Reality of Indian Startups

With hundreds of copycat websites and no original ideas, are startups and VCs really doing meaningful business?

This is a real story from the co-founder of Sloka Telecom, Sujai.

Reading these reports on funding scene in India is like reading reports about how India’s economy is booming, how its Sensex is rising, how India’s infrastructure is being funded, and so on. The reality is very different for most of us living in India. We continue to live in the same crowded streets, with the filth dumped next to our homes. We continue to drive in the same traffic where traveling 5 km takes more than an hour. Nothing has changed for us down here. All these reports do not mean much unless those funds eventually come down to make our lives a little better decongesting that traffic and cleaning up our streets.

Similarly, nothing has changed for us on the ‘investment-into-product-companies’ front either. All these reports of so much investments coming into India, so many VCs opening their shops in India, so many funds being allocated for investments in technology space, etc, do not mean anything. In reality, none of it has trickled down to us. Our life continues to be the same. Our struggle continues to be the same.

We are on our own.

Link via pluggd.in

Linkedin for the common man

“In Redmond, you don’t see 7-year-olds begging on the street,” said Sean Blagsvedt, Babajob’s founder, referring to Microsoft’s headquarters in Washington State, where he once worked. “In India, you can’t escape the feeling that you’re really lucky. So you ask, What are you going to do about all the stuff around you? How are you going to use all these skills?”

Babajob seeks to bring the social-networking revolution popularized by Facebook and MySpace to people who do not even have computers — the world’s poor.

via NYTimes

What India needs today is more companies like Babajob and people like Sean Blagsvedt and Anirudh Krishna.

Good luck, guys.

More info
http://www.slideshare.net/seanblagsvedt/introducing-babalife-and-babajob

Happy Diwali

Readers, I wish you and your family a very Happy Diwali, prosperity and eventful year ahead!!!

This is the biggest festival season and the rich are splurging, middle class families are enjoying the boom in lifestyle; still the poor struggle.

I hope things change for good for the common man.

"Hope is a good thing, maybe the best of things, and no good thing ever dies"

Broadband blues

How is broadband experience in India? Read these

Tata Indicom sucks

MTNL sucks

Reliance sucks
It sucks bigtime

Airtel gives 8 Mbps but No Unlimited plan

According to this TRAI report of Telecom performance during April-June 2007:

There are 64 broadband service providers having subscriber base of 24.22 lakhs subscribers. Among these 64 broadband service providers 10 service providers (who are having subscriber base more than 10,000 broadband subscribers) have the total 23.67 lakhs subscribers i.e. about 98% of total broadband subscriber base.

The number of Broadband subscribers (with a download speed of 256 Kbps or more) was 24.22 Lakhs for the quarter ending June 2007. Out of these 1984193 are DSL based; 264904 Cable Modem; 83521 Ethernet LAN; 20594 Fibre; 20466 Radio customers and 48541 Others. The growth rate of broadband subscribers in this quarter is 3.55% as compared to 13.85% in the previous quarter.

On page 45, the report measures all the broadband providers on various parameters:

1. Service Provisioning/ Activation Time
2. Faults Repair/Restoration Time
3. Billing Performance
4. Response Time to the Customer for assistance
5. Bandwidth utilization/throughput
6. Service Availability/Uptime
7. Packet loss
8. Network latency

Here is the shocker: ALL the providers failed to meet all but two benchmarks.

Service availability of 90% (?!) is met by each provider. What about 100%? Why do the customers possibly have 10% non-availability?

Network latency is less than 120 milliseconds for all the providers.

At least the TRAI report represents some truth (how I wonder). I guess the big broadband providers just don't care. Just like they told their customers, "take it or leave it".

Welcome to the Flat World

yeah..yeah...world is flattening. I don't know if the three-time Pulitzer winner, Thomas L. Friedman, mentioned or even thought about the new scenario explained later in this post. I haven't finished it yet. After reading few pages and so many discussions with few intellectual friends, I'm sure the book is full of beautiful pictures and statistics, completely avoiding reality , culture and ignoring key aspects. I'll let San Jose University professor dissect this argument for me.

Review by Roberto J. Gonzalez, professor of anthropology at San Jose State University

But that's not the point of this post. It is about how the Indian Outsourcing companies embraced this whole flat idea (Infosys even has a logo of "Win in the Flat World" on its website) and how it is playing in the home turf.

DataQuest Top 20 Employers 2007

Every year, DataQuest India, a well-read publication, lists the top employers in Indian IT industry. For many years, Infosys, Wipro, Satyam, iFlex, Tata Consultancy and others topped this list - only to be challenged by the flattening world.

