Shotgunner51
RETIRED INTL MOD
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James Crabtree
February 10, 2015 2:38 pm
Hopes for a ‘mobile-first’ ecommerce model rest on questionable assumptions
Twitter makes its first Indian acquisition. Alibaba sinks about $500m into a local digital payments company. Silicon Valley venture capital funds write ever-larger cheques to Bangalore-based start-ups. And all this after Amazon pumped $2bn into the country last year, while domestic rival Flipkart was valued at about $11bn at its most recent fundraising.
India’s technology scene may not be in bubble mode, but it is certainly getting frothy.
The bull case for all this investment is easy to make. India had about 300m internet users last year, but most analysts think this will grow to more than 500m by 2020, second only to China. Most of these will be on handheld devices. Already the fastest-growing smartphone market in Asia, India’s mobile growth is set to be especially rapid — part of the reason Twitter bought ZipDial, a mobile marketing start-up, last month.
Most Indian ecommerce businesses do not yet turn a profit, but many can claim impressive user growth. Broker CLSA predicts the online retail market as a whole will increase threefold to $44bn by 2018. And while the types of businesses now raking in fresh funding are often not terribly original — from web shopping sites to ride-hailing apps — they have at least been well-tested abroad, reassuring investors.
At a deeper level, optimists see strengths in what is often perceived as India’s great weakness: its chaotic economy. Online companies will prosper, the reasoning goes, because offline competitors are small and fragmented. Flipkart is already much more valuable than any bricks-and-mortar Indian retailer — and analysts believe its revenue will shoot past them soon enough too.
This leapfrogging applies just as much to other sectors. Take furniture. Shelves and couches are annoyingly hard to buy in India, given a paucity of decent shops. Whichever online player figures out how to bring them to the mass-market — be that Flipkart or a niche business such as Urban Ladder — could dominate the sector. Such is the excitement this creates that even India’s old-fashioned tycoons are piling in. Ratan Tata, former chairman of Tata Group, unveiled his latest tech investment this week in car portal CarDekho.
Yet the other big rationale for this funding influx has more to do with China than India — and this is where the red lights ought to begin flashing. China’s internet economy has grown quickly over the past decade, giving birth to new technology titans such as Baidu (Nasdaq:BIDU) and Tencent (HKSE:0700) . Many investors made more than tidy returns, and are betting heavily that India will be next, including an array of hedge funds with little previous record in the country.
Elsewhere, Alibaba’s decision last week to buy 25% of New Delhi-based mobile payment platform Paytm prompted speculation that other Chinese internet groups may soon follow. And debates over which local start-up will win the title of “India’s Alibaba” look set to continue — at least until Flipkart makes good on rumoured plans to file for a blockbuster US flotation this year or next.
Yet it bears repeating that India and China are different. The Indian economy is smaller — roughly $2tn versus $10tn — and much poorer. It also remains a tough place to do business. Amazon and Flipkart are efficient, but they must still cope with creaking infrastructure and convoluted regulations.
Hopes for a largely “mobile-first” model of e-commerce also rest on questionable assumptions. To take only the most obvious: just 10% of India’s 1.2bn population is estimated to speak English. Yet its myriad local languages tend to work badly on mobile devices. Until that changes, India’s market could be much smaller than it looks.
There are signs of more immediate problems too. India’s recent rush of venture funding means weaker players are getting as much money as the best. This ramps up competition, making it tougher to acquire customers and hire good people. Investors mutter darkly about increasing burn rates.
“It is getting dangerously overexcited,” says Rishi Navani of Matrix Partners, a US-based fund that has operated in India since 2006. “Some of these valuations are extraordinary.”
So what if ebullient investors plough cash into Indian start-ups on half-baked hopes of Chinese-style growth? More fool them, you might say.
Yet this exuberance risks damaging the fledgling companies, too, tempting them to pile on costs and target growth rates beyond their capacities. The potential of these businesses is far-reaching, but not unlimited.
