Bus. Std: Has Innovation shifted from Silicon Valley to India?

My latest column in Business Standard:

During a recent visit to the US, I spent a week in the Silicon Valley. The Silicon Valley is a hub of innovation. The freshest of ideas and work continues to happen there. In part, it is due to the ecosystem that is already in place the serial entrepreneurs who are on their second, third or even fourth venture, the angels who provide not just the seed capital but also the mentoring, the venture capitalists, the university backdrop (especially Stanford and Berkeley), and above all, the culture of risk. It is this mix that makes Silicon Valley unmatched globally.

The week that I spent in the Silicon Valley was my longest in four years. I did about 35 meetings during this period mix of friends, interesting technology companies, and entrepreneurs. As I look back on my meetings, there is one impression that I find hard to shake off the world’s innovation capital (in technology) is in a holding pattern waiting for the next new thing. Inventing the future, not waiting for it to happen, is something people in the Valley are used to doing.

There almost seems to be a hiatus as venture capitalists and entrepreneurs wonder what is the next big wave. Will it be next-generation search engines? Or web services? Or broadband wireless technologies like WiMax? Or all-in-one personal communicators? Or something different like biotech or nanotech? Whatever it is, it does not seem obvious in the Valley.

Out here in India, we have no such qualms. Outsourcing is In and Hot. Anything and everything that needs people and can be delivered over a wire can now be done from India. A recent Economist business lead story discussed the outsourcing of the IT departments in US companies as part of infrastructure management services. We are delighted about the fact that soon, Bangalore will employ more engineers than the Silicon Valley.

So, has the tide of innovation and entrepreneurship shifted from the Silicon Valley to the Indus Valley?

Far from it. A growth in jobs in and around urban Indian centres does not equate to the coming of age of India as an IT Superpower. There’s a lot more to be done if we have to at the forefront of invention and innovation. We definitely have an opportunity to lead in the next generation of computing and communications technologies, but for that we need to see beyond writing software, managing back offices and networks for international companies. India needs to build an ecosystem of innovation and entrepreneurship to build upon its success in services to occupy centrestage in the world of technology in the years to come.

First, we need entrepreneurs willing to take risk. As it turns out, there aren’t enough of them. Taking risk also means embracing failure. We had a boomlet in dotcom entrepreneurs a few years ago, but that bubble burst quite quickly as the realisation dawned that this was not going to be get-rich-quick phenomenon. Entrepreneurship is not just about making money, it is about inventing tomorrow. And for that to happen, many have to fail for one to succeed.

Second, we need early-stage venture capital and mentoring for the start-ups. Even as plenty of growth capital is available in India, there is very little finance available for entrepreneurs with passion and ideas. Part of the problem in India is that the VC funds have borrowed business models from the West, set up large funds, which in turn require chunky investments. So, even as it is possible for companies to get $5-7 million growth capital, it is nearly impossible to get a fifth or tenth of that amount for technology start-ups.

Third, entrepreneurs with the initial capital will need mentoring. India has a limited history of technology entrepreneurship and as such the bench strength is not deep. Start-ups face all kind of challenges in their early days as they seek to reduce the risk of failure. Advice from experienced entrepreneurs and business people is what they need to make sure they do not make silly mistakes.

Fourth, we need talent willing to join start-ups. This means that people have to look beyond the fat, rising pay packets and be able to share the risk (and reward) of the entrepreneurs in building up the new business. As salaries in the IT industry have risen and lifestyles have grown, it is easy for complacency to creep in. Instead of continuing the climb after reaching the top, we want to take rest! This continued hunger for growth and risk is what will create the success stories that will start the positive feedback loop of entrepreneurship.

Finally, there is a need to focus on the middle of the pyramid market. Between the two extremes of trying to create solutions for global markets from India (highly unlikely it will succeed because of the distance from the target customers) and the bottom of the pyramid (always a very large enticing opportunity), there is a middle in urban and semi-urban India which needs innovative solutions at different price points. As India develops, this is an increasingly promising target segment. Once it can be made to work with this segment, the solution can be extended horizontally to other emerging markets, and vertically to the bottom of the pyramid.

India has an opportunity to replicate the success of Silicon Valley by building its own Innovation Valley. Entrepreneurs seeking to venture out on this road with mountains beyond mountains would do well to remember these words of Dan Bricklin:

In big business, when you need to cross a river, you simply design a bridge, build it, and march right across. But in a small venture, you must climb the rocks. You don’t know where each step will take you, but you do know the general direction you are moving in. If you make a mistake, you get wet. If your calculations are wrong, you have to inch your way back to safety and find a different route. And, as you jump from rock to slippery rock, you have to like the feeling.

