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The Amazon of India is not Flipkart; Why should It be?

In a piece in Quartz, titled, The Amazon of India is not Flipkart—its Amazon, which was fairly well discussed in social media, online commentator and venture capitalist, Mahesh Murthy, returns to his familiar territory: criticizing Flipkart.

With a provocative headline like that and a very engaging style of writing — he is surely one of the few people in Indian Internet business who knows the subject and knows how to write—it is no wonder that the article has become such a hit on social media.

But then, appreciating someone’s writing style is one thing; accepting the arguments is another. There are still some old fashioned people out there, who still look for “uncool” facts and “cold” logic?

The question here is: beyond the rhetoric, how valid are the arguments?

The author argues that analysts may be club BRIC countries together to conclude that they will have their own Internet brands and they may be largely right, but India certainly is an exception. Here is what he says.

Perhaps it’s the BRIC curse. Many analysts have traditionally put forth the idea that Brazil, Russia, India and China will have their own equivalents of Google, Amazon, Facebook, Twitter and eBay and hence those are the firms one should fund and look out for in each country. It almost holds true, too: the Google of Russia is Yandex, and of China is Baidu. The Facebook of Russia is VKontakte and that of China is RenRen. The Amazon of Russia is Ozon and its Chinese equivalent is Jingdong or JD. And the Twitter of China is Weibo while its eBay is Alibaba.

The analogy falls apart in India. The Google of India is Google, with a 95%+ share of the market. The Facebook of India is Facebook. The Twitter of India is Twitter. The eBay of India is eBay. And hey, there’s reason to believe that the Amazon of India could well be Amazon, too. India, with its English-speaking Internet base and open-to-business government is probably more part of the US-UK internet brand ambit—the vast majority of Quora’s users, for instance, are from India. While China and Russia are almost on different dot-com planets.

Winning in India will probably mean you have to evade the paths where the large US players are, and build new ones. As JustDial and RedBus have shown. (Disclosure: I used to be an investor in RedBus.) It’s commonly known that Amazon turned down an offer to buy Flipkart a couple of years ago, and decided to go its own way.

No matter how engaging read it is, there are some fundamental flaws with the line of argumentation. Here is why

  1. BRICS is not just China, Russia. While South Africa is omitted (the original GS term was BRIC anyway; wasn’t it?), Brazil is not referred to show that India is so unique. Why? Just in case you wonder, here are the facts: Google has more than 95% share in both these markets; as in India.
  2. When Google and FB started, Indians, whose primary language on computers is English had no problem in using them, overwhelmingly started using them. So, no one really thought of creating a local product. It is not that there were five big Indian names and these companies came and killed them.
  3. On the other hand, by the time Amazon started in India, Flipkart was already a big brand name.
  4. And finally, the fact. Ebay, the only brand above to have an offline component of business and hence requires more to succeed than Indians’ comfort level with English, entered India by acquiring Bazee, an Indian company, modeled exactly on Ebay
  5. Also, what is conveniently ignored is that India’s top travel site (Travelocity of India, if you like) is not Travelocity, but Makemytrip; top job site in India is not Monster, but Naukri.
  6. And finally, this is a subjective argument, though, there is no reason to believe that Flipkart has done any less innovations than say Redbus (disclosure: I or no one among my friends and family has any interest in either of the companies). But then, that is a separate topic, for another day.

The point I am making is not that Flipkart will win against Amazon or the other way around. Let them compete and let the best guy win. That will be in the interest of consumers.

But let us not get carried away by “selective” facts.

 

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Why A Hasty Approach May Derail the Direct Cash Transfer Scheme Completely

The UPA government has announced the Direct Cash Transfer (DCT) scheme, with an eye on the elections. As expected, the opposition has cried foul,  terming it “bribe” to the voters.

That is politics. And not really the topic of discussion here. In fact, this piece is not even about the economics of it. Economists agree that it is more efficient to pass on the benefits to the deserving directly through cash transfer than indirectly through subsidies. In any case, the government has been talking about it for quite some time. The Budget Speech in the last two years have referred to it explicitly. Many studies internationally have shown that they have, by and large, had a positive effect.