When Indians started to pitch for American IT contracts, they were the challengers; the American firms were the incumbents. In the Indian talent market, the same phenomenon is repeating itself, with the order having been reversed. It is the Infosys and Wipros who are the incumbents; it is the IBMs and Capgeminis that are the challengers.

The survey results show that the world is indeed flat - equally flat for all. Or, as they often say, globalization is a two way street. We have come a full circle.

With Tata Consultancy still leading the pack, companies like IBM, Capgemini, Cognizant, CSC, and Ness Tech have either made a debut or have moved up in the ranking, while the Indian giants, but for TCS, have tumbled.

I strongly recommend my loyal readers (?!) to read the DataQuest report

Top 20 Employers 2007

Thanks to the constantly appreciating money and 11% increase (in 2007) in average salary, Indian IT companies have to really play hard to keep their profit margins. Surprisingly, it seems there is no relationship between salary levels and satisfaction with salary. Infosys is ranked at No. 12 in terms of salary but No. 28 in terms of 'satisfaction with salary'.

There might be a little difference in the salary + perks category between MNCs and Indian IT giants. MNCs don't pay in millions and Infy, TCS, Wipro doesn't pay cheap. They pay well above the industry average. According to the report, the top reasons Indian IT professionals switch jobs are:

1. Salary + perks
2. Overseas opportunity
3. Career Development
4. Location
5. Technology
6. Job Content

These reasons have remained almost the same over the last few years.

It is interesting to look at the factors most employees are satisfied about. They are ranked as:

1. Career development
2. Work/Life Balance
3. Work culture
4. Job security
5. Technology
6. Company image
7. Salary

Now, anyone who has worked in an Indian IT company, would easily realize how these are addressed by the management. They just suck! To be fair, departments or projects within each company, can be run in different styles. I have personally come across very good managers and professionals. When considered as a whole company, they don't score high.

Non-Indian companies have woken up to this unique characteristic of Indian employees and are changing themselves with a gusto. Take the case of Capgemini, its India center is not a clone of the HQ, but follows distinctive HR policies that are aimed at the Indian audience. IBM is trying to be more personal, with Sam Palmisano making frequent trips to India and displaying his love through huge get-togethers that seem like a typical Indian wedding. On the other hand, Intel, has taken a leaf out of the Tatas and is increasingly talking about its CSR activities. It would seem that these non-Indian services are adapting to the Indian work culture and beating the big Indian players in their own game.

Third World - Where is it today?

The term "third world" was coined in 1952 according to Wikipedia.

Like the third estate, wrote Sauvy, the Third World has nothing, and it "wants to be something." The term therefore implies that the Third World is exploited, much as the third estate French commoners were exploited, and that, like the third estate its destiny is a revolutionary one. It conveyed as well a second idea, that of non-alignment, for the Third World belongs neither to the industrialised capitalist world nor to the industrialised communist bloc.

The economically underdeveloped countries of Africa, Oceania, Asia, and Latin America, considered as an entity with common characteristics, such as poverty, high birthrates, and economic dependence on the advanced countries were often nations that were colonised by a European nation historically.

According to political theorist Hannah Arendt , "The Third World is not a reality but an ideology."

Is there still a "third world"? Things can't be the same after 50 years! I'm no Harvard or even wannabe economist to demystify bulky topics such as world order. Hans Rosling's TED presentation about the myths of "third world" is definitely one of the best educational videos I have ever seen. Read his full bio. If you want to see in full screen, Have a look. Download the presentation, if you like it.

The Rise of Rupee - Part 2 - Impact on IT

Part 1 focussed on why the Rupee is appreciating against dollar. As an individual, if I convert $1, I get 40 Rupees instead of 46 Rupees - a loss of 6 Rupees for every dollar. How does the IT industry, having made billions worth of IT contracts, manage this loss?

USA is the #1 client for the top Indian IT companies. With major chunk of software exports going to USA, the Indian IT industry has a huge profit margin when the Rupee is low. Most of the outsourcing contracts for 2007 were based on weak Rupee forecast. Now that the Rupee has appreciated, the quarterly results of many companies didn't look good.