Starting Up, A Decade Apart

Joe Kraus, one of the founders of Excite, has started a blog on entrepreneurship. He writes:

I’ve been reflecting on how different it is to start a company in 2004 vs. 1993. While I still break out like a nervous teenager, which looks awfully strange with graying hair, at a professional level, there are three substantial cost differences that make it much easier to start a business on much less capital. I think this is a great trend for entrepreneurs and has a not-so-clear impact on the venture business.

Cost Difference #1. The tools to develop software cost nothing now.

Cost Difference #2. Hardware costs are approaching 0.

Cost Difference #3. Start-ups have access to global labor.

with today’s ability to work with people all across the world comes the the great responsibility of needing to manage them to get what you want. It’s going to change the required skills for successful entrepreneurs. Successful management ability early on, not just great drive and persistence, is going to become an absolute must.

Web 2.0 Conference

Tim O’Reilly writes about the forthcoming Web2.0 conference, and asks readers for suggestions on questions to ask the likes of Jeff Bezos, Adam Bosworth and John Doerr: “I’m talking about the emergence of what I’ve started to call Web 2.0, the internet as platform. We heard about that idea back in the late 90s, at the height of the browser wars, but that turned out to be a false alarm. But I believe we’re now starting the third age of the internet — the first being the telnet-era command line internet, the second the web — and the third, well, that tale grows in the telling. It’s about the way that open source and the open standards of the web are commoditizing many categories of infrastructure software, driving value instead to the data and business processes layered on top of (or within) that software; it’s about the way that web sites like eBay, Amazon, and Google are becoming platforms with rich add-on developer communities; it’s about the way that network effects and data, rather than software APIs, are the new tools of customer lock-in; it’s about the way that to be successful, software today needs to work above the level of a single device; it’s about the way that the Microsofts and Intels of tomorrow are once again going to blindside established players because all the rules of business are changing.”

My questions: how can the emerging Web2.0 technologies be applied in the context of emerging markets to make computing available as a utility for the next billion users? What is your company doing to address these new users (who are today’s non-consumers)?

India’s Economy

WSJ has an article by Arvind Panagariya, the Jagdish Bhagwati Professor of Indian Political Economy at Columbia:

Four months into UPA rule, prospects are less rosy. GDP growth, which had touched 8% in 2003-04, is set to decline to 6% this year. Inflation, at 3.4% in 2002-03 and 5.4% in 2003-04, has edged up to 7.5%. Until April, everyone was betting on the appreciation of the rupee. But it has depreciated more than 6% against the dollar since then, despite the sale of several billion dollars by the central bank. The stock index Sensex has declined 10% from its April peak.

Some of this results from events beyond Dr. Singh’s control: The lower growth-rate projections are largely attributable to the expected decline in agricultural growth due to bad weather; and inflation has been fed by increased world prices of oil and metals, especially steel. But some of the scaling down of expectations is due to UPA policy. Pessimists are justifiably alarmed over two developments. First, having embraced the view that its election success owes much to the neglect of India’s rural poor in the past decade, the UPA plans to increase expenditure substantially in agriculture, education and health. Second, the intensification of India’s economic reforms is in doubt. The UPA has abandoned the privatization program that had finally gained some momentum under the BJP government and has ruled out labor-market reforms.

There remains insufficient recognition of the need for clean-up in other areas if India is to achieve the announced target of 7% to 8% annual growth rate over the next five years. The growth rate in industry needs to improve: Contrary to the experience in other countries, its share in the GDP has failed to grow even as the share of agriculture has declined. Despite an immense pool of unskilled labor and low wages, unskilled-labor-intensive industry has performed relatively poorly in India. India’s export growth has accelerated in response to the opening up during the ’90s but the fastest growing exports have been either capital-intensive (such as auto parts and machinery) or skilled-labor-intensive (pharmaceuticals and software). So industrial expansion has failed to create well-paying jobs for the unskilled and to reduce pressure on the farms.

The policy obstacles behind this sorry situation are widely known. First, a large number of the unskilled-labor-intensive products are reserved for small-scale enterprises. This has handicapped the growth of modern enterprises that can compete effectively abroad. It has also affected the inward flow of direct investment: Tyco will not produce toys in India if toy manufacturing is restricted to small enterprises. Second, under the labor laws, firms with 100-plus workers are not permitted to lay off workers under any circumstances, deterring larger firms from manufacturing even products that are free from the small-scale-industries reservations.

