Emergic

MUMBAI (November 20): The Web is the world’s largest online service. Very little of it is devoted to India. Most people in India, even if they had a computer and modem, would not find it a trivial exercise to access the Web. Low speeds, few phone lines, access in limited cities and high comparative access costs make it a challenge. So, if we look at the evolution of the market within India, we have a few thousand estimates vary between 10,000 and 50,000) surfers spending most of their time accessing foreign web sites.

Is there an opportunity for an Internet-driven Indian online service? If so, how would it need to unravel? What are the numbers we are talking about? This column explores these issues.

If you wanted to access an online service, you would need to be in one of the cities where Internet access is available. Offcourse, I-Net can technically connect you from anywhere in India to the Web, but you definitely would not want to be data transfer-based charges on the Web. In the US, communications is very inexpensive and the cost of a computer is a fraction of a person’s monthly salary. In India, the opposite is true: a computer costs a multiple of salary, and centralised can keep a specialised developed communications is more expensive. So, in India, if we need to target mass audiences, we have to look at setting up Internet Kiosks, where people can walk in browse, pay based on time and walk away. Very much like the PCOs which have sprung up all over the country. Mass access to computing resources is the first pre-requisite for a online service.

India-oriented content is few and far between on the Internet. The creation of digital databases in multiple languages is the next requirement. There is a lot of information in digital form already available: the NIC databases is one such storehouse, business database and research-oriented companies like CMIE and Capital Market are another, publishing houses are a third. A number of organisations have databases on films, travel, food, etc. Yet, there is no place where a lot of this is available by a dial-up service. These organisations will not offer content on an online service until the numbers are there. So we have a classic catch-21 situation: no numbers, no content providers; no content providers; no numbers.

Local availability of content is another important need. It is not funny when to read a newspaper like The Indian Express on the web, one has to access a server in San Diego. In fact, the information should be available in multiple cities of this country by just making a local phone call. This way, the expensive resource (international bandwidth is conserved). Replicating information is easier and recommended in India server with high-speed communication links. What is needed is a network for duplication, much like the network of a courier company. So, servers in every city, connected whether by dial-up or over the Internet, are needed. As far as the subscriber is concerned, he is just making a local call. As far as the provider is concerned, it can offer the best access speeds possible over the phone line, since there are no other bottlenecks.

If the only requirement becomes a local call, then one can think in terms of flat-rate pricing for access. This is important. America Online recently announced a flat-rate pricing for Internet access (USD 19.95 a month). The fear that a person is going to clog up the network is a valid one. In fact, many phone companies are worried that the rate of growth of Internet-related calls could result in gridlock, since the average Internet call lasts for 20 minutes as compared to 6 minutes for a voice call. But flat-rate pricing encourages usage. Nothing is more valuable than a person’s time. Also, in India, it is not trivial to get an extra phone line just for Internet access. In the initial stages, flat-rate pricing is going to be very important to get the most important element in the online service: the customer. Also, the money to be made by enabling electronic commerce is far more than for the time spent online. The aim of the online service provider should be to get a cut off the business enabled (a transaction fee, akin to what a merchant pays to the credit card company for enabling the transaction).

On to the customers. India has plenty of them. The ones who watch TV, the ones who will buy all the cars being produced, the ones who buy the newspapers and magazines. Our strength is in our potential numbers. Potential is the operative word, since the numbers do not exist. Yet. For them to come on line, we need a large number of services and easy access to a device which can get them the service. It could be a TV, but the interactivity is not there. It could be a computer, but the installed base is not very large. It could be both. Either way, the needs of the customer will have to bet met by a diverse range of services. These applications have to be created, much like the software for a TV channel.

