Thursday, December 22, 2016

Why doesn't India have its Internet sensation?

Sample this about Tencent,
Tencent, a $225bn internet company whose social platforms have become a part of the very fabric of Chinese lives... It is, says one banker, “a social enterprise powerhouse”: under one roof, it has amassed China’s answer to Facebook, WhatsApp, Spotify, Kindle and ApplePay. Chi Tsang, internet analyst at HSBC, says Tencent has “the most killer apps in the world”. Weixin, along with the WeChat app outside China, has 846m active monthly subscribers.

Tencent also has a huge multibillion investment portfolio, ranging from stakes in Didi Chuxing, China’s biggest ride-sharing company, through to start-ups. It dabbles in artificial intelligence, electric cars and bike sharing. Its posse of champion hackers managed to gain remote control of Tesla’s Model S, forcing the US carmaker to roll out a security patch... The company employs 30,000 workers, more than half of whom are in research and development. While its home market is by far and away the largest, Tencent has an overseas presence in many sectors — its WeChat payments app can even be used at Caesars Palace in Las Vegas. “They are everywhere, the US, Europe — especially among Chinese speakers because if you want to contact business or family in China there is only one way to contact them, and that’s WeChat,” says Elinor Leung, a research analyst at CLSA...
And it has been more innovative, restrained, and principled, than their Silicon Valley peers,
"Tencent has a better corporate governance than Google or Facebook,” says Richard Windsor, founder of independent research company Radio Free Mobile, pointing to its spurning of the dual-class shareholding allowed in the US but banned in Hong Kong... Like Alibaba, Tencent “has gone well beyond copying [the west],” adds another banker. “They are inventing and reinventing what their businesses should be”. Tencent’s Moments feed on WeChat prefaced Facebook’s addition of Messenger and the $22bn acquisition of WhatsApp. Payments are another case in point. China’s online third-party smartphone payments market dwarfs that of the US: iResearch estimates it to be worth Rmb15.7tn in 2016 — 28 times the $62.5bn forecast by eMarketer for the US in 2017 — and Rmb28.5tn in 2018... 
Tencent favours a cautious approach to monetising its database of active monthly users. Rather than blitz Moments with ads and risk the sort of backlash dished out to Facebook, Tencent has restricted itself for now to a maximum of one ad per user each day. UBS estimates WeChat Moments’ ad load at about 1 per cent of non-advertising content, compared with 7-10 per cent for Facebook, leaving big scope for growth. In 2015, online advertising made up 17 per cent of revenues. China’s mobile ad market was worth Rmb90bn in 2015, according to iResearch, up 178 per cent year on year, and is forecast to grow at a compound annual rate of 54 per cent from 2015 to 2018. Yet monetising the subscribers — and its database — offers the real keys to the kingdom for China’s BAT contingent and their global peers.
The market valuation of Baidu, Alibaba, and Tencent (BAT) is more than a quarter of India's GDP. I just can't put my finger on why India struggles to produce even any local social enterprise (or any internet space) brands. And each one of its me-too e-commerce sites run the risk of being gobbled up their global competitors.

If I am to stick out my neck and make a prediction, then I will hazard one potential area where India can lead the global race and Indian companies emerge as global pioneers. The Unified Payments Interface (UPI) and the RuPay payment gateway has the potential to unlock India's internet champions. Specifically, if UPI moves ahead quickly to embrace third party payments (as it should), given the Aadhaar identify layer, it could disrupt the cards-based payments eco-system. And the identity layer opens up possibilities that go beyond that offered by online payment services like Paypal or Alipay. 

But this can happen only with a revision of the way India's government looks at catalysing markets. The Indian state has played an exceptional and far sighted role in developing public goods platforms like Aadhaar, RuPay gateway, and the UPI. It now needs to put in place a light-touch regulatory regime (with strong privacy and data security protocols) and step back to let the internet entrepreneurial eco-system play itself out with digital disruptions. Some of them, like Paytm, will surely make windfall gains, piggybacking on the public good platforms. 

But we need to have the political maturity and bureaucratic guidance to allow this market catalysis. And, given the relatively small middle-class, fragmented and largely informal market, entrepreneurs should have the vision and patience to build the platforms and play the long game. And, more importantly, they should eschew the temptation to play on things like regulatory arbitrage and crony capitalism, a characteristic feature of much of corporate governance in India.  

For a country that spares no effort to follow China, it is a great opportunity to emulate how the country created its own payment gateway, Union Pay, and let its internet champions emerge. 


Abhinav Mehrotra said...

The absence of Indian startups in social media space and the presence of the same in China can be explained by the English literacy rate in each country. While India has some 12% population that can converse in English, in China the figure is less than 1%. (Refer:
Therefore, when western apps make their foray into India they are easily adopted. Even the local apps are in English primarily. So there is little to differentiate on the language front.

In China, the language provides a ready made barrier for foreign apps. Add to that the powerful regulatory role that the government plays in censorship or business approvals deeply favors the home grown businesses.

Gulzar Natarajan said...

Great pont Abhinav! Never thought about the English barrier! Also, the insight that entry barriers can sometimes become powerful forces for innovation!