What are the key challenges that a web entrepreneur faces when he decides to target the Indian market?

Question

Additional Information :

India faces multiple unique problems vis-a-vis the Internet - poor reach, low bandwidth, and so on. What solutions do you propose?

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This is the 4th question in the 10 questions competition of Yahoo! Best Answers, an event that is part of AIMS 2007.

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Answer 1

Even though India has skilled manpower, it is difficult for entrepreneurs to establish IT product companies like in USA due to the high risk involved, heavy investment in R&D and slow revenue associated with product companies as against service companies. The talented resources prefer to work in reputed MNC’s like Microsoft or Google due to the attractive compensation packages that these companies offer. Also the people prefer base pay over stocks which are given in startup companies. The fact that the big companies are paying so well is killing the entrepreneurial instincts and making it difficult to hire talented and passionate people and building the right quality team. Although there is theoretical knowledge, but finding self-motivated, bright engineers is still a challenge in India. It is also very difficult for the budding entrepreneurs to get seed funding and private equity firms are reluctant to take the risk of investing in Indian startups in early stages. This is compounded by the fact that in India there is an acute shortage of angel investors. The lack of proper infrastructure and the low bar for innovation is also not helping the entrepreneurs. Logistics is another major hurdle that startups face. Simple things like getting an Internet connection take weeks to get approved over and above the complicated paper work that goes through the Indian bureaucratic system.

Answer 2

For a web entrepreneur, there is a plethora of problems which need to be dealt with. Drawing the attention of the customer from offline media to make him access the website is the biggest challenge. In this era of information overload, making the customer remember the site name and having an immediate recall is a tough task. This is supplemented by the fact that the internet is not yet the most favored mode of transactions except among in the youth. Indian customers prefer to make a buying decision based on touch & feel and at certain times, need a convincing agent also. In online business, there is very low customer loyalty and hence brand equity becomes a critical factor.



Other problems include designing such payment mechanisms which are within reach of maximum customers. Coupling credit card payments with online bank transfers, cash-on-delivery and other payment modes can be an added advantage for a business.



Additionally, the extraneous problems which are beyond the control of the entrepreneur are the low penetration of internet. Also, any product marketed or sold through internet has a limitation of being capable to be sold only to the IT educated customer.



From a business perspective, there are low entry barriers in online business. But expanding the business and sustaining a business model requires an investment no less than a brick-and-mortar business. The costs incurred on infrastructure development and marketing efforts form the major portion of the costs.



Word Count – 240

Answer 3

On the surface, it seems that the biggest challenges are the low penetration of internet in India and low bandwidth. Thus, an important constraint is to design the site such that it is not content heavy. However, leading portals in India such as naukri.com, shaadi.com etc. have been extremely succesful despite these handicaps and enjoy valuations well in excess of Rs. 1000 crore.



A major challenge is to have a well defined revenue stream. This entails providing a service where the internet leads to a natural advantage that are valuable to the target segment and cannot be met by the brick and mortar service providers/companies. Secondly, the entry barriers in web portals’ segmenmt are extremely low and competition is bound to emerge. Moreover, customers’ switching costs are practically nil. A successful business model needs to have a sustained competitive advantage. These include a large, loyal clientele, superior content, skilled offline sales/technical workforce among others. Thirdly, as the industry matures and a few competitors enter the market, the focus is on efficiency. Thus a successful business model needs to have the operating parameters on its side. Typical examples include the ratio of successful matches to total clientele, number of job offers to number of resumes posted etc.



An additional challenge pertaining to some web businesses (eg. Online money transfer) is to verify the identity of the customer. At present most websites have circumvented this problem by tying up with 3rd party providers like PayPal which also helps customers feel secure.

Answer 4

According to Economic Times, India had about 9.2 million internet subscribers on personal computers out of billion plus population, out of these only 2.3 million broadband users. What is the scope of web entrepreneurs with these kinds of subscribers?



Challenges



1. Indians, by nature are more comfortable ‘touching and feeling merchandise’ before purchase. Until and unless they don’t see the product, they are not willing to buy the products. Since scenario is changing slowly.

2. Most of the Indians are bargain hunters. Indians will ask to pay less than the quoted price which is not possible not internet.

3. India is a large country made up of 28 states -- each with its own dialect and culture. Targeting with these kind of diversified regions and satisfying needs is the difficult task.

4. No proper government support to encourage web entrepreneurs.

5. In the long run, Entrepreneurs has to face competition from the major online business biggies if the number of internet subscribers increase.



Solutions



1. Entrepreneurs should always seek to develop the websites in localized language to increase their reach to rural Indians which constitutes 70% of Indian population. Only 41% prefer to read English.

2. Design the online business models so as to suit the Indian internet connectivity which has the speed of 256kbps not the rest of the world’s speed of 2mbps.

3. Encourage many players to increase the competition between the private telecom companies which will bring down the cost of internet connection.

Answer 5

The first key challenge is to innovate a new product that can be targeted to Indian audience. Me too websites copying the successful global websites are not going to work.



For online e-commerce business the main problem is Indians are not very used to buy things online using credit cards. Creating and building trust among users is the primary challenge for an online e-commerce site to do some real business in India.



For any entertainment portals where video and audio streaming is considered, the broadband is the main challenge. Most of the users still use a connection with less than 100 kbps speed.



Government has to take some initiatives to make broadband affordable for middle class families.



One more important problem for less innovation in Internet space is primarily due to the less R&D done in this space in educational institutes. Even the course structure of most of the engineering courses in India is very old and never considered the Internet technologies as a mainstream subject. We know very well that most of the successful web projects are started by graduate students. Be it FaceBook, YouTube and etc... True innovation requires a very good understanding of latest technologies and trends. How can we expect innovation from the graduates when they are still learning very old school web technologies?



