high-tech industry.

Salient points from the talk:

• It is a public-private sector partnership between Haryana government and Sabeer Bhatia’s company

• It is being developed in a place 15 km from Chandigarh in Haryana on a land of around 5,000 acres

• A world class highway will be construcuted on the 15 km stretch, which will be an investment of $15 million

• Initially planned population density of the city is 100 per acres (just for some perspective: Delhi is 250 per acre, Mumbai is 1250 per acre, Manhattan 750 per acre), which means a total population of half a million.

• Infrastructure: $2 billion worth of investment on a power plant to supply electricity. Construction of dam on the nearby rivers to provide clean water

• Total investment for the development of this city would be roughly around $5 billion

• Plan to set up a top notch University to ensure a constant talent flow into the city. Currently in talks with some American and Australian Universities

• The 5 year plan is to have a population of around 50k and in ten years around half million (could be faster looking at how quickly Greater Noida has developed)

• The city would attract companies working on technologies like nano technology, biosciences, software product development, next generation Internet products, materials research and energy.

This could become a Shenzhen of India if it turns into reality, which will definetely encourage more state governements and corporates to take initiatives like these. Considering that there is so much [pdf link] foreign investment flowing in even with current poor infrastructure, it is mind boggling to imagine what could happen when more and more world class areas like this project spring up in India.

Another example of similar project that I spotted recently is the Smart City project in Kerela, although not much details out on this yet.

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There was a news last week regarding the tie up between Sify and IRCTC. The deal mentions that customers can book railway tickets by paying cash at the Sify Iway locations. This will definitely open a new chapter in the way tickets are sold/distributed. Considering that currently the total revenue from online ticketing for Indian Railways roughly stands at a paltry 2%, the room for growth is huge. At the present time, the only way of booking tickets online is through IRCTC website. With this deal two major barriers are broken:

1. Internet access: Even if you choose the best sounding statistic of 37 million internet users (I say “best sounding” because the number of pepole who actually use the Internet at least once a week is just under 10 million), there are lot more people who are trying to book tickets. Going to cybercafe and paying cash to book ticket is just like going to a travel agent. This essentially means many more railway tickets “travel agents” at standardised rates. Couldn’t get better for customers!

2. Mode of payment: The IRCTC site accepts payment in the form of credit card or net banking facility, which is a major blocker for large number of Indian customers. A data from recently concluded IAMAI conference suggests that credit card bankable population is only 0.03% (add some such small figure for “net-bankable” population.) So its not surprising that number of customers using the site is only 25,000.

Lets see what gates could this deal open:
1. The deal does not mention that it is exclusive. So there could be more deals coming with Reliance Webworld and others.
2. The time may not be far when airlines also start using the cybercafe channel for ticket sales. Especially, budget airlines like AirDeccan which rely completely on web based bookings will need to find more distribution channels like this as they expand more.
3. In fact, this is an excellent channel for any other service that requires tickets sales. If I were to think of implementing a Fandango in India, this is surely one of the channels that I would use.

Currently there are around 3,300 Sify Iway’s in around 150 cities. The next step is probably to cut a deal with Reliance Webworld who have around 240 outlets in 150 cities. A bigger challenge (of course to get much more penetration) is to actually use hundreds of thousands of small standalone cybercafes spread all over India as distribution channels.

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