• Revenue growth of Infy and TCS has declined by 20%. In 2007, the increase in revenue is 25% compared to 45% increase in 2006
• Wipro has slowest profit growth in two years
• Satyam profit dips 3.8% as compared to the last quarter
• MindTree Q1 net profit dips 16%
• Polaris Q1 net falls to Rs 14.42 crores

During the June 2007 quarter, the top four software services companies have posted the slowest Year to Year growth in five quarters (28.73 %). To maintain the profit margins, IT companies have come up with few options:

1. Hike billing rates

TCS and Infosys have managed to increase their billing rates by 4-5 per cent. Wipro's onsite and off-shore billing rates have grown by 1-2 per cent. In Satyam's case, the number of clients billing more than $5 million increased to 65 from 57.
http://ia.rediff.com/money/2007/jul/23it1.htm

2. Shift operations to "other" cost-effective locations

IT and BPO companies will have to minimize their operational costs to maintain their profit margins.Else risk the threat from other emerging countries like Philippines and Eastern Europe.
http://www.crmbuyer.com/story/58258.html

Infosys Acquires $250-Million Business From Philips For $28 Million. As part of the deal, Infosys will acquire three captive BPO centres of Philips at Chennai, Lodz in Polland, and Bangkok, which employ about 1,400 people.
http://www.livemint.com/2007/07/26003557/Infosys-buys-250-million-reve.html

Or buy Cap Gemini in Europe
http://www.vccircle.com/blog/_archives/2007/7/20/3106055.html

The big 5 US consulting companies have already setup shops in different "cost-effective" locations worldwide. Indian IT companies now have to look elsewhere to keep the profit margins. Better late than never. They will not loose outsourcing deals from the West, provided Rupee stays close to 40. They still get a large number of deals to keep the revenue growing.

The real picture will emerge when the US companies realize India is not the #1 cost-effective offshore/outsourcing destination. By 2010 or sooner, a dollar is expected to fetch only 35 Rupees, if not 30.
http://www.prlog.org/10014884-the-rupee-is-becoming-strong-currency.html

The Rise of Rupee

The entire continent, err...Asia-focused media and bloggers have gone bonkers/bananas over the appreciation of the Indian currency, Rupee (INR). Rupee has appreciated (a lot) against dollar while it has remained quite stable against Euro or Pound. I remember exchange rates of 1$ = 47/48 INR, about 4 years ago. Now the exchange rate is 40 INR for every dollar.

Between January and July 2007, Rupee has risen nearly 10%. Analysts say this is the highest appreciation for Rupee in nearly three decades.

I wasn't paying much attention until my cousin went out of business (almost!) due to the rise in rupee. Also, I should admit that economics is not my cup of tea. Then I thought "let me try to understand this stuff to get a big picture" and asked him to explain. Allow me to walk you through the world of economics (arrghhhh!)

My cousin's company manufactures precision machines and tools for automobile and textile industry. His significant earnings and profit comes from exporting those machines to USA and few European countries.

1. Let's assume he sells one unit for 920 INR (20$) when Rupee is traded at 46 INR/dollar. This includes export taxes, shipping cost, etc. For the buyer in USA/Europe, 20$/unit is a great purchase for a product that meets all the required standards. Usually millions of units are traded. Assuming one million units, the trade costs $20 million. With the appreciation in Rupee, the manufacturer can no longer sell at $20.

Why? Appreciating Rupee in India means the cost of living is going up, increased salaries and wages, taxes, etc.

2. To maintain his profit margin, the manufacturer has to increase his selling price. This puts him at the risk of loosing the export contract. Let's say, both parties agree for fair price of 1000 INR (least possible selling price).

At 1$ = 40 INR, for the buyer, this would end up in paying 25$/unit, resulting in a $25 million trade. A whopping increase of $5 million! My cousin almost lost the contract.

What happened in the last few years? Or months? Demand and Supply happened!

Forex

This is the spot where Foreign Exchange ("forex") comes into play. Developed and developing nations trade currencies in Forex market. They don't trade loads of physical currencies from one country to another but use electronic balances. Here is one topic to research how money is traded, in millions, in cyberspace. Anyway, Economics is all about supply and demand.

"According to the law of supply, as prices rise for a given item (in this case money), the quantity of the item that is supplied will increase; conversely, as the price falls, the quantity provided will fall. The law of demand states that as the price for an item rises, the quantity demanded will fall. As the price for an item falls, the quantity demanded will rise. It is the interaction of these basic forces that results in the movement of currency prices in the forex market."

What??? Let’s explain this using an example.

USA is the primary market for exports amounting to $22 billion. This includes software, textiles, goods, etc. Even with a weak rupee (that is 46 INR/dollar), Indian investors were willing to pay more to invest in US. This also helped exports because US could pay less to get more. There was more demand in US (dollar) and India met its supply. The Reserve Bank of India (RBI), who regulates forex, kept buying dollars. In 2006, foreign investments brought in $8 billion in stocks.