Let us consider some applications. Buying books, for one. How many times have you visited a bookstore only to find that specific book you needed “out of stock”? Think for a moment, why you need to visit the store, if you know what you want. This is not to take away the pleasure of browsing and the soothing ambiance of a bookshop. But, if the sole purpose is to (a) transfer atoms from the shop to your premises, and (b) transfer some money from your wallet to the merchant, then you do not need to have a physical presence in the bookshop. An online catalog can help you select, a credit card or a debit card can transfer the money and a courier company can deliver the atoms. A book distributor could have a warehouse in some remote location and just use the online service for order collection. The reach is wider — national or international, which can also translate into increased volumes and hopefully lower prices. This same concept can be extended to music CDs, airline tickets, classified advertising, newspapers, bills — in fact, anything that a mail order catalogue would probably sell, or what the shopping programmes on TV offer. The difference being that you could also pay online, which is not possible yet in India, of course and which is needed.

Consider the value addition. Say, you wanted to buy two tickets to a concert. You could go online and perhaps actually see the view from the specific seats before deciding to buy. The interactivity which an online setup offers can help make an intelligent choice. So far, items which do not require a touch-and-feel component, online merchandising would be a very effective way to reach out to larger audiences. This will also ensure that only the best will survive, since geography will no longer will be a barrier to making a purchase.

An online service in India can potentially have 1 million subscribers by the year 2000, and 10 million by 2005. The numbers may seem to be far-fetched, but 4 years is a long time. Remember the satellite TV business in 1992? Or 1987? The pace of change is much more rapid now that it was even ten years ago. This is a huge market. The subscribers here would actually mean households, so the numbers multiply rapidly. The big market is present with India, and we have not even begun thinking about it. Many technologies will combine over the next 2-3 years to remove the hurdles — our telecom sector will give us the state-of-the-art telecom networks, satellites will give us access even in remote locations, cable modems will make the TV interactive, and some smart Indian company will allow multiple Indian languages to be displayed and processed.

Indian online services might seem rather futuristic at this point, but the rapidity at which the Internet technologies are developing, it is definitely going to happen. It is not easy to predict which Indian companies will lead this revolution. Who had imagined a Zee five years ago? Cellular phone services are about to unravel over significant portions of the country. The revolutions which communications can bring is far greater than that of the television. Unfortunately for India, in many places, the television has come before the phone. This sense of community, of being connected to one another, is what has spurred the Internet wave worldwide. In India, it has still been a ripple, but the inexorable forces of technology will wire India in its web in the coming years.

The challenge is for Indian organisations to envision what opportunities this opens up. This we will cover in a future column.

MUMBAI (November 6): The one surprising aspect of the Internet in India has been the relatively few IT companies which have really gotten actively involved with it. The Internet industry so far resembles a cottage industry. Few software companies have a worthwhile web site to show off. None of the major IT companies seem to have a significant Internet strategy: for most, it is a wait-and-watch attitude. The only companies which seem to have gotten into the act are the two trainers: Aptech and NIIT. Both have set up universities on the Web.

In fact, one seems to hear less of the Internet now than we did a few months ago. That is either a sign that the industry is maturing or that it is withering. Intranets, of which a lot has been written about in the US, seem to be a strange term in a country in which reliable connectivity between two offices a few kilometers apart is a challenge. Exporters on the net are few and far between. Where is the Internet in India headed?

Internationally, the Internet and the Web are being accepted as commonplace. The Web browser, with an installed base of about 40 million (according to Netscape sources) seems nearly as ubiquitous as Windows. And yet, in India, we have about 12,000 Internet accounts in a year (via VSNL). The installed base of Web browsers would probably be between 10-25,000. A year ago, it seemed that everyone in India was waiting for the Internet. In this column, which is now more than 20 months old, I have written bullishly about the prospects of the Net. And yet, the facts and the numbers indicate a disappointing the reality.

Retrospection

In retrospect, there are three significant reasons for the slow growth of the Internet besides the relatively obvious ones (poor telecom infrastructure, VSNL monopoly, high entry barrier in terms of cost, limited end-user education and awareness): first, the near-indifference of the Indian IT industry to the Internet; second, the lack of high-quality digital content on India; and the third, absence of local online services. Even today, if these factors can be altered, an Indian Internet can be created with significant benefits for the entire industry.

