India’s Consumer Internet Space – Too Crowded?

30 thoughts on “India’s Consumer Internet Space – Too Crowded?”

  1. om,

    welcome back to india.

    It’s a breath of fresh air to hear another side to the overhyped stories that are run daily in the Times of India and the indian media in general.

    I find the amount of VC money going into travel websites out of control, and just wait till expedia and travelocity get into the game. Most of the sites are worthless at best. i did a quick review of them at http://celestri.org/2006/09/12/indian-travel-sites/

    and most people i talk to india don’t use traval portals, so where are they getting all this revenue they are talking about?

    later,

    mrj

  2. It is very sad that VC’s are investing in herd like fashion especially the reputable ones that you mentioned.

    The only investments that one gets to see these days are in DVD Rental, Online Travel, Mobile Payments, VAS space.The next IMO would be social networking with too many players already in the market yaari, humsabka, minglebox, hi5 etc etc.

    Now with an overall 30-40 million internet users (majority cybercafe users) and little over 1 million broadband customers the market size does not seem to huge for kind of investments these internet startups are recieving. Last year the actual growth rate of internet & broadband users was less than half what TRAI had projected. So these clearly do not add up to explain the attention the internet startup are recieving.

    As you previously pointed in another post the private equity space in India is already overheated and bubble signs are showing up there. Now the last thing an entreprenuer like me would want to see is a bubble in the early stage as well. This would lead to a very difficult situation for the overall industry and thus hurt the real innovative companies that are coming out of India like DimDim, TutorVista, Slideshare, Zoho which are examples of companies that have products with global market.

    Btw you can use this list as well to do your India startup research.
    http://numsum.com/spreadsheet/show/39453

    -Rajan
    http://rajan.wordpress.com

  3. its too crowded with US concepts… nothing original seems to be coming. Ofcourse the big problem in India is the 20M userbase (yes that is official, see my blog)…and that isn’t growing in a hurry.

    But I maintain, that due to mainly copycat products floating around, the real potential, albeit small, is still untapped.

    Also don’t forget the 100M+ mobiles…waiting for an original idea.

  4. I am wondering what will cause a temporary pause/stop to the sgnificant asset flows to India. Will it be the election in 2009?

    Going off subject:-
    Indian public companie “cookie/bookie” – private companies too. Having done business in India since 1994 – I do not see the benifits of using India as an “offshore” center

  5. Hey Manish,

    thanks for the email and your kind words. I am sorry, I have not done more work, but this trip was to deal with a family situation and spending time with the family instead of working.

    I am actually on my way back tomorrow, but clearly this is a market i going to be watching carefully.

    I am still struggling to think of what ideas might work here – clearly, mobile is where the action is and i think a lot of start-ups could benefit by their local knowledge and channeling it for the local markets.

  6. John, the four big travel portals are Makemytrip, Yatra, Travelguru and Cleartrip.

    Om, agree with you on the consumer Internet space seeing a bubble. There are just so many startups that are hoping to become the next big thing just supported by ads despite the fact that the total ad market in India just about $50 million and the total number of real Internet users (who access net at least once a week) is hardly around 10 million!

    Having said that, India story still sells, which is why investors with the fear of not missing the boat, are pouring in money into relatively “safe” transaction-oriented plays like travel and dvd rental etc. We have been doing quite a bit of research and talking to a lot of players in the industry at iLeher. You can check some of our findings at http://ileher.com

    Especially, check out the “Most popular posts” section.

    Madhur
    http://ileher.com

  7. As an enterpreneur seeking mentor investment ( and a little bit of money) have come across a few investors. I always start by saying I am looking for some adventure fund and not venture fund but a few experiences of mine suggest that most of the investors are looking for a comfort zone and thats why they choose to invest in “proven” idea/business models from the west.

  8. Om,

    You definitely touched on some of the most critical aspects. If you look at the last IMAI report, you will realize that the Internet usage in the metros – which is really the target demographic for most consumer startups – is paltry. The focus on “necessary actions” like jobs, matrimonials etc. is definitely the way to go. There is, however, an evolving market for small business applications catered to the needs of the specific Indian customer segments which seems to be ignored to a large extent.

    As another commenter asked above, I am also very curious to understand how the travel startups are doing, because none of the family/friends I know in India (who are IT savvy and in the metros) use these sites. Are their margins or commissions any greater than that of a travel agent/consolidator?

  9. Another key problem India faces now is the high cost of home broadband. They are paying about US$300 per month for a DSL connection. Ouch! This is indicative of usage patterns in other more mature markets. When you have to dial-up on a slow modem connection, you use the Internet less. Everyone’s usage patterns change when you’ve got a cheap broadband connection at home. That said, it is only a matter of time in my opinion, but these start-ups will need to plan for a few tough years yet before they start to get the momentum they require. I went to China and India last month, and for a western foreigner, I would choose India over China any day of the week. I personally think India will eclipse China as a market for foreign investors in the short-medium term, although maybe not long term. Key reason, no one in China speaks English, their regulatory environment is alarmingly erratic, and the cultural differences are vast. India has English as the main language, and so the majority of media is already in English, and more importantly they have much more cultural affinity with the west. India is also a democracy, by no means perfect, but this has to be less risky than China. For example, the Chinese government is considering a law that would require all bloggers to register with their ID card number on the website!

