Global Economics

Indian Startups Go for Web 2.0 Gold


Global networking sites like Orkut are benefiting from India's huge number of young people, but many local ventures want to claim the clicks

For the past year, global networking sites have been growing in popularity among young Indians. According to JuxtConsult, a New Delhi-based online research and advisory company, 44% of Indian online traffic uses the Internet just for social networking. Google's (GOOG) Orkut is the most popular social networking site in India, with a 64% market share. Facebook is also winning many Indian fans, especially students.

But in the last six months, a plethora of local sites has emerged to compete with the Americans. Today, there are more than a dozen India-based and focused social networking sites with colorful Hindi names that are synonyms for community (bigadda.com) and friends (yaari.com). "I guess it's a cool thing to do," says Praveen Gandhi, managing partner of Seed Fund India, an early stage Mumbai venture capital fund. He claims in the last year he's had fund requests from over 50 entrepreneurs wanting to set up social networking sites locally.

India is as hooked on social networking as any other country. Part of the reason is easier broadband connectivity. A 2007 report by the software industry association group Nasscom estimates broadband subscribers—currently 1 million—will hit 20 million in three years. By 2010, the total number of Internet users in India will grow to 100 million, from 40 million now. This will surely enhance virtual hangout plays like the social networking sites.

Another big reason for the rise of social networking sites is simply the size of India's younger generation—54% of India is under the age of 20. That's nearly 540 million, the largest such community in the world, according to the National Council for Applied Economic Research, India. And they all want to connect to each other.

Big Players Enter the Ring

Some of the new Indian networking sites that have cropped up in the last nine months include Desimartini.com, Minglebox.com, Indyarocks.com, and Bigadda.com. Their promoters vary from first-time entrepreneurs to large corporations. Some are self-funded, while others have professional venture capital investment. Minglebox connects students and others in schools, universities, and the workplace while Bigadda is a product of Anil Ambani's Reliance Entertainment, a subsidiary of Reliance Communications. As for their appeal, most of the sites are quite similar—offering music, video, photos, blogs, and chats. Says Seed Fund's Gandhi: "The Indian sites have nothing unique which will take people away from Orkut or Facebook."

But what has Indian entrepreneurs enthusiastic is the recent entry of big players. Last year, when Vivek Pahwa, 26, a graduate of the prestigious Indian Business School in Hyderabad, decided to "do something" in the Internet consumer space, he borrowed $76,000 from his dad to set up Desimartini.com (Indian Martini), with the idea of making it like Orkut. Ten months later, when he missed his target of 1 million registered subscribers, he sold it.

On Nov. 20, one of India's largest publishing houses—Hindustan Times Media—purchased Desimartini for an estimated $10 million, even though Desimartini has just 2.5 million monthly hits and 250,000 subscribers. Now Hindustan Times plans to use it to enter the growing online gaming business and sell classified ads for jobs, real estate, personals, and auto sales, an area currently dominated by newspapers and magazines.

Minglebox on Campus

Pahwa, meanwhile, is investing his jackpot in other sites. In June, he set up Secondshaadi.com (second marriage), a matrimonial site for second marriages because, he says, "divorce rates are increasing in India." He's also funding a soon-to-be-launched India-focused search engine, Antya.com (the end).

Other entrepreneurs are sticking with their social networking commitments. Minglebox, set up by three Indian Institute of Technology, New Delhi, classmates in September, 2006, specifically caters to the school, college, and workplace communities. With this cohort, says co-founder Kavita Iyer, "There is greater user authenticity and interaction than most social networking sites." So even as Minglebox does have photos and video, it also has features such as My Classroom and Class Locker to help students share notes and lecture content. To facilitate more interaction, there's College Festivals—a destination to post content on college celebrations across India.

The company has 1 million users from more than 1,000 schools, says Iyer. They spend an average of 35 minutes a day on the site. Impressed with Minglebox's potential, U.S. private equity player Sequoia Capital last May invested $7 million in the startup. What attracted Sumir Chadha, a managing director at Sequoia, to Minglebox was its Web 2.0 focus. "Social networking today is one of the most popular Internet activities in India," he says.

Hinglish Spoken Here

The growing popularity of social networking sites is encouraging other entrepreneurs to rethink their strategy. A dating site, Fropper.com, launched in 2003, rechristened itself as a social networking destination three months ago. It says it is now "a platform to meet and interact." "We realized that to bring traffic, we had to attract communities," says Navin Mittal, business head of The People Interactive Group, which runs Fropper. Fropper (a combination of friend and hopper) itself is an offshoot of a leading Indian matrimonial site, Shaadi.com (the word shaadi means marriage). With 3.5 million users, Fropper encourages users to be less formal and use colloquial Hinglish, a blend of Hindi and English.

But the big bucks are pouring into Reliance Entertainment's Bigadda, a late entrant that launched in September. Reliance plans to invest $100 million on the social networking site and BigFlicks.com, a video content site, over the next five years. Says Rajesh Sawhney, president of Reliance Entertainment: "Bigadda is our preparation for a future where social and traditional media will co-exist and create new options of entertainment." A me-too site offering uploading and sharing of video and photos along with some privacy options, Reliance's social networking site is already claiming big numbers—a million users this quarter. Reliance has signed on photographer Atul Kasbekar, singer Shankar Mahadevan, and Bollywood starlet Dia Mirza to attract more users.

These offerings by social networking sites have yet to excite advertisers. Online advertising is the predominant revenue stream for social networking sites. "It's a huge opportunity for advertisers," says V Ramani, managing director of Connecturf India, a Mumbai digital marketing solutions outfit. However, since users sign up with aliases, "There's still no clarity on the genuineness of the user base." Internet advertising is still tiny in India's $3 billion ad industry, with just $100 million going to online ads. However, industry sources say online advertising is growing at a 75% annual rate and nearly half the online ad revenue is driven by youth and community sites.

Looking at the Mobile Marketplace

At this point, Minglebox's Iyer, too, is playing it safe. Even though she says her business model is based on online advertising, product development is her immediate concern. Sequoia also wants to wait. Adds Chadha: "Over time, we will put advertising on Minglebox to generate revenues, but we are in no hurry as the site is not very expensive to run."

Minglebox and other social networking sites, meanwhile, are planning to extend their content for mobile use. That's because while social networking on the Internet in India is still in its infancy, it has clearly caught the imagination of those in the communications industry. India's mobile operators are looking at the sites' user-generated content with interest, envisioning revenues from offering them as value-added services to their subscribers. India already signs up 7 million new telecom users every month.

More Than a Fad

According to a report by the Telecom Regulatory Authority of India (TRAI), the number of Indian consumers connecting to the Internet via cell phones more than doubled, to 38 million from 16 million just last year. Today, almost all the telecom operators, such as Vodafone, Essar, Bharti, and Tata Teleservices are considering adding social networking as an additional service for their subscribers.

Meanwhile, industry leader Orkut is determined not to let competitors infiltrate its user base. An Orkut makeover in August sports Hindi transliteration and a user interface in five Indian languages: Hindi, Bengali, Tamil, Telugu, and Marathi. Surely the Indian startups will have difficulty competing against deep-pocketed players like Orkut, and since there is very little to distinguish between many of India's social networking sites, an industry shakeout is likely. But the Indian entrepreneurs are optimistic. Says Fropper's Mittal, "This is not a fad, it's real."


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