The points that I raise here are not about the politics or economics of DCT but the implementation hurdles that remain. Because even with this limited rollout, it could be the world’s biggest such project. Rushing in to implement may create problems that could shake off people’s confidence on the scheme. This could lead the opponents to project it as a faulty idea per se.

So, here are some of the issues.

1. What about those without the bank accounts? India has less than 25% of people in rural areas, who have access to bank accounts. How will they get the benefit? Does it mean that some of them—those who have bank accounts—will get it and others will not get it? That will be as anarchical as it could be. And the backlash could be severe.

2. How will subsidies and DCT co-exist, even if for a limited period? The government says that the scheme will be fiscal-neutral as it will replace subsidies. Practically, how will that happen, especially in fuel (kerosene), food, and fertilizers? Till all the people are in a position to get the benefit of DCT (today, those who do not have Aadhaar or bank account will not be able to get it), the government cannot touch the public distribution system. Which means it cannot effectively cut  subsidies. So, the mechanism has to be in the point of contact (ration stores and the like) to ensure that some beneficiaries do not avail both the benefits, which is next to impossible, as of now. So, the government will continue to run both for the foreseeable future. And surely, it will not be fiscal neutral.

3. What are the alternate channels of supplies? While it is good to say, on paper, that by getting the money directly, the beneficiaries, can opt to buy the products from anywhere, no one is clear what is that anywhere. In many areas, no alternative supply and distribution channel exists. So, how will cash help them?

4. How do you ensure that the money is spent on those products and services for which is intended? How does the government ensure that the money is spent on the products and services that intends to subsidize? In some countries, these subsidies are conditional and are given to women. There is no such plan in India. So, in many families, where men spend a lot of earnings on alcohol and such things,  more cash means more money to get drunk. The possibility is very real in India.

The issues raised here are not meant to argue against the implementation of DCT.

But the fact remains that changing the entire subsidy regime requires a lot of thought and preparation. The government started on the right note by appointing a task force to suggest the ways and means of implementing this.

The task force, headed by Nandan Nilekani, Chairman, UIDAI, submitted a detailed report, recommending creation of what it called a Core Subsidy Management System (CSMS) to implement the new subsidy regime.  The task force foresaw the gap that exists in the payment system reach and recommended this

Since it may take a while for the payment systems in the country to gear up for direct transfer of subsidies, an intermediate step may be considered where the subsidy difference is transferred to wholesalers/retailers in the first phase, and only later on to customers.

But the government has disregarded it and has announced DCT right away. Also, there is no news on where the rollout of CSMS has reached.

With all its good intentions, the government will have only itself to blame, if the whole idea backfires.

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Why Indian Software Product Companies Need More than Ideas and Funding

There has been a lot of discussion around why India, home to some of the world’s largest IT services firms—and often dubbed as an IT superpower—has not been able to produce even one large independent IT product company.  Companies which have built some products have either remained small, closed down, sold themselves off, or have switched to services to sustain themselves.

Some of the reasons that have been offered as explanation are as follows.

Indians are not good at innovation. This is the most superficial explanation that you hear, usually from those outside the IT fraternity, with a limited understanding of this industry. This is flawed because of two reasons.

One, it makes an inherent assumption that building products require innovation while providing business solutions as services companies to enterprises do not require  innovation.

Two, by labeling Indians as not good at innovation, it fails to explian how Indians have built extremely successful product companies in the United States and how they have excelled in product management and other so called innovative functions in large non-Indian technology companies.

Indians are risk-averse. Well, there is some truth in the statement. The services business worldwide, because of various reasons, is  fragmented and that gives a chance to smaller companies to remain small and still make money. Usually, not so with product companies.

After the success of TCS, Infosys, and Wipro, many smaller companies in India positioned themselves along similar lines and started offering services using cheaper manpower. Since the demand was high, they managed to survive, without taking too much of risk. Since the major investment often were done after winning a contract, it was fairly de-risked. The presence of large number of such companies in India has given an impression that Indians do not take risks and and follow something that is tried and tested. But let us not forget that it is because a few companies took the risk initially, others could cash in on the wave.

