In One-Day cricket, the powerplay is a period when the bowling team is subject to field restrictions and batsmen can score with abandon. The batting powerplay allows batsmen to switch gears while spectators fasten seat belts for a wild ride. A batting team that looked assured until the powerplay might become downright murderous during the batting powerplay. The year 2014 will go down as the powerplay period in India’s technology story. Things are about to change somewhat dramatically.
Some of the largest global investors poured in capital into the Indian market this year. In e-commerce, Flipkart raised a billion dollars in financing this year and Amazon announced a commitment of $2 billion to India over the next few years. Not to be left behind, SnapDeal raised over $800 million in 2014 alone. In addition, fashion e-commerce company Myntra got acquired by Flipkart for over $300 million. On the sales front, Flipkart registered a one-day sales figure of $100 million during its “big billion day” event. These are all numbers that are hard to dismiss. They signal India’s arrival as a major market in global e-commerce alongside US and China.
The flurry of activity in online retail also spilt over to other Internet-enabled businesses. Housing.com raised a mammoth $100 million from Japanese investor SoftBank despite being early in its journey. SoftBank and Tiger Global, in particular, are investors who are betting heavily that India will eventually be a technology market to rival China.
The increased investor interest is motivated by several fundamental factors. Internet user base in India is approaching 300 million and expected to increase sharply. Further, there are over 920 million users accessible on mobile. Internet and mobile technologies provide reach that was simply inaccessible in the past.
The rising middle class is also contributing to the growth in much the same way. Further, India has a great supply of tech talent to address the needs of emerging tech-enabled businesses. According to a analysis by LinkedIn, India has the top four global cities (Bengaluru, Pune, Hyderabad and Chennai)) in tech talent. Nearly 40 per cent of new residents have tech skills in these cities. San Francisco is fifth at 31 per cent.
These supply and demand factors imply that the future is rosy for India’s technology entrepreneurs. Unlike the 1990s tech boom that was driven by offshoring, today’s tech boom is driven by local demand. One important unknown is the role of regulation. Thus far, the government has largely stayed away from Internet markets. That is probably due to lack of understanding. As these markets get big, regulators will no doubt get interested. Improper regulation can stifle growth.
Therefore, the hope is that government will tread regulation of online businesses cautiously. Finally, another potential risk is if foreign investors pull out. This can happen if the returns on their India investments are slow to realise. This is a real risk. But if it happens, the investors have only themselves to blame. The valuations that Indian startups are getting these days are hard to justify. Companies with limited traction are getting sky-high valuations. Investors would be wise if they invest on realised traction instead of hype.
Despite the volatility tied to foreign investment and the uncertainty of regulation, my net take is that this is perhaps the most interesting time for entrepreneurs in India. As someone who has studied Internet-enabled commerce for over 15 years, I have been waiting for this moment. It is now the turn of Indian entrepreneurs to rise and shine.
The writer is a professor at the Wharton School of the University of Pennsylvania as well as a cofounder of education startup SmartyPAL. Follow him on Twitter @khosanagar
