China has multiple large internet companies. Baidu, Alibaba, and Tencent lead the pack. There are multiple others – Sina, Sohu, Youku/Tudou, 51job, etc. Russia has two huge successes as well in Yandex and Mail.ru. India on the other hand has yet to see any internet companies emerge with the scale and valuation of any of these companies.
There have been a few notable Indian IPOs, but they are relatively small companies that face major challenges. InfoEdge/Naukri, the leading Indian job board (think Monster or CareerBuilder), IPO’d in 2006. The business faces competitive pressure (Linkedin) and issues around growth (despite a huge population, India’s organized labor segment is small). Similarly, MakeMyTrip is the leading Indian OTA and debuted on the NASDAQ in 2010. It’s now trading at half the valuation at which it ended its IPO debut.
So where is the proverbial “Indian Baidu” or “Indian Yandex?” Why hasn’t it emerged?
The easiest explanation is that India is far behind other emerging markets in terms of economic development. India started its economic reforms later than China and has grown less steadily. GDP per capita is lower, and the enablers for a vibrant internet economy lag other emerging markets. Broadband penetration, internet usage, smartphone penetration, etc. all lag behind China, for example. Whether it’s digital ad spending or e-commerce, market sizes in India are small, albeit growing quickly off a small base. Without key enablers and larger markets in place, there hasn’t been the raw material for a Baidu or Alibaba to emerge.
I think a second factor that is often ignored is language. For instance, doing Google style search indexing of Chinese and Russian language sites is hard. Despite Google’s overall dominance, Baidu and Yandex have been able to take a focused approach to their respective languages and carve out dominant search businesses in their countries. The Indian internet, in contrast, is primarily English-speaking. There is less rationale for local competitors to try to challenge the dominant international search players. And keyword search is a huge and powerful business model.
There has also been more protectionism/favoritism of local internet companies in some markets than there has been in India. This is especially true of China. Witness Google’s struggles in China around censorship rules and rumors of “government protection” of Baidu.
Finally, India’s nascent internet market has emerged later than China’s. This has meant leading US internet companies like Google and eBay have been able to learn from their mistakes in other markets and apply them to India, making it harder for local alternatives to emerge. Witness eBay’s failed efforts and JV in China, and contrast that to their strong position in India. The leading internet companies lost China, they weren’t going to let that happen in India.
While India lags other emerging markets in creating iconic internet companies, there’s no question that this could change in the coming decade given strong fundamentals. I certainly wouldn’t bet against it. The growing availability of cheap broadband and explosion in smartphone penetration driven by cheap Android devices will be key. Already a new crop of Indian internet companies are getting ready to IPO – JustDial (local search), BharatMatrimony (dating/matrimonials), and HomeShop18 (e-commerce) and rumors of others.