The price of bad internet

Jayadevan PK March 30, 2017 3 min

Flipkart will turn 10 years old this year. Notwithstanding the ongoing churn at Flipkart, the company, with a valuation of nearly $10 billion and close to 40% market share, is one of India’s startup success stories.

Its biggest rival in India is the US-headquartered retail juggernaut Amazon. Take a look at some of Amazon’s statements when it was 10 years old. Amazon projected net sales between $7.40 billion and $8.15 billion and operating income between $500 million and $625 million for 2005.

In a little over 10 years, Amazon was looking to make nearly half a billion dollars in profit at the operational level. Now, contrast this: In India, the ecommerce market started stagnating sometime in May 2015, even before it really took off. Every ecommerce company in India, including Flipkart, is bleeding heavily.

So, why is it that Amazon was able to grow faster and much more effectively as compared to Indian startups?  

So, why is it that Amazon was able to grow faster and much more effectively as compared to Indian startups?

Sure enough, it’s not an apple-to-apple comparison — in 1994, the gross national income of the United States was $27,750. Average household income in India at the time was $380 (closer to China’s $540).

But an important factor in Amazon’s growth has been internet access — in 1994, about 11.65% of households in the US had internet access. India’s first public internet connection arrived only on August 14, 1995.

 

One can attribute most of this inequality in internet penetration to historical events over which we had little control.

But we’re still missing a key piece of the puzzle. While the Indian government is making the right noises and growth of venture capital has helped, we lack a national agenda and the political conviction to really boost our internet penetration and knit it tightly with our economy.

While the Indian government is making the right noises and growth venture capital has helped, we lack a national agenda and the political conviction to really boost our internet penetration and knit it tightly with our economy  

Broadband never really took off in India. Its plan to supply high speed internet to 200,000 villages has missed several deadlines. Now we are counting on India’s richest man to deliver on the promise of fast internet for every Indian.

But if there is a time to fix things, it is now.

Since the 90s, countries like China have shifted gears. Nearly 50% of China’s population is now meaningfully connected to the internet. In 2015, a year after clocking it’s lowest economic growth (7.4%), China unveiled the Internet Plus plan to integrate traditional industries and the internet.

“China will clear barriers and lower limits for the market entry of Internet Plus-related products, optimise the credit system, draft a big data strategy and promote legal services,” Chinese news agency Xinhua reported at the time. It now wants domestic companies to go out and conquer global markets. Chinese phone companies are starting to do that. Alibaba and other Chinese app companies are doing the same.

The Amazon-Flipkart story will repeat itself if we don’t quickly get our policies and infrastructure right  

China realises that the next phase of their growth will come from the internet and its intersection with brick and mortar businesses. Internet is not only essential but also critical for India’s growth. Only after solving the internet problem, can India clear the deck for next generation technologies like artificial intelligence, quantum computing and human computer interfaces to thrive.

The Amazon-Flipkart story will repeat repeat itself if we don’t quickly get our policies and infrastructure right. Only this time, it will be more brutal because Brexit and Donald Trump are just early signs of a deeper crisis in the ‘flat world’ on top of which the previous generation of India’s top technology companies were built.


Updated on March 30 at 4.38pm to change the headline. Updated on March 30 at 5.10pm to include a graphic reproduced from World Bank data. Update (30 March 2017, 10 PM IST): An earlier version of this story said that Flipkart turned 10 years old this week. Flipkart was founded in September 2017 and the story has been updated.. Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.