But the US economy stayed the same and dollar started slipping. Meanwhile, investors found India to be the next big thing and started pouring in dollars. The economy kept on climbing which brought a lot of foreign investment.

Just in the first 6 months of 2007, foreign investors bought $7.5 billion in stocks! RBI had to spend more and more just to keep the Rupee stable at 46/45/44 INR. Then they realized they don't need to buy dollars anymore because they are getting what they want from foreign investors. The demand is now in India! The inflation was over 6% in January 2007. So they stopped buying dollars. They didn't want to pay more. They could pay less now to get the same amount in dollars.

Slowly, the exchange rate was reduced. Rupee started rising and the inflation dropped to almost 4% in July. The RBI has said that the rupee will continue to find its true value based on pure market dynamics. The bank has officially declined to comment on any intervention to curb the rupee surge, but traders said that in recent weeks the RBI is widely believed to have bought dollars to prevent the rupee from rising beyond 40.30 levels.

For a detailed look at how forex works and what it means to you, please read this lengthy article.
Or you could read my post again :D

How does this affect me or IT? That will the subject of my next post.

Update:

For expert analysis of this issue, I recommend you to read this article in Time magazine
and views from The Economist

The Indian Identity

I read this interesting article by B S Prakash. He is one of the stellar diplomats from India - well educated and has lived in different parts of the globe. Any global traveler would easily realize how the ways of life and cultures are different and unique across countries. Every country and its people have their identities. Whats special about Indian identity? If you think you know about India, that's not entirely true. If you have one good friend in each of 28 states and 7 union territories and lived in at least 4 to 10 of them or more, then I would say, you have a good idea of what India is all about. Mr Prakash explains this as :

"The most useful word to describe Indian identity and reality is 'multi'. We are multi-ethic, multi-religious, multi-linguistic, multi-cultural and any other multi that can be thrown at us. We wear the multidimensional and multi layered identity as a badge."

He has three concepts to explain this "multi"tude of things:

1. Demography
2. Diversity
3. Dichotomy
   

I'm no expert in this by any means but allow me to add my $0.02.

1. oh, the great Indian demography! 1.11 billion people ! To throw in some numbers, 16% of the world population in only 2.4% of the world's land area. Approximately, 4 times the US population in 1/3rd of the area.

World's largest Hindu population (80.5%)
World's second largest Muslim population ( 13.4%)
with Christians, Buddhists, Sikhs, Jains, Jews

72% live in rural small towns and villages. With almost 500 million under 25 (average age of an Indian - 26), it is one of the youngest nations. comprende? What does this mean to the Indian identity? An urban Indian is very different than his friend from small town. He/She can be Hindu/Muslim/Christian/Sikh/Jain/Jew. He/She can speak one or many of the 23 official languages or 200+ unofficial variants of them. Indians identify themselves with one or more of this religions, languages and lifestyle. Every Indian is not a Hindu and speaks Hindi :-)

2. Diversity

I still remember I used to write essays about "Unity in Diversity in India". My small town class had kids speaking at least 5 different languages, eating breakfast made in 10 different ways (north-indian style bread, south-indian style idli/dosa, chettinadu style, vegetarian, non-vegetarian, etc), dress up to fancy-dress competitions in 15 different ways (pants, no pants, dhothi, lungi, saree, half-saree, chudidhar, jeans-tees). Well, in college, gals would wear the same saree in 10 different ways depending on where they come from.

Food: Every state and community has its unique cuisine and variety. The so-called "indian" food served in restaurants is a lie!! There is no such thing as indian food, my friends! That's the truth.

Music: mainly North Indian Hindustani and South Indian Carnatic. More: Ghazal , Carnatic, Bhangra, Thappattai

Dance: Bharatnatyam, Kathak, Kathakali, Mohini aattam, Banjara

Festivals and holidays are celebrated by almost everyone. Every festival is an indian festival irrespective of religion and community. Almost every language has its own new year!

3. Dichotomy

There is plenty!

India has 23 billionaires have a combined net worth of $99 billions :-O
Top 10% of income groups earn 33% of the income while 230 million people live below the poverty line. An average Indian makes $500 a year!

When the celebrities enjoy their multi-million dollar weddings, there are millions of brides and grooms waiting for a decent happy occasion. Laksmi Mittal owns the world's most expensive house ($105 million) and spent over $65 million and celebrated the world's most expensive wedding for his daughter.