By turning a blind eye to these ills, the UPA invites economic failure. Dr. Singh is too good an economist and too accomplished a reformer not to appreciate the need for caution on expenditure and boldness on reform. The question is whether politics will force him into missteps. India’s friends can only hope he will prevail.

Oil’s Future – More or Less?

WSJ writes about “Mr Doomsday” of Oil, Colin Campbell:

Dr. Campbell is at the center of a small but suddenly influential band of contrarians known as the peak-oil movement. They see cause for alarm in the fact that since the early 1980s the world has been pumping more oil out of the ground than it’s been finding. By as early as next year, they say, humanity will have reached a point of reckoning: It will have extracted half the oil it will ever get. Once that “peak” is reached, Dr. Campbell says, global oil production will start falling, never to rise again.

The peak would mark the end of cheap oil. Although people would probably keep using oil for another century or so, prices would steadily rise. To maintain economic growth, the world would have to become radically more energy-efficient, shifting quickly to alternatives such as solar and nuclear power. If the switch wasn’t fast enough — an outcome Dr. Campbell thinks more likely — the global economy would screech to a halt.

“The perception of this decline changes the entire world we know,” says Dr. Campbell, whose wife affectionately calls him Mr. Doomsday. “Up till now we’ve been living in a world with the assumption of growth driven by oil. Now we have to face the other side of the mountain.”

People have been incorrectly predicting oil’s demise since the industry’s early days, and the peak-oil movement has yet to make a serious dent in the energy policies of the U.S. and other developed nations. But the debate is flaring up with new intensity because of some powerful forces changing the geopolitics of oil, among them the rise of an oil-guzzling China and persistent instability in the Middle East and Russia.

The oil industry calls Dr. Campbell a crackpot. Since he began writing about a looming peak, the industry notes, he has progressively postponed his predicted date, from 1995 to 2005. This roughness of the numbers, the industry says, points to a more fundamental problem with the peak-oil theory: It underestimates the power of technology to find more oil — indeed, to broaden the concept of oil itself.

That this debate can occur points to a striking fact: Nobody really knows how much oil exists. More to the point, nobody knows how much can be gotten out of the ground. Much of the oil lies in places with volatile politics, including the Middle East, Russia and Africa. Further complicating the calculation: Beyond the pool of conventional oil that the industry can easily extract today lie vast stores of hydrocarbons that, until recently, haven’t been thought of as oil. Among them: tar-soaked sands in Canada and oil-laden shale rock in places including the western U.S.

So far, over the approximately 150 years since the first oil well was drilled, the world has burned through about 900 billion barrels. Dr. Campbell thinks the world will be able to pump out about that much more. The industry, however, contends Dr. Campbell is being far too pessimistic. Exxon Mobil Corp., for instance, estimates there are something like 14 trillion barrels of fossil fuel still in the ground, including the tar-soaked sands and other nonconventional forms. It figures the industry can extract a good chunk of that.

Whatever be the reality, countries like India need to invest in alternative sources of energy. The best part of their growth lies ahead of them, and they defintiely do not want high energy prices to handicap them.

Another perspective worth looking at is from Amory Lovins, whose book “Winning the Oil Endgame” is expected to be published shortly.

Sun’s Utility Computing

News.com writes:

The program, called the Secure N1 Grid, will cost $1 per processor per hour to use.

“Sun does well when they get to rewrite the rules of the game,” said Clay Ryder, an analyst at the Sageza Group. But when it comes to novel pricing plans, it takes years to change customers’ buying behavior.

Schwartz is moving to make Sun’s products available in three ways: the standard one-time sales method that is prominent today; subscriptions that bundle products and services; and utility plans for which payments increase or decrease according to the consumption of computing resources.

The company’s grid program offers servers using its UltraSparc processor or Advanced Micro Devices’ Opteron processor, a variant of the x86 chip family popularized by Intel’s Pentium and Xeon products, said Terry Erdle, vice president of marketing for Sun’s worldwide services and solutions group. Customers can rent a “grid” of interconnected computers that can be used for calculation tasks such as computing financial risks, searching seismic data that can locate oil fields and detailing frames in animated movies.

