Tuesday, 03 January 2017 12:52

Can internet industry based in metros and diversified across sectors find a cohesive voice?


It was the biggest bout of 2016 in the digital economy: MakeMyTrip (India) versus Union of India & Ors on September 1 in Delhi High Court. The largest travel website in India had filed a writ petition against the Directorate General of Central Excise Intelligence (DGCEI).

In January 2016, the tax authority arrested a MakeMyTrip (MMT) employee after searches at its Gurgaon premises.

The alleged offence — revenue loss to the government because hotels listed on MMT had not paid service tax. Just six months before this, MMT had been warding off price competition from Ibibo Group, backed by South African conglomerate Naspers; Oyo Rooms, backed by Japan’s Softbank; venture capital-backed Yatra and older nemesis, ClearTrip

Then, suddenly, there was solidarity among travel aggregators, which the high court noted. "There is a common pattern emerging in both cases (MMT and Ibibo) and… the scope of powers of DGCEI requires to be examined." 

Every hotel aggregator was claiming it had more than 25,000 hotels listed on its website (Yatra claimed 36,000). There had been DGCEI searches at the Gurgaon offices of Ibibo and Yatra on January 13 and at ClearTrip’s in Mumbai.

Each company responded with writ petitions claiming the authority’s overreach. One secret all tax advisors know is that the government loves ecommerce to bits. 

At no expense to the government, companies battle each other to build better technology platforms, bringing the informal sector—hotels, taxis, restaurants, single screen cinema halls, shopkeepers—to the digital economy. This helps the government form a money trail that didn’t exist.

Predictably, thus, DGCEI lost the high court case. But it was able to counter MMT’s claim of agreements with more than 30,000 hotels. DGCEI said the website possessed PAN details of only 3,922 hotels, "of which 1,728 were not even registered with service tax authorities."

Though its effort to make MMT liable for listed hotels’ tax losses was wrong, as the court ruled, DGCEI had managed to trace a money trail to less than 2,000 hotels in the informal economy using just one travel website.

The DGCEI offensive was a surprise for online travel aggregators (OTA) in India, which regrouped against the government— and won.

When MMT chairman Deep Kalra spoke with ET recently, he reflected on that phase. "Had we (OTAs) had an association at that time, we could have taken an even stronger stand. When a serious issue hits you, an association can help a company because it has that credibility."

Lack of such a body or think-tank is ailing India’s consumer internet industry, which is estimated by RedSeer Consulting to have brought $45 billion worth of goods and services online last year. (More than 30 per cent of this is because of Indian Railways’ online bookings and the OTAs.)

More remarkably, in a departure from China, the local landscape has both size (331 million internet users) and diversity for customers. This means myriad types of companies and ideologies.

While Google and Facebook dominate their mainstay search and social network business, Google browser Chrome is battling Alibaba-owned UCWeb from China for the Indian smartphone user.

Can internet industry based in metros and diversified across sectors find a cohesive voice?

In etail, Amazon vs Flipkart isn’t the two-horse race it’s often billed as. Even Snapdeal, ShopClues and Paytm users shop online and Alibaba has just launched operations. Since 2010, less than $20 billion has gone into creating online category battles involving more than 3,000 startups.

Even as foreign investors such as Sequoia, Accel, Tiger Global, Alibaba and Softbank increased their India exposure like never before, the industry that was born competed aggressively to build technology and bring informal sectors online.

"Entrepreneurs are yet to come together. They have fallen short in finding that unified purpose," said a venture capital investor in Bengaluru, who requested anonymity.

There were murmurs of Flipkart cofounder Sachin Bansal starting a separate ecommerce body last year but not much has come of it. The think tank vacuum is as conspicuous as the local market is globalised.

Even as late as in 2013, the industry counted on Google’s Rajan Anandan to bring legitimacy to fashion portals from India, such as Myntra. It didn’t matter that Anandan was born in Sri Lanka, or that he is managing director of America-bred Google’s South East Asia and India operations.

For fashion and apparel companies and sellers, a Google guy’s endorsement at Myntra conferences brought credibility to a nascent sector, also because he was then chairing industry body Internet and Mobile Association of India (IAMAI).

It still isn’t rare for the affable Anandan to be a keynote speaker at developers and software-as-a-service conferences in India, as he was part of the September 2015 launch of ed-tech portal Udacity’s launch in India.

He has invested in almost 50 startups in this region, a testament to how Anandan —and, by extension, Google—is culturally entrenched in India. But fissures are beginning to show. Is Anandan a messiah or mercenary? "Google makes money out of the digital economy which Rajan champions," noted the Bengaluru VC investor quoted earlier.

His larger point was, "We need that one guy who people value and respect as an independent voice, who connects and has the concern and a sense of mission-mode to emerge as a leader for the industry."

Can internet industry based in metros and diversified across sectors find a cohesive voice?

Considering the scale, velocity and size of the industry, the time and effort required is huge. "That person has not emerged," said the investor. It has to be a full-time pursuit, as in the case of the late Dewang Mehta for Nasscom (IT industry), Tarun Das (Confederation of Indian Industry) and, more recently, Sharad Sharma at iSPIRT (software product industry). In Delhi’s lobbying circles, the internet industry is seen as a spoilt brat.