  10. Jon Beattie –

    Your information on the cost of DSL is inaccurate. it is not $300 (USD) per month, but 300 Indian rupees per month, and from some providers upto about 1000 Rupees per month. In dollar terms, this works to between $6 and $15 per month, which arguably is a very good rate (cheaper than what we pay in the US I may add). The concept of what a broadband connection should deliver in terms of speed remains unclear in India. Most basic broadband connections in India are worse than dial-up connections in the US. Although $6 to $15 per month seems like a “steal” in the US, the average Indian consumer does think a lot before dishing out this money. It may need to come to the $3 mark to reach inflection points (and of course PC penetration).

    A rich broadband user experience will no doubt enhance the net surfing patterns in the US because I agree with Om. Todya’s net users are very transactional – they do their job and get out. Amazingly enough, I find myself doing exactly that when I’m in India and leave all the surfing for when I get back. Better and faster user experience will go a long way in changing some of this.

  11. No question that a bubble is building. At least the travel portals and online rentals companies have transactional revenues. What amazes me is the number of advertiser-supported social networking companies getting institutional funding. These companies are fighting for an ever decreasing slice of a pretty small online ad market in India. Add in a low barrier to entry, and I don’t understand what the investment thesis could be.

  12. I agree with your views on the Indian startups struggling if they depend solely on advertising. Since most of the work done by Indians on the web is transaction based, if a company can come up with a simple application for this sort of work and for which the Indian user will be prepared to pay Rs.50-100 a month then it will be the killer. Assuming that this application can target around 5 million users and even if 10% are ready to subscribe then it would rake in money.

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  14. 2 comments:

    1. I’d like to differ with your statement about excess money going into Indian Internet startups. While VCs can pump over $5 mil in a round, it can take Indian companies to profitability and growth, far different from the US where $5 mil is part of an initial “prove something” round. A strong team of 20 engineers and business execs cost a lot less there. Also, getting visibility is much easier. The Indian entrepreneurial market is still nascent compared to the US. Bangalore is not even close to the Valley yet as it is still more prestigious to join a Fortune 500 operation even if the work is dreadful. The VCs are just beginning to fill in a key element of the entrepreneurial infrastructure.

    2. My company, Position2, is an Erasmic funded startup. I can tell you firsthand that they are not typical of most VCs. They typically invest a modest amount of capital and then spend a lot of time with the start-ups. For us, they helped us identify and acquire what became our Indian operations. They’ve also worked on-site with our management team on operational processes. Google’s investment in the fund is a great and relatively inexpensive way to see really early stage stuff in a highly disciplined manner.

  15. I am not familiar enough with the Indian Internet startups to comment on the bubble there. But what I do know is that the Indian Internet connections (the so-called ‘cheap broadband’ connections) are sub-par. Equally sub-par are the physical facilities and real-world services.

    What is the use of having a jazzy Indian hotel booking website, if the connection is not good enough for most of the general public to access from their homes? If there are not many good hotels, with dependendable and consistent quality service, within reach of most of the middle-class?

    Even Bangalore, the ‘Silicon Valley of India’, has only a paltry 66 hotels with 4700 rooms! (Source: http://www.hindu.com/2007/02/08/stories/2007020804440200.htm)

  16. It has been learnt that significant financial irregularities have been recently uncovered at GVFL involving senior executive Bharat Kanani’s role in company divestments and dissolutions. Kanani was rumoured to be the successesor of GVFL head honcho Vishnu Varshney, whose resignation is being demanded by senior govt of Gujrat officials.

  17. You should definitely try out http://www.ixigo.com for a smarter, smoother travel search experience.

    We are currently the fastest, most comprehensive (14 Airlines, 3 OTAs) and most unbiased travel search engine in the Indian market.

    iXiGO can confidently claim to have the cheapest fares on any given sector on any given date since between the airlines and OTAs we show fares from, we are bound to find the cheapest options for you within a few seconds.

    We show all prices with taxes included, and we dont claim to sell any 99 Rs. tickets because we want consumers to know the absolute price that hits their pockets.

    Finally – try it once, and tell us if any other portal can match our prices, usability, or comprehensiveness for flights.

  18. I agree the market is overcrowded especially in the Web 2.0 space (aggregators or sites that promote high degrees of user interaction), I feel there is a void of good old simple portals and eCommerce sites.

    I’ve provided additional thoughts on my post at http://techtrends.in/2007/07/10/internet-in-india-%e2%80%93-overcrowed-%e2%80%a6-not-in-all-verticals/

    I’m also maintaining a taxonomy of Indian Internet sites at http://techtrends.in/company-index/

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