March - 2000 - issue > Cover

The stories of our time are two. One, the proliferation of India dot.coms at a rate that appears to rival the rate of growth of Indian population; two, the race to cash in on the ventures before the world realizes the Internet is just another thing and moves on to the next big thing. To be sure, the Indian dot-com is still an unknown entity both on Wall Street and Dalal Street, and the race is yet to be won.
Over the past few years, Internet use has spread like wildfire in India. Initially, because there was just one state-owned company that held a monopoly over the gateway, it hardly appeared possible that Internet use could grow so fast. But technology and information groups — not to mention the rest of society — protested loudly in one voice, and was heard. The Internet would never reach the bulk of the nation if VSNL alone held control over its access, they said. Even if it were able to, they contended, it would take several years — by which time the nation would have lost many opportunities for growth, not only in the domestic market, but also in the global one.

The Bharatiya Janata Party-led government accepted the argument, dismantling the monopoly and unleashing a powerful wave of growth all across the country. Days after the monopoly ended, private companies rolled out Internet access services, starting with the metropolitan cities. Satyam Infoway was among the first to do so. Others such as MantraOnline, Wipro and Mahanagar Telephone Nigam Limited (MTNL) followed, creating robust competition, initially on price. Within a few months, Internet access rates fell by 50 percent, and simultaneously the number of connections grew manifold. While the market was truly metamorphosed, changes are still taking place at a rapid rate.

Although the vast majority of India’s people may not be able to buy PCs and hook on up to the Net, they can afford to “rent” Internet services. Internet access booths line most urban and semi-urban towns in India. Even though access rates still vary widely, a user can surf the Net for as little as Rs. 5 per half hour. The mushrooming of Internet cafes is a boon because the penetration of personal computers is still very low in India, and is expected to remain at a low level for some time.

Satyam, the largest private provider of Internet access, provides about 100,000 connections in India, while VSNL remains in the number-one slot with more than 200,000 connections countrywide. Growth of Internet connections in India is rising at a rate of 80 percent per annum or higher — a number that doesn’t even take into account the multiple users provided access per connection. Analysts predict the rate of growth could even accelerate as personal incomes in cities grow faster and consumerism, as seen in American society, begins to spread.

For Dot.Coms, More News is Good News

The increase in Web surfers is equal to a sharp rise in the dot-com companies. Several thousand Web sites that target Indians have sprung up, with more added every day. It is a market that is still emerging, with new business models still being tested.

In the first phase of Web development, information sites sprung up. They provided news and news-based content. Although some had a core focus other than news, even they ended up peddling news in some form or another, because news is a big user magnet. Newspaper publishers were among the first to create Web editions of their print publications. These sites remain the most popular as news-hungry users from all over the world sign on to catch up with the happenings in India.

If that was a bonus for nonresident Indians, who until then had no instant source of Indo-centric news, it had its downside, too. Because they were managed by media conglomerates, most of these sites mirror their printed editions. Over time, they added new features such as news updates, but failed to create dynamic news sites and missed the opportunity to be the first to exploit the interactive nature of the new medium. This has happened because the broader editorial outlook of these groups has not changed sufficiently. Also, there were few incentives for these companies to pump in investments because they didn’t seem to have critical mass within the country. In the US, on the other hand, news publishing groups such as the New York Times created separate new media divisions, and recently announced the creation of a tracking stock for Internet assets. Where are India’s New-Media groups?

A couple of independent portals have also entered the market. Though they arrived minus the baggage of publishing groups, the sites had few graphics, poorly presented news, and still failed to create dynamic news sites that could seriously rival those run by newspaper groups.

Special Interest Sites

In the second phase of dot-com development, specialized sites on such topics as cricket, music or films emerged. Many sites ventured into e-commerce.

Specialized sites target a narrower audience, and getting information is still, as in news sites, the primary motivation for visitors. Some music sites, though, also attempt to sell CDs and cassettes. Other sites strive to create communities of people that have like interests, or to bring together linguistic communities. Other sites offer local services, such as the one that sells movie tickets in Bangalore, or those that accept grocery orders in the metropolitan cities.

But, increasingly, Web sites are targeting NRIs for two reasons: NRIs, notoriously Net-connected, have higher purchasing power and e-commerce is just not catching on in India. Little evidence exists to suggest that Indian online buying can attain critical mass quickly enough to create profit for today’s Web sites.

India suffers from a number of obstacles when it comes to e-commerce. Firstly, credit card penetration is very low, and even among those with credit cards, usage has tended to be low, mirroring the experience in East Asian countries. Secondly, efficient and economically viable shipping services are non-existent. While the air-courier services have emerged rapidly since the 1980s, ground shipping to consumers still lies in the hands of the good old post office. In fact, one dot-com company in India has experimented with the use of value payable parcel (VPP) through the post office, to circumvent the payments problem arising from poor penetration of credit cards.In this method of shipping, the consumer makes the payment when the packet is delivered. But the success of this method is far from clear. Besides, it is inconceivable that India’s post offices, run largely with archaic or nonexistent technology and riddled with inefficiencies, will able to carry e-commerce on their shoulders.

Under these circumstances, many Web sites target NRIs, mainly to generate advertising revenue and, in some cases, for services that are provided from outside India. For example, a Web site of a newspaper published from India runs an advertisement for Western Union’s money transfer services, or a real estate firm that wants to sell NRIs homes in Indian cities. Most Web sites are full of ads that target the NRIs, the subset being the ones in the US.

The question is: Can five million NRIs, including one million in the US, keep alive so many dot.coms?