Correct me if I am wrong, but till today, neither MAIT nor NASSCOM has a web site looking at selling India internationally. We find it okay to take out expensive supplements in Fortune and Forbes about the Indian software industry, but a web site which would focus attention on the Indian IT industry does not seem to be on anyone’s agenda. Industry associations are expected to represent the industry, and barring an occasional workshop or Cybercity, little of note has been done by the industry. The companies on the Web include some of the world’s largest corporations and a lot of international software companies, two obvious targets for the Indian companies. Education sites are good but won’t help generate business. Just recently came the news that growth in software exports is slowing. The Web may not be the silver bullet, but we could have at least tried.

Lack of digital content is of course a drawback but that is obvious considering the lack of a domestic audience.

Of late, many publications have created a web presence. But there does not seem to be any sense of urgency or innovativeness. Why haven’t more Indian organisations gotten on the Web? The answer probably lies in the limited domestic audience. But ask the companies who have experimented with the Web in a big way: Kotak, Amul and ICICI Bank. Each has used an interactive, content-driven site to create an interesting offering. My feeling is that the content will only come up once we have a hundred thousand Internet users in India. And given the slow pace of growth, that might be quite some time away. Unless, we think of local online services.

BBSes are, in some ways, local online services. I am not quite sure if they are legal or not under the DoT policies. But they do serve a good purpose: helping to create a community which is just a phone call away. 70 percent of our purchases are made with a few kilometers of where we live. This is the business that many companies on the Web are seeking to exploit by building city and neighbourhood-centric communities on the web. In India, classified ads in the newspaper account for only 4-5 percent of a newspaper’s revenue (according to a recent Business India article). Abroad, the same figure is supposed to be more than 30 percent. Being able to search via a computer for a specific talent or product or service is much more convenient. But we don’t seem to be needing such help!

India is a different market than most countries. The largest newspaper sells a million copies in a land of a billion. Our installed base of computers is about a million. Both the newspaper and the computer speak English. So, if we are to grow our installed base of the Internet in India, we are barking up the wrong tree. English and computers are probably not the answer. It has to be that other device.

TVs are not interactive. But trials happening in many parts of the world are attempting to prove otherwise. In India, the Net will have to speak many languages: almost as many as our people speak. (CDAC had some technology in this area. Maybe we can use that.) The key point is that an initiative and trials needs to be started to make our TVs interactive. We need cable modems, wireless modems, direct-to-home broadcast systems, phone lines — we need to wire up our country.

No one minds watching TV. Perhaps we can use the same technology to get our people to begin surfing. Because unless we have tens of million people on the Web, no one will notice us. India offers a fertile ground for testing some of these new technologies. What works here will probably work in China and some other Asian and African countries.

It is also our best chance of catching up. Information Technology and Globalisation are the two most significant factors affecting world economies. We need to get up and start growing. The computer and TV companies need to talk to each other. Doordarshan, DoT, DoE and the private sector need to get trials underway for bringing huge communities online.

The last 15 months of the Internet have been a reasonable washout for India. Maybe we can still do something to make the next 15 worthwhile. It will mean many organisations with different strengths working in a co-ordinated manner. We need to give the wiring of India as much importance as we give to our politicians and scams, and our film stars and our cricketers. We keep talking of making India a global brand. Promotion of exports needs a strong domestic infrastructure. We need to build on the promise of IT: we can bypass the PC revolution to the Web revolution. We need to make our brands global, yes. Why have we forgotten that the Internet is a medium, and one which has perhaps far more power for emerging markets like India than any other medium.

There are no role models. Perhaps the closest one is France’s Minitel. We need to wire up our country, make our TVs interactive, enable our Web to talk multiple languages, get every Indian company to be on the global Web. In debating whether we need one or multiple Internet Service providers, we seem to have missed the big picture. Who will use these ISPs service? Are there customers hankering for connectivity? We need to redefine the rules of the game. The Internet interconnects people. That is what we need to do. Technology provides us with opportunities to leap frog over others and build something new because the old does not exist. But week after week, we seem mired in the same old stuff. (Sometimes, I think even these articles begin to read the same…!) We need to reinvent ourselves. The irony of it all is that since this article is in English and in a specialised publication, a few thousand will read it, and as happens so often, do little about it.

