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This article was first published 4 years ago  » Business » India must stop being the West's digital colony

India must stop being the West's digital colony

October 17, 2019 19:57 IST
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'India missed the software products revolution (and now is in danger of missing the platform revolution), complacent that we are the software experts of the world based on IT services prowess,' points out Rajeev Srinivasan.

Photograph: Kind courtesy Free-Photos/Pixabay

'Why software is eating the world' was the provocative title of an essay in 2011 by Marc Andressen, the creator of the world's first Internet browser, Mosaic, and a successful venture capitalist.

He suggested then that software companies were 'poised to take over large swathes of the economy'.

Fast forward to today, and that has happened with the likes of Amazon, Alphabet (Google), Facebook, Microsoft, Alibaba, Tencent etc. dominating various market segments as the proverbial '800-pound gorillas' in 'winner-take-all markets'.

And there is no let-up.

Amazon has moved into groceries; Google into self-driving cars; Alibaba into finance; and Facebook wants to offer its own global currency called Libra.

The sum and substance of it, with the proliferation of Artificial Intelligence and data sciences innovations, is that there is a whole new gold rush out there.

Indeed, China has come from nowhere to now have a bunch of huge, dominant firms using software platforms and deep data as their base.

This has led to a rapid shift in the power hierarchy in technology.

In the early 2000s, hardware companies like Apple, Sun Microsystems, Hewlett-Packard, IBM and so on were the most desired employers and the most profitable firms.

Today, Apple still is (but that's because they figured out how to leverage App Store as a platform and create a walled garden), but Sun has been absorbed by software giant Oracle, and HP and IBM are no longer feared.

The big software/platform companies are ubiquitous and dominant.

There are several corollaries to this.

One is that, according to celebrity banker Mary Meeker's much awaited Internet Trends 2019, out of the world's most valuable companies by market capitalisation, the US has 23 out of 30, and China has 3 (Alibaba, Tencent and ICBC, a bank).

India has none.

Infosys, TCS, Wipro etc are small fry in comparison.

Rank       Market Cap Value ($B)  
2019 Company Sector Region 6/7/19 6/7/16 %Change
1 Microsoft Technology USA $1,007B $410B +146%
2 Amazon Technology USA 888 343 +159%
3 Apple Technology USA 875 540 +62%
4 Alphabet Technology USA 741 497 +49%
5 Berkshire Hathway Financial Services USA 505 350 +44%
6 Facebook Technology USA 495 340 +46%
7 Alibaba Technology China 402 195 +106%
8 Tencent Technology China 398 206 +93%
9 Visa Financial Services USA 372 192 +94%
10 Johnson & Johnson Healthcare USA 368 318 +16%
11 JPMorgan Financial Services USA 354 239 +48%
12 Exxon mobil Energy USA 316 371 (15%)
13 Nestle Food / Beverages Switzerland 306 230 +33%
14 Walmart Retail USA 303 221 +37%
15 ICBC Financial Services China 285 224 +27%
16 Procter & Gamble Home Goods USA 273 220 +24%
17 Mastercard Financial Services USA 271 106 +153%
18 Bank of America Financial Services USA 262 149 +76%
19 Royal Dutch Shell Energy Netherlands 259 198 +31%
20 Samsung Technology South Korea 249 166 +50%
21 Disney Media USA 248 160 +55%
22 Cisco Technology USA 239 146 +64%
23 Pfizer Pharmaceuticals USA 238 212 +12%
24 AT&T Telecom USA 237 242 (2%)
25 Verizon Telecom USA 237 207 +15%
26 Unitedhealth Healthcare USA 235 131 +79%
27 Roche Healthcare Switzerland 233 224 +4%
28 Chevron Energy USA 231 191 +21%
29 Coca-Cola Food / Beverages USA 220 196 +12%
30 Home Depot Retail USA 217 161 +35%
  Total     $11,264 $7,385  

Source: Mary Meeker, Internet Trends 2019

IMAGE: Google CEO Sundar Pichai. Photograph: Adnan Abidi/Reuters

Another insight, also from Meeker, is that innovation is thriving in many countries where e-commerce and online advertising, video, etc. are creating huge new firms practically overnight.

