Who says successful product startups can’t come out of India?

I’ve heard it a million times now: India is a great country for IT services, but there are no great technology product companies. After all, the golden trio of Infosys, TCS and Wipro is what defines India’s technology prowess. There is a certain degree of truth in that statement because the IT services industry has provided jobs to millions of Indian graduates and has definitely played an important role in crafting the Indian brand for outsourcing.

However, in technology (especially Web and Internet), geographies rarely matter. If we put aside VC/angel investment scene for a moment (that’s because it is emerges because a market exists to be exploited), why couldn’t Google, Amazon or Microsoft come out of India? I think it’s simply a matter of market-readiness coupled with informational advantage for US-based startups. Back in the days when these great product companies emerged, US (and to a lesser degree, Europe) was the only place where market existed. Google? Well, you needed Internet to be fully happening before a company like Google made sense. India was still lacking in that during 1996. Amazon? Well, you need people wanting to buy books over the Internet. India didn’t have a proper Internet, so obviously there was no e-Commerce market for Amazon to arise from India.

There is one major counter-argument to the “market” theory of non-emergence of product companies in India. In technology space, geographical proximity doesn’t matter a lot. Theoretically, a company like Google could have made a search engine in India and served the market in US. Well, theoretically, yes. But that’s why I mentioned informational-advantage. Back in 80s and 90s (and to a large extent, even now) the only way you could have felt the needs of market in US was to be actually in the US. (Because in India, you were posting physical letters. Email? What’s that?) In early 1990s, there was simply no infrastructure for Usenet in India, so how can you expect an Indian company (equivalent of Netscape) to have produced an Internet Browser. Even when Indians were sharp enough to be able to produce a Browser, there was simply no knowledge (and hence motivation) that such a thing should even exist.

If you now argue that why didn’t this informational-advantage work against emergence of IT services industry in India, you are completely missing my point. As I said, for product companies to exist, they needed a market or at least an intimate knowledge about that market. IT services companies had both: a) they had a hungry market in US who wanted to reduce costs; b) they had intimate knowledge of that market because the market crossed oceans to came looking for it. You see, the whole basis of saving costs through outsourcing was to surpass geographic boundaries, thereby utilizing India’s lower costs to their advantage. So, Indian IT services companies didn’t need to get intimate knowledge about the market — instead the market came for it, educating what its needs really are.

Thankfully, all that is going to change in years to come. Thanks to Facebookization and MTVization, at least in Indian metros, youth will have more-or-less exposure to similar global (notice I didn’t say US) culture and thus become basis of same market. Informational-advantage will disappear. Take any product: Twitter, Quora, LinkedIn, or even Foursquare and you will see users from all over the world. If they can use a world-class product, why can’t they make one? In my opinion, it is just a matter of time when US will loose the advantage gained by first-boom of silicon and Internet (think educational and investment infrastructure). After that, you will see great product companies from all over the world. And that’s when the real promise of Internet will get delivered: non-existent global boundaries.

Say cheers to the Internet!

8 thoughts on “Who says successful product startups can’t come out of India?”

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  2. Americans just said that so they would feel like no one would eventually take their jobs. It is the guy getting his hands dirty that is going to start coming up with the new innovative tools. This is a great example. Good on you India.

  3. I visited your blog after long time and still find the curiosity of a kid in you alive and thats what defines an Indian. To answer your curisoity here is my answer :-

    Didnt you read as kid neccessity is the mother of invention ?? Also didnt you read that India is most blessed land as it has ideal climate , land and water gifted to us . While Americans, Chinese , Europeans face severe climates they had to become inventive otherwise they would have died of cold . Similarly why did they invent computers or tools ?? Becuase they always found it diffcult to reproduce and had lack of manpower . Now Indians produce in plenty so why do we need machines ??

    You new kids are wasting your time challenging the way God or nature has defined the world order .

  4. Lets do the math-

    The risk free interest rate in India is something like 8%. If I invest in 100 product companies a year with a seed of 1 Cr, I would have invested 100 Cr. I would have a success ratio of say maybe 2 per 100.

    My worth in the case I invest in a bank would be 100Cr(1 + 0.08 )^3 = ~126 Cr.

    For my investments in startups to be worth the same. My investment in any one of the startups needs to be worth around 63 Cr.

    Assuming I was offered 10% of the company as the seed investor, the company I invested into needs to be worth around 630 Cr.

    Compare this with the US where the interest rate would be around 4 pct and the success ratio around 3(informational advantage/ convince yourself). You will end up with a number of 166Cr for the winning horses.

    I think startups making products are not risk-efficient investments YET. Of course things will change with people like Paras educating others :)

  5. Like your post, the Times in India are and will change.

    Really liked Ramesh Nidadavolu’s realistic comment with his simple math but who says all startups need crores of investment :)

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