Yesterday, Equities discussed the potential for Chinese Internet companies in terms of long-term investment opportunities. With too many cooks in the kitchen, the U.S. Internet market seems to be closing up. The most talented engineers are being poached by bloated salaries, financed by venture capitalists and analysts accuse valuations of being too high. For investors looking to make money off the sector then, it may be best to look outside of US. China, with its economic growth and rising technological sophistication has more room for margins within its tech ventures. India, home to a legion of talented software engineers, a growing population and a changing socio-economic landscape holds similar draw. Unlike, China though, the internet economy in India remains immature. Despite being an emerging market and the go-to spot for call center trouble shooting, the number of Indians with access to the Internet is still surprisingly low. As of 2009, Internet users in India numbered 71 million, only 5% of its population. As of 2011, the estimates for access are as high as 100 million, exhibiting
With the country becoming more educated and infrastructure being put in place that will help expand internet access, the ventures, currently in their fledgling stages are positioned to explode.
Like in China, the Indian up-starts are not exactly novel. They rely a good deal on American internet concepts and incorporating them into their own burgeoning culture. So far, the concepts range from India’s version of Amazon, to a Groupon and Expedia specifically geared toward the needs of Indians. India’s e-commerce is still abbreviated, but interest is not. Within the nation, the upper classes of India have demonstrated a desire for greater online commerce. Stateside, venture capitalists from Silicon Valley have begun rounds of financing for companies like Flipkart.com, which sells books online and SnapDeal.com, which sells luxury items for below the price they would expect.
There remain challenges for Indian companies looking to mimic American business models. Where Americans have credit and debit cards to purchase books, coupons and other goods online, many Indian’s are without this luxury. They remain a cash culture. The movement online could be an incentive for more credit card use or it could remain a challenge preventing Internet culture from catching on as quickly as developers and financiers would like.
All signs point to the credit card movement emerging as the number of educated people in India rises and the availability of e-commerce presents itself. A 2010 study performed by boutique investment bank Caris & Co. highlighted in the New York Times anticipates Indian internet users will climb to 200 million Internet users by 2015. Most important for those investigating the Indian situation the report predicted online purchases to reach $5 billion next year from $1.4 billion in 2010.
For the time being these emerging Internet companies will focus on the upper classes in India, where nearly all the wealth is focused. As the size of that population rises and more opportunities arise, that $5 billion will multiply ten-fold.
It’s a different situation and a more long-term commitment than investing the U.S. or even China tech industry. Where many Chinese companies, like Baidu are already established and expensive to invest in, man Indian companies have a long way to go. The tech ventures there allow an investor or venture capitalist to take considerable ownership of the fledgling companies and profit enormously on a longer timeline.
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