She talks about the following:

  • Pinduoduo (China): Group buying
  • Meituan Dianping (China): Local search and consumer service discovery
  • Rappi (South America): Digital delivery
  • Tokopedia (Indonesia): Product delivery
  • Shopee (Southeast Asia): Mobile-first social marketplace
  • Reliance Jio (India): Hybrid online-to-offline commerce platform
  • Finance
    • AliPay (China): Mobile payments plus loans, wealth management and insurance
    • Toss (South Korea): Mobile payments, credit evaluation, and loans
    • Revolut (Europe): Money transfer/banking
    • Nubank (Brazil): Purely digital bank offering
    • MercadoLibre (South America): Mobile POS network and wallets
    • Grab (Southeast Asia): Ride-share-driven digital payments

What is noticeable in this list is that they are generally offering a multi-sided platform that enables entities to transact business with each other, with the platform getting a cut as the distribution channel.

Especially in the case of the financial entities, it is clear that user data is the key resource.

In 2018, after the Cambridge Analytica brouhaha, New Scientist magazine ran an article titled 'We've only just realized the huge power and value of our data'.

Sadly, India hasn't yet.

In this context, the tussle over where India's user data should be stored takes on significance.

It is pretty clear that it must be stored in India, and it's only lobbyists for Big Tech who could argue otherwise.

We need the equivalent of Europe's GDPR (General Data Protection Rules) both to protect consumers and to prevent the vacuuming up of Indian data by foreign Big Tech.

To use a well-worn cliche, data is the new oil.

It is also notable that there is a missing entity from India: PayTM, which is in a variety of payments businesses.

Why is payTM missing?

My best guess: Because it is majority-owned by Alipay, which is in the list.

That was India's best chance of creating a home-grown champion to deal with India's burgeoning data.

And we fumbled that chance.

IMAGE: Paytm's Noida headquarters. Photograph: Sankalp Phartiyal/Reuters

It is not that India is devoid of platforms: UPI or Universal Payment Interface is a fine infrastructural play, surprisingly invented by the government.

Used along with Aadhar (although this has now been hobbled by a bizarre restriction on business use by the judiciary), UPI is an efficient payment platform.

Unfortunately, even its 20 per cent CAGR growth as referred to by Debjani Ghosh in 'When it comes to Digital Transformation, India is building a powerful edge' pales in comparison to 100+ per cent growth in the platforms Mary Meeker highlights.

It is also unfortunate that the majority of digital payment apps (most are using UPI) competing in the market are foreign: Google Pay, Amazon Pay, Samsung Pay,Truecaller/Chillr, Whatsapp Pay, Walmart/Flipkart's PhonePe, although local Razorpay, BharatPe, and, soon, Reliance Jio's comprehensive payments system are also in the fray.

It is clear that platforms have usurped the role standalone software firms once held: Observe how SAP and Oracle have faded in prominence.

India missed the software products revolution (and now is in danger of missing the platform revolution), complacent that we are the software experts of the world based on IT services prowess.

IT services has indeed enriched a number of individuals and firms, and created an image of India as having leading-edge technological education.

Nevertheless, its time is past.

IT services has also not created a legacy of innovation, unlike software products in Silicon Valley.

The number of engineers getting jobs with the traditional IT services giants has fallen, along with the firms's long-term prospects.

The rise of cloud services and the concomitant reduction in data centres that need to be (remotely) managed means the demand for outsourced IT services will continue to fall.

I am reminded of a once-thriving low-level service business: Medical transcription, decimated by speech recognition.

The key to success going forward is invention: Creating intellectual property and products based on defendable IPR, or platforms that you can defend by using your ability to execute better or your customer intimacy.