In any case, while the statement does manage to explain, to some extent, why too many companies have not entered the product business, it still does not explain why those who have, have not been able to succeed much.

There is no ecosystem. Most of those who have tried their hands in creating products believe that India does not offer a supportive ecosystem. They are not exactly off the mark.

India does not offer any major incentive for creating IP. The demand from local market is not very strong, unlike in some other countries. Further, the services branding is so strong that few VCs/investors back a company which wants to play long term in products. If many of them do invest in some product start-ups, it is for quickly selling to large technology companies.  They are always pushing the start-ups for maximizing revenues in a short time, not always a great way to create long term value.

All these factors have created some hurdles for product companies, feel those who want to change this. I think they are right.

But to be sure, it was the same scenario when services business started. Indian government has always been late to step in, if at all. The local demand was absent. And there was little funding. In addition, there was no skilled manpower. But Indian companies started at the low end by tapping the Y2K opportunity and slowly climbed up the value chain.

So, while it is true that a supportive ecosystem would absolutely help the growth of India as a product hub, it is difficult to believe that itself would kickstart the product revolution.

Indians are not good in marketing. Many believe that Indians, in general, lack in marketing capability and products require far more marketing skills than services, which survives on cold calling and sales efforts.

I am not sure whether I agree with this statement.

Some Indian marketing ideas now serve as global case studies. Further, assuming, for a moment, it is true I believe, it is too tactical a thing to offer as a reason for  lack of product success stories from India. Indians are not exactly known for following systems, processes and standards. But Indian IT services companies lead the world in quality, standard practices, and creating systems and processes. Something like this can always be learned.

There have been laudable efforts in recent years such as NASSCOM Product Conclave and the formation of ProductNation. I am sure they cam surely address some of these gaps such as lack of ecosystem, help the companies in marketing and market the idea that India has everything to offer world class products that it has already done in a few areas such as banking. In core banking, for example, a majority of top providers are either Indian or have an Indian genesis.

I have my own reason to offer. Again, I would like to clarify that I offer it as yet another reason and would not claim to be the only/principal reason. I call it lack of user/product centricity.

If we look at history, we would find that while India was the place that was home to great ideas/abstractions/philosophies/sciences—such as concept of zero, algebra/geometry, astronomy, Ayurveda. Our neighbor China has always been known for inventions and discoveries of tangible things—such as magnet, tea, paper, silk.

Is it just co-incidence? I don’t think so. Our domination in modern days—India in services and China in products—stems from the same differences that existed a few hundred years back.

And you can tell this from your experience. During one of my flights from San Francisco to Seoul (some time around 2005-06), I met the owner of a  small Californian garment manufacturer, who had outsourced to a unit in China. He had come to India once to do preliminary survey but went back a little confused. What he told me can be a pointer to possibly what we do not have. I will not use the word “lack”. It is just a different way of looking at things.

He told me when he went to China and started talking to prospective partners, the discussion steered towards the type of garments he manufacturers, who they are meant for, quantity of manufacturing and so on. He was perfectly comfortable with those  queries.

In India, he was asked questions about how many people he would like to employ, what is the cost of production there, what is the saving that he is expecting, even before they asked him about his users/products. He did not have clear answers about many of those questions and left confused.

When I met him, he did not have any concrete plans for India but he had not given up on the idea. He had hope that he would come back one day. For some reason, he believed, Indians could do it better. The only tangible reason I could gauge from the conversation is this: if they are designing so well for Bollywood, they can do a great job!

I think we all have faced similar situation. If you talk of a new business idea, the discussion here steers more towards business models, funding, marketing challengers. Rarely do we go into things like users and and the actual products!

Frog Design, owned by Aricent, a company with Indian genesis, opened a development center in India, but decided to open its design studio in China. The reason was the same.

This is also what separates an application development for a client and a product development. While the technology and development process are similar, in a typical ADM project, the client briefs the specification. The same is the case with outsourced product development, where Indians have succeeded significantly. In a commercial product, the firm has to do its own user research to decide the features.

One may debate on whether a Steve Jobs of way of deciding for the user or a Nokia/Samsung way of detailed user research is better, but the commonality in both is that the user is foremost in the minds of the designers. Without that, creating a great product may only happen as an accident, once in a while!

