– Warren Buffett, 1987 Berkshire Hathaway Annual Letter
– Seth Klarman
Steve Jobs on product development
Ed Catmull in Creativity Inc.
Has the Indian startup opportunity been wildly over-estimated? Mahesh Murthy’s article on this question has triggered a debate. Mahesh feels the “copy-paste” approach will not work in India — provided that most of India’s highly-valued startups are simply clones of successful US companies, “much of the growth assumed for our current unicorns is probably vastly overestimated”, he writes.
History is on Mahesh’s side. Desi Martini tried to be India’s Facebook — it was acquired by HT Media in 2007, but failed to scale and HT wrote off its investment. Guruji.com was a “search engine for India” backed by Sequoia Capital in 2006 — it was unable to compete with Google’s superior technology, failed to scale and eventually shut down. Seventymm, backed by substantial venture funding, tried to be India’s Netflix and also failed.
But it’s worth asking what’s different between the older crop of companies and the ones we see today. The obvious change is the rapid uptake of the mobile Internet and smartphones since 2008. Most Indians simply couldn’t afford to buy desktop or laptop computers, and pay for a monthly internet connection. Today, smartphones are available for a few thousand rupees and mobile data too is cheap enough, with telecom companies offering data packs and pay-as-you-go plans that allow even the lowest income groups to access the internet.
The broader story is about the rise of the Indian consumer — as I’ve written before, the US is the natural pioneer for consumer internet innovation because it is home to the world’s largest and most affluent consumer base, combined with an industrial commons in technology and engineering that is second to none. Russia and China don’t compete with the US because they are “walled gardens”, as Mahesh observed, and have very different cultural and language characteristics. In contrast, urban India is predominantly English-speaking and is also aligned with the US culturally. Whether its TV shows, Hollywood movies, English music, fashion or food, as India urbanizes, Indian consumer tastes are becoming more similar to the US, or loosely speaking, increasingly “westernized”.
The rise of the connected, aspirational Indian consumer who has a growing capacity to make discretionary spends is a robust and secular trend given India’s highly favourable demographics. In this sense, comparisons to the past are no longer relevant. This emerging consumer base will enable business opportunities in India over the next decade — including on the internet — that we cannot even imagine today.
One of the largest consumer markets in the economic history of the world is up for grabs, and the internet is a new distribution path to service that growing market. Venture funding is empowering first-generation entrepreneurs to create products and services for this new consumer. The global majors recognize the opportunity, and India-based internet companies are betting on it too. Just as Indian companies can’t cut-and-paste a model from abroad and succeed, even global internet companies cannot do a cut-paste job — the Indian market has its own quirks, and achieving success in India requires creativity and experimentation from all players, because everyone is in uncharted territory.
It can be debated whether valuations in certain cases are too rich, if private equity-funded startups can compete with well-established companies investing off their balance sheets, or whether some of India’s unicorns will be able to continue financing unprofitable growth — but debating such questions is very different from asserting that Indian internet ventures have no chance going up against global internet giants.
I think the opposite is true — the only country able to compete with the US on internet and technology innovation will be India, because only India has a large, growing consumer base and a comparable pool of technical talent. The challenge for India is to retain this talent at home, and attract talent from abroad. India’s open internet, compared to the “walled gardens” of Russia and China, will prove to be its strength in the longer run. The future won’t be like the past, as the expansion of the consumer base gives Indian startups the scale to build the next wave of the world’s great technology businesses.