Sun’s not first with the idea of renting out supercomputer power, a service often geared for customers that have surging processing needs. IBM launched its program more than a year and half ago with oil and gas customers, expanding later to biology and genetics research. And HP this year began renting computing brawn to entertainment industry customers.

ZDNet has more:

Sun hopes that it eventually will blossom so that organizations such as stock exchanges with extra processing power can sell it back to a computing grid in the same manner that homes with solar panels can sell power back to the electrical power grid.

“If the exchanges are dormant at night, they can feed capacity back to the network,” Schwartz said. He cautioned that such a vision requires security technology to protect computing tasks from tampering.

But such challenges will be solved, and Sun hopes to profit by running computers others can use.

“How big could the market be for this service? Add up the total number of hours used by all computer users on the planet,” Schwartz said. “In the long run, all computing will be done this way.”

Schwartz believes that general-purpose business computing tasks will come later, though the speed of light and other networking lags mean that geography hobbles many transaction-processing tasks that demand fast responses. “Over time, we’ll look at the technology hurdles necessary to get to a true service grid,” he said.

In this vision, Sun expects to run data centers packed with computers, but not generally to sell the computing power to customers. “We’re looking at partners to deliver retail services to customers,” he said.

Jonathan Schwartz writes on his blog:

here’s a view on why this is one of the most important announcements we’ll make this year: what Google, eBay and Salesforce.com are proving are the economics of using someone else’s uniformly standardized infrastructure to run your business. Sun’s business, historically, has been the opposite – we deliver infrastructure to customers who work with us to customize that infrastructure to unique workloads. What salesforce.com and others prove is that there are some workloads for which the reverse can be true – mapping the workload, like salesforce automation, to a singular service provider with a common infrastructure, yields savings from economies of scale that vastly outweigh any potential expense in changing workflows/workloads. The ASP (application service provider) model is, in fact, a great model.

One man’s virtualization is another man’s web service. The era of mapping workloads to network service infrastructure is officially underway.

TECH TALK: Thinking A New Food Portal: Recipe Web

A year or so ago, Lee Orchard had an interesting set of posts [1 2 3] relating to recipes and blogs. This is what Lee started off with: The real strength in a recipe web would come from cooking bloggers. Supply them with tools to generate RecipeML, post them on a blog server, and index them in an RSS feed. Then, geeks get to work building the recipe aggregators.”

This elicited the following response from Troy Hakala, one of the creators of Recipezaar:

Creating RecipeML for recipes is a difficult task. Sure, its fairly easy to write a few recipes in RecipeML if youre technically adept, but to do thousands becomes impossible and for the average recipe producer (grandmothers, chefs, etc) it just wont happen.

We (Recipezaar) wrote a natural language recipe parser to make this possible and its a difficult jobRecipes are far more complicated than you might think, believe it or notHaving recipes distributed across web sites is less powerful than a centralized repository of freely-available recipes.

A centralized repository provides a place for regular users to post their recipes and get them seen by the most number of people. And a centralized repository provides an easy way to search for recipes, browse for recipes, review & rate recipes, discuss recipes, etcLike auctions, recipes are best stored centrally where everyone has access to them.

Lee added:

For one thing, bloggers could ping RecipeZaar when they post new recipes, and that site could become the Feedster of recipes. Bloggers could also provide RSS indexes of their recipe postings, possibly for use by future aggregators — although, I think some major work needs to be done on the behavior of aggregators before we go too far down that road.

So, what would probably be a great start is to come up with some MovableType plugin which helps support recipe post authoring. Ideally, this would produce both HTML and RecipeML (or better) content, for both human and machine consumption.

RecipeZaar uses a parser in its recipe submission forms to ease the process as much as possible. And, its been successful, since they can point to over 70,000 recipes submitted to their site by users.

One solution for this, if the people behind RecipeZaar like the idea, is to borrow their parser via web service for use in my hypothetical MovableType plugin. This could also be used for any number of other blogging tools.

A key point made by Lee, in the context of content: Im excited to see more varieties of micro-content shared between the people of the web, but the thing I see least talked about is how this stuff will be authored. I read about data formats and all that, but in terms of user interface, we havent progressed much past the HTML textarea. Also, I often see handwaving and assumptions that the content is really pretty simple — but as Troy Hakala would tell you, not even something as simple as a recipe is a slam dunk in terms of digestion by a machine. There needs to be some happy medium between a natural human expression of information, and the rigorous structuring required by a machine, mediated by good user interface.

Tomorrow: Business Model