Indianisation

Who will create the Indian language versions of Web browsers? I cannot see a Netscape or Microsoft doing that until we have millions on the Web. But, we just have a million PCs in India. We need Indian companies to come forward and create browsers for the Indian context. If there is a product opportunity, this is as good as any. We need companies to start creating digital content, and setting up servers so that people can dial and get access to information. Not just in the major metros, but in every town in India. The telephone is probably the only assumption we should make about telecom availability in India. We need credit card companies to take orders via the phone, which is a prerequisite for any Net-based system. If CyberCash can create CyberCoins, why can’t an Indian bank issue CyberRupees? Localised content in multiple languages, and services combined with an electronic payment system are the key to growth of an Indian Internet.

MUMBAI (October 30): Many Indian companies are waiting for the government to open up the Internet access business. VSNL has had a monopoly over the past year to build up a business of about 12,000 customers (dial-up) and a few leased-line clients. Most corporates eyeing the Internet business expect the DoT to open up the segment well before the end of the year. What will happen then? Should you be getting into the ISP business? Are there any other business opportunities? Read on.

An Internet Service Provider (here Service is taken to mean “access”) offers connectivity to the Internet. The ISP will lease a pipe to the Net, set up an infrastructure to offer dial-up shell or TCP/IP accounts, host Web sites and offer connectivity for creating Intranets (if the ISP has a presence in multiple cities). VSNL is the only ISP as of today in India. ERNET offers services for a limited audience: the educational and research institutes. NIC has so far been limited to offering its services to government departments.

When India opens up the market, we will have three options: either to make it completely deregulated, or have the ISP licence available for a fee, or to have bidding for offering a 2nd or 3rd ISP licence. The US is an example of the first case; anyone can become an ISP. The email business in India is an example of the second case. The ISP business in Singapore and China follows the third approach. Long-term for India, the first option is the one which makes maximum sense.

Investments

Consider for a moment the investments necessary to become an ISP. If you are looking at just a single city, computing equipment (Pentiums or Unix workstations) will cost about Rs 10-15 lakhs. Each phone line and modem (28.8 Kbps) combo will cost Rs 25,000. Assuming a 1:15 ratio of lines vs dial-up subscribers, to support a base of about 5,000 subscribers, we will need 300 phone lines, implying a cost of Rs 75 lakhs. Of course, this investment can be made gradually. A terminal server will also be needed to support tens of phone lines. A router and leased line to VSNL will be needed. Minimum investment for a 64 Kbps line will be Rs 15-18 lakhs per annum (most of it recurring). To support 5,000 customers, it is very likely that a 2 Mbps pipe will be needed, requiring an investment of over Rs 1 crore. Add to it office space, manpower, marketing, etc. My estimate of the minimum investment needed to start an ISP business in a single metro is about Rs 3+ crores.

If an ISP gets 5,000 customers and assuming a revenue of about Rs 1,000 a month per customer, we are looking at Rs 50 lakhs per month, which is about the minimum to run the business. If you look at the national market, it should be possible to have about 100,000 users on the Net in the next 12 months. Assuming that VSNL will have about 50% of the market, it means the others will need to split the remaining 50,000 subscribers between them offering room for a maximum of 10 ISPs. In reality, I do not expect more than 5-6, with VSNL probably retaining a higher market-share (more closer to 65-70%). The attraction for ISPs is going to be on two counts: value-added services to the customers, and also the long-term numbers in the ISP business. We are looking at a potential subscriber base of 1 million in 4 years.

Let us go into some of the issues into greater detail.

Players

Who are the companies most likely to get into the ISP business. They fall in 5 categories: Email providers, Telcos, Cable Operators, Publishers, and Kirana operators. Email providers have little choice: they have to offer Internet presence, else their core business is doomed long-term. They are the first ones who will get in and will also be the best positioned — as long as they still have deep pockets left. Of the current players, Sprint RPG and Wipro-BT look like being the players to watch out for.

The Telephone companies will offer localised services in the cities/states in which they are licenced to operate. It is a natural foray for them into the value added services segment. They will probably be better positioned to create localised infratsructures which they can “retail” out to smaller players. Since data and the Internet business will be miniscule compared to the voice business, the telcos are not expected to give a lot of focus to this part of the business.

