'Financial bubbles have a strange way of creating infrastructure'
MUMBAI, Nov 03, 2012 (Menafn - Mint - McClatchy-Tribune Information Services via COMTEX) --Ajit Balakrishnan, founder, chairman and chief executive of Nasdaq-listed Rediff.com India Ltd, has written a book called The Wave Rider in which he says that India should embrace the information age wholeheartedly and that the government should spend more on increasing broadband penetration.
Balakrishnan believes that the government would have done better if it had invested the money it spent on the iconic Sealink in Mumbai on increasing high-speed broadband penetration in the country so that people can work from home and not have to travel such long distances in the first place.
In an interview, Balakrishnan, also chairman of the Indian Institute of Management-Calcutta (IIM-C), spoke about the influence of technology on education, privacy and policy issues that dog the growth of the Internet and broadband in India, and why rediff.com is yet to make it to the top league despite having had an Internet presence for over a decade. Edited excerpts:
What prompted you to write this book, and what do you hope to convey?
I realized over the past 10 years that we are seeing a change from the industrial era to the information age. It's important that people understand this transition, failing which we will encounter the same problems when we did not appreciate the changes that the industrial age ushered in. India and China together accounted for 55% of the manufacturing output of the world in 1800. However, 100 years later, the combined manufacturing output has become almost negligible. In the information age, which promises to make services affordable to all, we have to ensure that the transformation is carried out to its logical conclusion. That's what my book is all about.
How long did it take you to write it, and what did you enjoy most when writing it?
It took me about nine months. I worked from 3.30 am to 6.30 am since I have to be in the office from 8.45 am till 6 pm at least. I'm also on various government committees like education and IT (information technology) so this book was written on flights, and while travelling from my home in Colaba to my office in Mahim.
The research I did while writing the book has fuelled endless curiosity. For instance, I was fascinated about the 1999-2000 period when the telecom industry lost billions of dollars, mostly in the US and Europe. I wondered about the economic logic. But while doing my research, I realized that financial bubbles of this magnitude have occurred 5-6 times in the last four-five centuries. Take the case of the railway mania in Britain in the 1820s. Billions of pounds were invested, railway lines were laid, and many companies went bust but the lines remain. Similarly, in the US, many telecom companies went bust but the optic fibre remains. So these financial bubbles have a strange way of creating infrastructure.
You dreamt big but Indian Internet companies, including your Rediff.com (founded in 1996 and ranked 209 globally and 14 in India, according to Alexa Internet Inc.rankings), have not managed to scale up compared to a Google Inc. that started around the same time or a Facebook Inc. or Twitter Inc. that were set up much later?
The Internet base in India is rising very very slowly. Companies like Google and Facebook operate in different markets. While they have been success stories, there are many companies that were our contemporaries but exist no longer -- many of them from the US itself. I have listed many of them in the last chapter of my book.
India may turn out to be the biggest Internet market in the world but that is at least five years away (industry estimates peg current Internet penetration at around 125 million users). Part of the reason is the political economy of the telecom sector that is different than that in mature economies. Telecom companies in the country have been driven by the need to ramp up their subscriber numbers which increases their market capitalization. But broaband is what matters when one talks about Internet access. Broadband, to some extent, can be delivered wirelessly. But most of it has to be done by digging fibre optic cables which has a very long payback time -- 25-30 years -- unlike the cellular industry which gives you better returns in shorter periods.
Financial markets have not rewarded broadband companies. Consequently, those who have been in the Internet business -- like myself -- have had to be extremely patient (Overall revenue for the September quarter stood at 3.84 million compared to 5.1 million in the 2011 fiscal second quarter. Net loss was 2.34 million for the same period compared with 2.64 million in the year ago period.). We've all waited now for nearly 15 years for the broadband numbers to be of any consequence (broadband subscription reached 14.82 million in August 2012 from 14.68 million in July 2012, according to the Telecom Regulatory Authority of India, or Trai). So you have to preserve your cash, your enthusiasm and your team till things improve. Shareholders are hanging on. Those who don't like us sell their shares. The trick is not to get financially and emotionally exhausted by the time the take-off comes.
It's the absence of government regulations that is disconcerting. Broadband is the No.1 driver of e-commerce in any country but private telecom companies are reluctant to invest in fibre optic cables because it dilutes their market capitalization. Hence, governments step in but not so in India. Also we need more credit and debit cards for e-commerce to thrive. We have only 8 million unique credit card users. That number should have been around 200 million by now.
Till things improve, what are the innovations that you are working on?
Business models change every 3-6 months in the Internet industry. Consider this. We had launched our e-commerce site in 1998. By 2005, I thought it was going nowhere and had even mulled shutting it down. Credit card penetration was abysmal. Lack of broadband penetration added to the woes. But in 2011, 2-3 US private equity ended up spending lots of money and the e-commerce business globally started taking off. Our own e-commerce business, which was on the backburner, was revived. Since then, it has been growing at 80-100% year-on-year.
We are also working on many things including experimenting with delivering television over the Internet to homes. At the moment, it's being used to deploy advertisement insertions. We believe that in 2-3 years time, most of the content consumed on the Internet will be in the form of videos.
What's your stand on the privacy issue in cyberspace?
In all fairness, we all are trying to put our arms around the concept of privacy in the information age. The Europeans have taken the most drastic step. Having seen wars and oppressive regimes, they know that too much centralised data in the hand of governments can be dangerous.
The Americans have taken the middle ground. In India, the debate is in its early stages. Each country has to find its own balance.
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