India's Online Shopping Spree.
In 1999, Alok Mittal joined the thousands of Indian entrepreneurs scrambling to take part in the global dotcom boom. His Delhi-based business, JobsAhead, which launched as a two-man gig with $500,000 from friends and family, aimed to connect Indian employers with local job seekers. By 2004, Mittal had grown the business into a 150-employee shop that was sold to online-job-search giant Monster for $8.8 million. Mittal was one of the lucky ones. Practically every other Internet start-up in India went bust during the dotcom crash of 2000 as rich Western investors pulled their venture capital out of emerging markets to concentrate on repairing their portfolios at home.
Mittal is once again back in the game, this time funding new businesses and hoping to profit from India's second dotcom boom. After a decade of relatively slow growth in Internet use in the '90s due to India's sluggish, red-tape-riddled economy and poor infrastructure, the number of Internet users in the country is skyrocketing thanks to new investment in the sector and a growing number of middle-class consumers who can afford access. The number of Indian Internet users is expected to nearly triple in the next three years, from 80 million today to 230 million in 2015. The number of broadband users, critical to the success of Indian e-commerce, is also forecast to rise over the same period, from 1.7% to 12.5% of the population.
It's not just local players who are looking to cash in; there's Silicon Valley money pouring into the subcontinent too. To many investors, the growth prospects of tech firms in India are more attractive than those in other emerging markets like China, Brazil and Russia, where Internet penetration has grown to roughly 30%, compared with only 7% in India. China's Internet boom has matured over the past decade thanks to heavy infrastructure investment and support for homegrown companies. Its e-commerce sector is worth an estimated $74 billion, according to the Boston Consulting Group, whereas India's is worth $10 billion. The Indian government is playing catch-up, but if it makes good on its recent promises to boost the number of broadband connections more than tenfold by 2017, the payoff could be huge.
India already holds certain advantages for private investors. Unlike those in Russia and China, where state-run companies rule the roost, tech investors and entrepreneurs in India stand to benefit from the country's more open markets and rule of law. "In India, you don't have to worry about the government shutting you down or asking you for your Internet user base," says Prashant Agrawal, a Mumbai-based tech analyst at Boston Consulting Group. If local entrepreneurs capitalize on the country's strong tech roots and their inside knowledge of the Indian consumer, he says, they could beat out Western players like Amazon and Groupon to become India's first crop of tech giants.