So, how do you identify an Indian? What do you identify Indians with? How Indians identify themselves? It depends on multiple factors!

Online Gaming in India

Internet and Gaming are still in nascent stages in India. Internet in India is yet to catchup with the rest of the world with estimated 42 million "ever users" as of March 2007 (28 million "active users"). Surprise! surprise! Internet and Mobile Association of India predicts the number would grow to 54 million "ever" users and 43 million "active" users next year. According to this research (pdf),

"Active user" is defined as someone who has used the Internet at least once in the last 30 days, while "ever user" is someone who has used the Internet at least once.

Who came up with that term "ever user" ? Anyway, the report identifies that college students and young men (?!) make 50% of the total internet users. Cyber cafes play significant role and serve as the most popular access point for 40% of the active users. Most of these cafes double as gaming zones and this particular role is growing. The gaming industry is betting on them to become cash-cows. Internet access from home has increased from 22% to 31%. As of today, broadband has only 30%; dialup is the king with 70% of the market. But this scene will change rapidly as broadband rates tumble every month. The report predicts broadband to takeover by 70% in next two years.

All these trends set very good conditions for online gaming boom. Console gaming is a very expensive deal for an average Indian - Rs 40,000 for Sony PS3 - are you kidding me? Thats more than the average monthly salary of a game loving IT guy/gal in Bangalore. Only crazy gamers will buy it - if they have that money (More on this later). The Gaming report for 2007 (pdf) covers online or downloaded single or multi-player PC games.

These are the current gaming trends:

"The current revenue streams for the online gaming industry in India are from three sources:

Advertising: These include Advergames, In-Game placements & On-Site advertising

Subscriptions: These include Monthly subscriptions paid for MMORPG’s available through Indian publishers, subscriptions paid directly to international players for MMORPG’s such as World of Warcraft and for digital distribution of games through broadband service providers

Organised Cyber Café: These include Revenue accruing to Reliance & Sify from online gaming activities at Web Worlds & Game Dromes"

As of January 2007, it estimates the online gaming in India is worth 21 Crores ($4.6 million). Of the total revenue generated by online gaming, the report says: a large chunk - almost Rs 12.17 crores - is from organized cyber cafes; about Rs 6.6 crores comes from subscriptions; with advertising accounting for only around Rs 2.24 crores.

It is interesting to note that nearly 20 percent of the total revenue generated by online gaming accrues directly to international players based out of India. Currently, most Indian gaming portals are based on a free model, with plans to introduce monthly/higher level subscriptions at a later stage. The report rightly predicts:

"We believe that choosing the right monetization strategy would be the single biggest determinant to the growth of industry revenues. It is easy to get swayed by the success of online gaming in markets like China & Korea and assume a similar natural progression for the Indian market."

Realizing cyber cafes would play a big role in initial growth of gaming by attracting 97% casual gaming population, the report also suggests following developed south-east Asian markets like South korea.

Sify has already started transforming its network of iWay cyber cafes into game zones. Content providers like Zapak, Indiagames, Games2win are rapidly adding new games and services. Mobile platform is also helping as easy payment gateways and run contests. Recently, Games2win got $5 million venture capital from Clearstone venture partners. It also signed up a professional gamers to play tournaments in India and abroad. EA is also hunting for partners in the booming market. I'm not sure if they had any success. If you hear about it, please let me know.

As issues facing the consumer (gamer), the report lists the following:

• Prevalence of anti-gaming culture
• Poor enabling Infrastructure
• Lack of advanced courses on game development

Anti-gaming culture?!! I'm not sure what they mean by that. The point is half-true but not many Indian kids listen to their parents nowadays :) and they know that there is a thing called Internet where they can play games. If the kids keep it moderate, I think Indian parents are not going to say "No".

It also sights few issues with the gaming industry in India:

• No Localization of content
• Slow growth of online advertising
• Lack of online communities

I'll definitely agree with "no localization". Most of the games are cheap knock-offs of games developed elsewhere. Who cares to play MLB and Tombraider, huh? How about some Gilli?

Oh, they also identify what they have to do to milk some cash:

1. Feeding the hen that lays the golden eggs ??!!
2. Gaming for education
3. Focus on beyond Tier I & II towns- Rural India
4. Not just localization: Simplicity too
5. Converting Mobile Users- Potential online gamers

Who wants to play some linerider?

Update:

An interview from vccircle with Rahul Khanna, Director, Clearstone Venture Advisors, who has invested $5 million in Games2win