Sample a couple of perceptions — the money is drying but entrepreneurs’ capabilities haven’t gone up dramatically. Second, this is a two-sided market where buyers and sellers are getting subsidised for market share. 

"They (Ecommerce companies) should all sit in a room — if one company decides to stop such subsidies, others need to agree as an ‘association,’ that they won’t allow contrary practices because they are anti-competitive. Right now, ‘Indian vs American’ or ‘Chinese vs Indian’ is an outcome of lack of unity, which no current industry association can fix," an industry observer in Delhi explained. 

The view from Bengaluru is a study in contrast. It is put down to a divide between the cities. "It’s almost like you have to be in Delhi to be influential, which means a significant amount of entrepreneurs’ time has to be spent in the National Capital to be influential," the VC investor said.

In 2014, Nasscom carved out the Internet, Mobile and Ecommerce Council (NIMEC), chaired by veteran Sanjeev Bikhchandani, who founded online classifieds company Info Edge, best known for jobs website Naukri.com. 

NIMEC is co-chaired by Kunal Bahl, cofounder of Snapdeal. There are also nine members and two special invitees (chief executives of Yepme and Zomato). Of the nine, five are CEOs of companies headquartered in Delhi (MMT, Paytm, PolicyBazaar, Jaypore and Google India). 

In all, nine of the 13 companies in the council representation are headquartered in Delhi. The rest are Latif Nathani of eBay (Mumbai), Murugavel Janakiraman of Matrimony.com (Chennai) while Bhavish Aggarwal of Ola Cabs and Amit Agarwal of Amazon sit in Bengaluru. If the industry representation is by category, there are four online retail companies and then a spate of aggregators (classifieds, travel, food tech, payments and so on).

But NIMEC is not a true mirror of the representation or influence of Bengalurubased companies, where most of the capital has been infused. Bengaluru as a market too has a record of high volume of users and fast uptake of internet services. 

This reflects in employment generated by Bengaluru companies, notably Flipkart. Bikhchandani countered this, saying the current 11 members do not restrict the agenda.

"All discussions are with the larger set of companies that is directly affected," he said by email. For instance, there have been goods and services tax (GST) discussions with every ecommerce member of Nasscom, including Flipkart. Payment inputs have been taken from Visa, Mastercard and Flipkart, among others who are not council members. 

There have been policy discussions on connectivity with Nasscom members who are not on the council, even emerging but key internet businesses from Bengaluru like UrbanClap (local home services) and Practo (healthcare appointments). 

"This is a diverse industry," said Bikhchandani."Ecommerce spans sectors — transport, travel, retail, pharma or payments — with different needs and focus areas. Even in the same sub-sector, we have had differences (say in etail) but finally, they come together to a common set of recommendations." 

Bikhchandani cited the Department of Industrial Policy and Promotion (DIPP) Press Note 3, which spelt out guidelines for FDI in ecommerce. Similarly, Nasscom inputs went to the recent Ratan Watal Committee to review the digital payments framework. 

"The internet industry has strong internal competition. However, cohesive voices do emerge," said Bikhchandani, adding that both Nasscom and IAMAI are effective industry bodies. Another Nasscom official noted that perceptions vary across generations, with two stark extremes.

"Bikhchandani, now in his 50s, has been through a number of phases, including a job and the early days of the internet. On the other hand, you have very, very young startups–take the other extreme of a Rahul Yadav, who co-founded Housing.com right after IIT and is the bad boy of the startup world," he explained.

There are far lower levels of patience among founders of new age internet companies. IAMAI and Nasscom measure themselves by government action on their policy recommendations — with, say, Telecom Regulatory Association of India (Trai) and DIPP — not high-decibel statements to the media.

"We are business associations in the vein of CII, Ficci or Assocham," said Subho Ray, IAMAI president since 2006. "But yes, a think tank is required to focus on the impact of internet . As business associations, we may lack the correct representation when it comes to assessing technology impact." 

A think tank will call on industry players to go beyond their companies and individual interests and drive neutral policy. Lack of such a think tank is showing in how ‘additional factor of authentication,’ an RBI stipulation of payment gateway for internet companies, is applied for local companies and global competitors who have payment gateways outside India. 

"The reality in aspects like two-factor authentication, which is a massive issue in digital payments, is that companies are actually disadvantaged," MMT’s Kalra told ET, calling for a level playing field.

The software product industry has a think tank in iSPIRT, run by Sharad Sharma. The digital industry is still looking for that voice, even as public sector behemoths like State Bank of India challenge Paytm’s credentials because it is seen to be less of an Indian company owing to its Chinese investors. 

As OTAs have discovered, in a diverse and even divided field, it takes a government hand to push the internet industry toward unity.

Author: Kunal Talgeri
Source: http://economictimes.indiatimes.com/tech/internet/can-internet-industry-based-in-metros-and-diversified-across-sectors-find-a-cohesive-voice/articleshow/56302210.cms


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