And if India’s incipient funding bubble pops, as these things often do, hopes for the country’s internet economy will burst with it.
http://www.ft.com/intl/cms/s/0/6fec0db6-b116-11e4-831b-00144feab7de.html#axzz3S1XLAkKT
February 10, 2015 2:38 pm
Hopes for a ‘mobile-first’ ecommerce model rest on questionable assumptions
Twitter makes its first Indian acquisition. Alibaba sinks about $500m into a local digital payments company. Silicon Valley venture capital funds write ever-larger cheques to Bangalore-based start-ups. And all this after Amazon pumped $2bn into the country last year, while domestic rival Flipkart was valued at about $11bn at its most recent fundraising.
India’s technology scene may not be in bubble mode, but it is certainly getting frothy.
The bull case for all this investment is easy to make. India had about 300m internet users last year, but most analysts think this will grow to more than 500m by 2020, second only to China. Most of these will be on handheld devices. Already the fastest-growing smartphone market in Asia, India’s mobile growth is set to be especially rapid — part of the reason Twitter bought ZipDial, a mobile marketing start-up, last month.
Most Indian ecommerce businesses do not yet turn a profit, but many can claim impressive user growth. Broker CLSA predicts the online retail market as a whole will increase threefold to $44bn by 2018. And while the types of businesses now raking in fresh funding are often not terribly original — from web shopping sites to ride-hailing apps — they have at least been well-tested abroad, reassuring investors.
At a deeper level, optimists see strengths in what is often perceived as India’s great weakness: its chaotic economy. Online companies will prosper, the reasoning goes, because offline competitors are small and fragmented. Flipkart is already much more valuable than any bricks-and-mortar Indian retailer — and analysts believe its revenue will shoot past them soon enough too.
This leapfrogging applies just as much to other sectors. Take furniture. Shelves and couches are annoyingly hard to buy in India, given a paucity of decent shops. Whichever online player figures out how to bring them to the mass-market — be that Flipkart or a niche business such as Urban Ladder — could dominate the sector. Such is the excitement this creates that even India’s old-fashioned tycoons are piling in. Ratan Tata, former chairman of Tata Group, unveiled his latest tech investment this week in car portal CarDekho.
Yet the other big rationale for this funding influx has more to do with China than India — and this is where the red lights ought to begin flashing. China’s internet economy has grown quickly over the past decade, giving birth to new technology titans such as Baidu (Nasdaq:BIDU) and Tencent (HKSE:0700) . Many investors made more than tidy returns, and are betting heavily that India will be next, including an array of hedge funds with little previous record in the country.
A big rationale for this funding influx has more to do with China than India — and this is where the red lights ought to begin flashing
Elsewhere, Alibaba’s decision last week to buy 25% of New Delhi-based mobile payment platform Paytm prompted speculation that other Chinese internet groups may soon follow. And debates over which local start-up will win the title of “India’s Alibaba” look set to continue — at least until Flipkart makes good on rumoured plans to file for a blockbuster US flotation this year or next.
Yet it bears repeating that India and China are different. The Indian economy is smaller — roughly $2tn versus $10tn — and much poorer. It also remains a tough place to do business. Amazon and Flipkart are efficient, but they must still cope with creaking infrastructure and convoluted regulations.
Hopes for a largely “mobile-first” model of e-commerce also rest on questionable assumptions. To take only the most obvious: just 10% of India’s 1.2bn population is estimated to speak English. Yet its myriad local languages tend to work badly on mobile devices. Until that changes, India’s market could be much smaller than it looks.
There are signs of more immediate problems too. India’s recent rush of venture funding means weaker players are getting as much money as the best. This ramps up competition, making it tougher to acquire customers and hire good people. Investors mutter darkly about increasing burn rates.
“It is getting dangerously overexcited,” says Rishi Navani of Matrix Partners, a US-based fund that has operated in India since 2006. “Some of these valuations are extraordinary.”
So what if ebullient investors plough cash into Indian start-ups on half-baked hopes of Chinese-style growth? More fool them, you might say.
Yet this exuberance risks damaging the fledgling companies, too, tempting them to pile on costs and target growth rates beyond their capacities. The potential of these businesses is far-reaching, but not unlimited.
And if India’s incipient funding bubble pops, as these things often do, hopes for the country’s internet economy will burst with it.
http://www.ft.com/intl/cms/s/0/6fec0db6-b116-11e4-831b-00144feab7de.html#axzz3S1XLAkKT