Innovation is the key to survive in the Indian internet space. One just cant start one more social networking site and compete with Orkut. We need truly innovative products with great value proposition to the user.

Answer 6

Not only for an entrepreneur but also for successful web driven business it’s important that the customer has proper internet connectivity. Which lacks here and the time delay in providing internet connections to customers again is a problem. It takes 2 months in Hyderabad to get a BSNL internet connection. Download speed needs to be increased manifolds (not like 20kbps on a 256kbps line).



Content & Services on Indian Internet still leave lot of scope. There will be immense need of India specific content that’s relevant for domestic users. A Comprehensive money transaction system is required. Both buyers and sellers should feel comfortable paying and accepting payments through Internet. In the US, combination of address verification and credit reporting agencies keep fraud in check. The same is not the case in India.



Internet reach in rural India has to be made possible (may be through the mobile network), also Internet literacy needs to be addressed (especially for rural India). Once done it would unleash a gigantic user base which will lead to a healthier competition scenario. All this can be possible only with Public & Private partnership. Where efforts are taken from both sides, NGO can play a handful role to soar up Internet literacy in rural India. All in all it would be beneficiary for both business and govt. too will earn revenues.

Answer 7

Some of the key concerns are



1. Which Technologies to use

2. Innovation

3. Marketing Tools employed, Customer orientation

4. Breaking the clutter and achieving critical mass of consumers/subscribers

5. Small market size with intense competitive pressure

6. Security of Transactions

7. Consumer mindsets about transacting online



Given the low internet penetration in India (1.7%), the market for e-businesses is extremely small and under intense competitive pressure. Many companies that dominate the physical markets are also aggressively pursuing the internet as an alternate channel which makes it difficult for entrepreneurs to effectively break the barriers to entry. Therefore it is imperative that he identifies his core target audience as quickly as possible. This is where customer orientation needs to pinpoint those potential customers and efforts should be made to convert them into loyalists. The 80-20 principle operates here as well, with studies showing that successful websites have a strong and loyal customer base which accounts for much of their traffic. Innovation is also a crucial differentiator with studies showing that a large majority of websites that have successfully withstood the dot-com bubble have been highly innovative.



Leveraging technology in all aspects from designing the site for maximum customer benefit to tracking customer behavior to optimize and customize web sites is crucial. Given the unwillingness of Indians to transact online, designing secure transaction systems and building customer assurance is critical. Another strategic challenge is to expand/grow the market in the long run with Scalability becoming a key challenge for the future.



Ramkishan Rajan

Student, Post Graduate Programme

Indian Institute of Management, Kozhikode

IIMK Campus P.O.

Kozhikode 673 570

Kerala



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Answer 8

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Answer 9

When one sets out to do business in the virtual world, he should have in mind a number of challenges he would certainly face as in any other conventional business and extra challenges unique to the web, such as



1.Accessibility for the Target Group (TG) he has in mind: a computer penetration rate of 4% and internet density of approximately 2% is certainly not a positive signal for anyone who has plans to venture into business for the online space. Taxes for computers being charged at about 20 – 25% is a big roadblock for the public to get access to their own machines. Even with the concept of ‘internet cafes’ becoming popular in India, statistics show that the penetration rate is actually very low.



2.Confidence and Reliability issues: introducing a new technology to a population will always initiate things with doubt in the minds of the people. Features on the web such as transfer of money, shopping etc would require an enormous amount of confidence to be instilled since it involves online banking, credit cards etc. Education will have to be imparted to the TG to make them less sensitive to such issues and increase acceptance.



3.•Type of business: the kind of business a person is venturing is also a very important factor. Online business which have a real-world presence (e.g. www.dcbooks.com ) are more impressive upon people rather than businesses which provide only online service, with no physical presence of services (e.g. www.wesite.in )

Answer 10

"My son is now an 'entrepreneur'. That's what you're called when you don't have a job." - Ted Turner



Problems & Challenges



1. Demand conditions for Internet usage in India are currently at a very low base; Internet Penetration is limited to 50 million users, bandwidth availability is abysmal with 2.5 million broad band connections, online ad-budgets accounts for 2% of the overall spending.



However potential is high; India has shown fastest growth in Internet Penetration (33% - Comscore statistics).



2. Start-up funding at early stages is limited. However there is huge VC money chasing ventures in growth and maturity stages. Dotcom funding jumped 10 times in 2006 to $166 million.



3. Internet operations in India have high transactional costs with infrastructure overheads accounting for 5-6% of total costs.



4. The psychographics of Indian consumer indicate preference of ‘Touch-and-Feel’ to the ‘Sight-and-Click’ model of the internet.



Solutions



1. Convergence of Web services on mobile-platform enhances reach and efficiency. Revenues accruing from Value added mobile services shared with the Web content provider on basis of usage.



2. Utilise formal Enterpreneurship associations (egs National Entrepreneurship Network) to build linkages with VCs, Private Equity and synergies with other entrepreneurs.



3. Build Niche products/services around Indian social mores. Exploit online consumer behaviour which follows cyclical pattern. Egs A person who searches for a job online also uses the internet for matrimonial, real estate, travel search etc.



4. Use Hybrid models like ‘Brick & Click’ and ‘Handshake’ with emphasis on enhancing consumer experience and value.



Karthik Krishnaswamy

MBA-Management of Services, Batch of 2008, FMS Delhi

Room No – 46, Aravali Hostel

University of Delhi, South Campus, New Delhi -110021.

Answer 11

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