Many would argue that B2B product development is different. I would disagree. While B2B means the user research cycle may be a little shorter, it  nevertheless requires the same user centricity that  any B2C product requires. You are finding about the user and designing accordingly. You are not designing to a specification.

The difference is subtle but crucial.

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Sibal’s Supercomputer Dream: Putting It in Perspective

So, Kapil Sibal has decided on his new obsession for the next few months. And this time, it is not a still cheaper tablet or, for that matter, a new mobile operating system to challenge Apple or Android. The lawyer-turned-minister has set his sight on nothing less than building the fastest supercomputer on earth. Sibal has reportedly written to the Prime Minister detailing a plan prepared by the state-owned research & development outfit, Centre for Advanced Computing (C-DAC) to achieve this feat by 2017, at a cost of some Rs 4,700 crores.

Critics may link it to the speculation of his possible removal from HRD ministry in the imminent cabinet reshuffle. But to be fair to Sibal, reshuffle or no reshuffle, he is never short of big ideas.

Kapil Sibal is a dreamer. That is a good thing. Few of the politicians at his age are. And we surely need a few of those dreamers.

But that also is his problem. He still has the hangover of his extremely successful past as a lawyer, and often has excessive confidence in his own ideas and abilities. So, even when his basic intention is laudable, it is seen as maverick-ism. While he has the ideas, the dreams, the passion, and a rare sincerity of approach, he lacks the vision to realize those dream. All his dreams, from Right to Education to low cost laptop, are low on vision. They lack a practical approach (that is they do not take into consideration the ground realities), but more importantly, they are not aligned with the shared vision of the government. So, depending  on who is talking, these ideas get dubbed as wishful thinking to megalomania, and a lot many things in between.

Take the Aakash tablet.  Using affordable technology to enhance education quality is a great dream. The government stepping in to help in whatever way possible to the private sector to make that happen is also a good approach. But why should the government align itself to a single brand? A single project? No one could explain this to Mr Sibal.

Now comes the supercomputer dream. While we don’t know the exact details of the “blueprint”, based on whatever media has reported, it already sounds flawed. Here is why

1. The focus is purely on speed. It is a petaflops speed supercomputer that the minister and C-DAC want to build. The application is secondary. While performance is not a bad objective to have, spending Rs 4700 crore to just be on top of the table sounds a little too much. I am still refraining from dubbing it megalomania. But will not quarrel with those who do.

2. Why do the vision and nuts-and-bolts have to come together? Why should it be assumed that C-DAC will build it? The same question was asked in case of Aakash. No bias against C-DAC. They have great capability. But for those interested in facts, though, C-DAC Param has not featured among the top 500 supercomputers in the last two years.  But should not a thrust on high performance computing through policy initiatives be a better approach to encourage the building of such supercomputers than adopting a project?

3. The focus is entirely on the speed of one supercomputer. What India needs is many such supercomputers in all aspects of our economy: oceanography to identity verification; drug research to weather forecasting. Just for the record, in the last six-monthly list (June 2012) of world’s 500 fastest supercomputers,  India had just 5 of them, up from 2 in November 2011 list. In contrast, China had 68. And we thought China just scores in physical infrastructure, India is the IT superpower!

In 2007, China was just slightly ahead of us. In November 2007, China had 10 of the world’s fastest supercomputers, while India had 9.  In June that year, China had 13, while India had 8.

See how we compare now.

At one time, China was just a little ahead of India. Now, it has overtaken Japan to be at No 2 position

China comparisons apart, India’s supercomputing journey has not been anything laudable as such.  Based on the Top 500 data, India’s share of fastest supercomputers in the list has not really increased. The average number of India’s supercomputers in the Top 500, between 2003 to 2007 was 6.8, with as many as 11 featuring in June 2006. Between 2008-2012, that average has come down to 4.4 per list, with highest being 8 in November 2008.

