An Internet Passage to India - Government Activity

Industry Standard, The, August 28, 2000 by Monika Halan

The country is quickly becoming a fashionable destination for U.S. Web firms

INDIA'S INTERNET MARKET IS STILL embryonic, but a growing number of U.S. companies are going to the world's second most-populous country to stake a claim.

AltaVista, Lycos and Yahoo all launched sites in India this summer, and Microsoft is testing an Indian version of MSN.com, which may officially go live during a scheduled visit by Bill Gates in September. America Online is expected to launch operations later this year or in 2001.

One reason for this flurry of activity is legislation passed in May that allows foreign companies to own 100 percent of an Indian Internet company and also exempts online sales from taxes. That "will crack open this market," says Dewang Mehta, president of the National Association of Software and Service Companies, the country's leading technology industry group.

India appears to be full of promise. The country's total population is 1 billion and its consumer market is about a third of that, including an elite class of some 50 million who speak English. It also has a strong information-technology sector and improving Internet infrastructure. Registered online users currently number about 4 million, and that's projected to grow to 23 million in 2003, according to Nasscom. "The timing is right with the number of Internet users growing rapidly," says Feroz Siddiqui, acting director of Lycos India.

But the actual e-commerce market remains small. Even though India's consumers are hopping on the Net, they're not buying. A study by U.S. research firm Gartner Group found only 2 percent of the 4.3 million Internet surfers in India has ever made a purchase online. Total e-commerce sales in India are expected reach just $100 million this year.

Online advertising is puny, too. Says Martin Keogh of AltaVista: "The [online] ad market is estimated to grow from $6 million to $15 million over the next year, and we will look to achieve a proportion of this."

That's an awfully small pie to be fighting over, but the portals are here early to establish themselves and learn about the market.

Reliable figures are difficult to come by, but Yahoo is seen as the leader among domestic and international sites. It has Local pages for nearly 20 Indian cities and has made deals with about 40 Indian content companies to provide English-language material.

India's largest media company, Bennett & Coleman, owner of the country's largest newspapers and the portal Indiatimes.com, has repeatedly identified Yahoo as the company to beat. Other Indian portals such as Rediff.com, Indya.com and IndiaInfo.com also are gunning for Yahoo and its American peers.

But the U.S.-based portals may not be so well-positioned as Internet use moves beyond the English-speaking elite. They tried, for example, to promote e-commerce on Father's Day, an alien concept in India. But nearly all the U.S. portals ignored Rakhi, a traditional festival held last week in which a sister ties a ceremonial thread around her brother's wrist and he gives her gifts in return. Yahoo belatedly joined the local portals using Rakhi to pitch gifts online.

The U.S.-based portals need to be more in tune with local customs if they hope to capture a piece of the Indian mass market that brought them here in the first place.

Monika Halan (monikahalan@vsnl.com) is a writer in New Delhi.