Cable operators are in an interesting situation. Recent months have seen a lot of talk about PCs and computers merging, with WebTVs being launched last week. Cable operators are the best off in terms of the bandwidth going into people’s homes. But their equipment will be needed to be upgraded to support two-way communications. Trials are under way in the US, and a company called @Home is going to be launching a service shortly there. Again, it will be an incremental service for cable operators to offer. The cable market is not yet well organised in India, so it will be some time before they begin to offer Internet access.

Publishers have two things going for them: content and reach. They have information useful for their target audience. But they are more likely to host their information on the web servers than get into the business themselves. A precursor to offering Internet access in most countries is a proprietary dial-in service. Only two publishing houses have offered this in India: Business India and the Dalal Street Journal group. Both have met with only limited success.

The Kirana operators are an interesting breed. In the event that the DoT does delicence the ISP business completely, then these are the ones who will really spur the business. Small, regional operators will offer access in specific localities. Their biggest strength will be intimacy with the customer and a level of support which few will be able to match. They will have hundreds of subscribers (building complexes, for example) rather than thousands. They will lease capacity from the telcos or other bigger ISPs. Over time, as the industry consolidates, they will probably be bought over by bigger players. The evolution will be rather similar to the cable industry in India.

One group quite noticeable by their absence in the above list are the computer companies. I do not expect them to become ISPs, rather I expect them to market the services of ISPs.

Pricing

The all-important issue is going to be the pricing of the dial-up accounts. In the US, prices have flattened at about USD 20 (Rs 700) a month for unlimited access or about a dollar (Rs 36) for others. In India, we are at Rs 30 an hour for TCP/IP access. Assuming usage of about 2 hours a day or 10 hours a week, we are looking at a monthly charge of Rs 1,200. Given the high cost of telecom connectivity in India (especially international), prices will not be going much lower that what we have them.

As I have mentioned before in these columns, the barrier to growth is the high initial charge (Rs 15,000 for 500 hours). I expect private ISPs to introduce more attractive pricing options, including bundling to get in customers. So, even though the effective rate will not be lower, the entry barrier will be reduced which is expected to get more people in. I also expect flat monthly pricing to come in (with unlimited usage).

Differentiators

How will ISPs differentiate them? Quality of Service, bandwidth to the Internet, uptime are the obvious differentiators. In addition, given that the level of computer penetration in India is rather low, customer education, training and support will play a very important role. The media is and will continue to do the job of selling the Internet. The Internet can provide a reason to own and use a computer. But a fair amount of hand-holding will be necessary for the end-user.

ISPs will need to make their money not just on providing access, but also on additional businesses like hosting and creating home pages and web sites (which will become a cottage industry) and marketing the necessary equipment and software the customer needs to get set up (modems, PCs, Web browsers and authoring packages, etc.) Over time, as content providers start charging subscriptions to their sites, the ISPs can serve as the collection points since they already have the billing capabilities.

Who Wins

The ISP business is a long-term business. There are no short-term returns. However, one winner is guaranteed. VSNL will be in the wholesale and retail business, and as such is likely to benefit most. It has also had the advantage of early learning. To make it a level playing field, VSNL should offer only the wholesale pipes and create the nationwide infrastructure rather than compete with the ISPs at the retail level also. I am not too sure this will happen. The one grey area for VSNL is Internet telephony.

Either way, the Internet business is going to grow. And with it will piggyback the Intranet business, which will be the real opportunity. That is one area which VSNL by virtue of its national presence can give VSAT operators a run for their money. It is something which has not yet been exploited: building private virtual networks over the Indian Internet. Only after this begins to happen will Indian corporates really experience the benefits of networking.

This is not to discourage companies from getting into the ISP business. The Internet business changes very rapidly, and if the government policies can keep pace and offer a fair, deregulated market, then we have a huge business in the offing. Worldwide, companies are structuring and re-engineering key processes around the Net. We in India will be doing the same. The missing link is going to be the ISP. Electronic commerce promises to bring about a revolution in how business is done and money is transacted. To benefit from the future, you need to be a part of it now.