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Why most Indian Net companies will fail
These days, whenever I think of dotcom, I think of failure. Not only because I know that almost all of them are making huge losses. Nor because I know that 90 per cent of the dotcom startups being announced every passing day will not even make it to the starting post-leave alone run the final race.Eventual failure is nothing new for sunrise industries in any sector-Old Economy or New. One has seen this happen in cement, petrochemicals, and finance companies. Most industries grow by kindling a hundred entrepreneurial dreams; only a handful survive in the end. Nature's law will thus take care of the dotcoms in the usual way. The reason why I think dotcom failures are special is the sheer scale in terms of numbers who won't make the grade. Thanks to the initial low entry barriers, there are now millions of entrepreneurs trying to make a living from dotcom. The failures will, therefore, also run into millions worldwide. In India, this could be more so, since most of the Internet ideas (especially in the business-to-consumer segment) are drawn from the west, where their success is owed to entirely different reasons. None of the conditions that led to Net-based success stories in the US-high PC penetration, high costs of brick-and-mortar distribution, and high labour costs-actually apply in India. At least not yet. Unless one is talking of a very small, supersophisticated urban market. Most Indian dotcoms have not really asked themselves one fundamental question: what is it that I can offer that is not already being offered by conventional retailers? The answer, currently, is very little. Whether it is groceries, or textiles, or anything I would require regularly, I don't see the Net as a great place to buy. Given cheap Indian labour, almost all such things can be done more easily over the phone. I can order dinner-sometimes even a small order like a plate of idlis-from any nearby restaurant at no extra cost in most Indian cities. I can order groceries from shops in the vicinity of my home with a mere phone call. I would not order a shirt or jewellery over the Net for fear of not getting what I want (who will I chase in case of wrong delivery?). Would I buy a TV or PC on the Net? Maybe. But only if the price advantage over the conventional showroom is very clear. Not otherwise. Of late there has been some realisation that the B2C model may be tough to work in India, which is why we have seen a rash of announcements about vertical portals. These should have a better chance of success, but only if they get their fundamentals right. Given below is my understanding on where the Net works well and where it might not. I am no expert in this area, but most of these conclusions have been arrived at on the basis of personal observations and, to some extent, intuition:
Net business models, expecially in the B2C area, will work best in areas where there are no physical products to be moved. Meaning, they should work well in areas like broking, banking and financial trading-and not so well in grocery or garments. Reason: there is no physical product that I need to cart from factory to consumer, from Mumbai to Dibrugarh. On the other hand, whether I am in Mumbai or Dibrugarh, in areas like share trading the Net clearly facilitates transactions and brings down costs. I can buy or sell a share more easily and at lower cost on the Net. I can also do most of my banking from home or the office, or even through my cellphone.
A business will work on the Net if its products are sufficiently standardised. The reason why Dell sells a lot of PCs through the Net is because the things going into PCs are really glorified commodities-the same Intel chips, the same Microsoft software, and the same add-on hardware. You can also sell high-quality branded products through the Net, but risk commoditisation in the process. The reason: the Net allows the consumer to see all similar products on the same shelf. Thus it would put a Titan watch and a Piaget on the same pedestal. Good for Titan. But for Piaget?
For a lot of businesses, the Net can only serve as a good information point that will bring the customer to the showroom. In the US, car buyers often look at models on the Net, but they ultimately make their purchases only from showrooms.
The biggest benefits from the Net will probably come to companies is cutting their costs through better supply chain management and quicker processing of customer-related information. In other words, the opportunities thrown up by the Internet have more to do with improving efficiencies than immediately earning more revenues. Even if the Net exables me to increase volumes, what it simultaneously does is reduce my margins because of immediate comparisons with my competitors. I, therefore, necessarily have to cut prices, unless the product I produce is so unique that it can't be replicated.If there is one word to describe business potential on the Net, it would be disintermediation. What the Net allows you to do is create a superefficient middleman to cut out all other middlemen between company and customer. And therein lies its logic for most companies: if you don't cut out the middlemen in your own business, someone else might and take away your customer. Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.
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