INDIA’S PERFORMANCE

MONTH NO OF SYTEMS IN THE LIST RMAX (TFLOPS) TOP RANK ORGANIZATION
Jun 2012 5 303.9 58 CSIR
Nov 2011 2 132.8 85 Tata Sons
Jun 2011 2 132.8 58 Tata Sons
Nov 2010 4 132.8 47 Tata Sons
Jun 2010 5 132.8 33 Tata Sons
Nov 2009 3 132.8 26 Tata Sons
Jun 2009 6 132.8 18 Tata Sons
Nov 2008 8 132.8 14 Tata Sons
Jun 2008 6 132.8 9 Tata Sons
Nov 2007 9 117.9 4 Tata Sons

Even the top performance has not seen any great improvement. In November 2007, the world’s fastest supercomputer was about four times faster than India’s fastest supercomputer. In June 2012, that ratio had increased to 54. Yes, the fastest supercomputer on earth was 54 times faster than the fastest in India.

Indian computing has not been able to keep pace with the world.

All this is not to suggest that Indians do not have capability to build a fast supercomputer or the dream to build a fast supercomputer is misplaced.
Far from that, India needs a lot of effort in high performance computing so that Indian companies and organizations can build many such supercomputers for application in all areas. The country badly needs that. And if the fastest one happens to be Indian, that would be an icing on the cake. The icing, however, should not be confused with the cake!

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Digital Divide is Now Political. And That Can Be Dangerous…

The power of Internet and social media in bringing about political change is now no more unrecognized. The role social media activism, led by the likes of Wael Ghonim, played in the uprising in Egypt that led to fall of the Mubarak regime, has convinced many of its potential.

But it could be a double edged sword. In many countries across the world the penetration of Internet is extremely low. Penetration of social media is even lower. Take India for example. The number of regulr Internet users is less than 8%. The number of Monthly Active Users (MAUs) of Facebook in India as of December 2011 was 46 million. If one takes into account only the individual users, the number of Indian people on Facebook would be somewhere between 2-3%. In a country like India, that is not bad at all, measuring purely from the point of view of ICT penetration.

In fact, a consumer product company trying to market a lifestyle product, there is no other media that is as efficient as Facebook for reaching out to say, affluent youth aged 18-25.

But the danger lies in assuming that the opinion of this tiny section of Facebook users is the opinion of the citizens of India. While many ordinary people do that fairly innocently, there are pressure groups who know this and do all they can to manipulate the activities on social media—often camouflaging their message as popular opinion.

Sometimes, even if there is no concerted effort, there can be huge disconnects between the kind of people who arre today on social media and other sections in the society.

I myself learned it the hard way. During the Anna Hazare agitation, the road in front of my house was converted to a virtual Dharna ground for 3-4 days, when Anna was in Tihar Jail. My house is very close to the jail. Seeing so many autowallas, vegetable vendors, and rickshawwallas among the protesting crowd, I asked a few of them what they were agitating about.

And I was shocked by the commonality in their views—and how different was that from “our” common view. For the Bedis, Kejriwals, Bhushans and most of us—whether someone is a supporter or detractor of the Anna movement—there was no doubt that the whole movement was against corruption.

But to the people on the street, I was stunned to find out, corruption was, at best, one of the issues. And it was not even the top issue. Mehngai was the issue. Anna, to them, was a mascot of the common man, not a mascot of anti-corruption, as his team had projected and many of us had accepted.

Whoever I told this to in my “friends’ circle” thought I was making too much out of it—by speaking just to a handful of people. I do not blame them, as I myself was shocked when I first heard it from a couple of the rickshawallahs. But when one after another started getting into the pain of mehngai setting aside corruption, I was convinced about what was really hurting them.

But have you even seen one FB post on this, leaving aside, possibly, comments about the petrol price hike?

So, in hindsight, it does not look so surprsing to me that they saw as the villain, not just the ruling UPA government, nor the political class alone but what they termed as “jyada padhey likhey log”, “bade bade log” and so on—the elite class in general. The same elite class which was spearheading the Anna movement on Facebook.

Today, much is being made of “people’s opinion” in social media. But who are these people? They represent a tiny section of the population. There is a real danger of getting overinfluenced by their opinion, when it comes to deciding on crucial policy matters.

This is digital divide of the worst class. This political divide is far more dangerous than the economic divide that we keep talking about.

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