The former is hampered in India by the poor quality of government-funded R&D, and even more so by the near-total lack of R&D investment by the private sector.

The obsolete syllabuses (teaching just programming) in universities and the increasing flight of high-quality students away from engineering aggravate the problem.

Deeper mechanisms to produce sellable products, for instance through the use of Design Thinking, have not become widespread.

On the other hand, possible platform plays suffer from the fact that India has allowed others to quietly usurp all our customer data.

The contrast with China could not be more dramatic: They kept all their data, kept all the US tech giants (Facebook, Google, etc) out, and the direct consequence was the growth of their own massive firms like Alibaba and Tencent.

Is it too late for India to pull the plug on, say, Whatsapp, which people are addicted to?

I think that is a good question for policymakers.

IMAGE: Alibaba founder Jack Ma at the CeBIT trade fair in Hanover. Photograph: Fabian Bimmer/Reuters

What, in fact, can India do now?

Can we ever catch up and make up for past mistakes?

It is not clear.

However, unless something dramatic is done, India will become (or has already become) a digital colony of the West, and perhaps also of China.

As someone who spent decades in the engineering, strategy and marketing of software products, mostly in the US, I feel drastic steps need to be taken.

For instance, a certain level of protectionism is needed to nurture local firms.

India should ignore global firms complaining that local-content norms will unfairly help, say, Reliance Jio.

They all come from mercantilist nations.

The National Policy on Software Products 2019 from MeitY (ministry of electronics and IT) may be the first tentative, baby step to encourage local champions.

But it suffers from the usual policy flaws in India: The concerned ministries and bureaucracies may choose to not implement what the policy writers in good faith have suggested.

In addition, while it may be a good first step, it suffers also from a lack of vision.

The very first concern about the policy is that it starts off by mixing up IT and ITES (IT enabled services), probably because MeiTY lumps them together.

While it is true that the technology may be similar (they may both use, for instance, AI, Blockchain, or 5G/IoT), the business models are entirely different, like chalk and cheese.

Besides, IT services revenue ($168 billion) dwarfs IT product revenue ($7 billion) and there will be a tendency to support the former without due consideration to the latter.

The stated vision ('to make a India a global leader in... Software Products') and mission (to increase global market share 10x by 2025, nurture 10,000 startups in the sector, upskilling 1 million IT professionals, motivating 100,000 students and creating 10,000 specialists, and create clusters) are fair, although the market share part is a bit of a stretch, unless a full business ecosystem is created and effective.

An investment tax credit for R&D is mooted (section 1.v), which makes sense for larger companies (yes, those who have been lax in doing any R&D and have coasted).

However, there are no tax holidays mooted for product companies over and above what's already available under the Make in India umbrella for startups.

There is a brief section on business issues (section 2), such as a product registry, legal and regulatory support, a classification system, and access to capital markets, without further details.

There is also mention of a bunch of incubators, especially in tier 2 and tier 3 cities, which are supposed to provide, among other things, mentoring, seed funding, testing and marketing and branding support.

A software product development fund (SPDF) with a corpus of Rs 5,000 crore will be created (section 2.ii) and they will work through professional venture capital funds.

Industry-academia partnerships are mooted, and challenges in several areas such as education, healthcare, and agriculture are proposed (section 2.iv).

Without being harshly critical (I understand the limitations of a policy-writing panel, I was a member of the panel that wrote the Intellectual Property Policy in 2016), here are several areas in which the newly-minted policy could have been better:

Photograph: Reuters

There is nothing here about platforms.

Nobody seems to have recognised that the game is in platforms now.

People need to write stacks that others will adopt and ride atop: eg Google Playstore or Facebook's APIs.

A recent book by Michael Cusumano of MIT, David Yoffie of Harvard, and Annabelle Gawer (The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power) is a good reference.

The above lacuna is probably because the panel is not focusing enough on the business model.

The old model of buying software is under threat by the new rental model, fremium models, and the long tail phenomenon.

The emergence of XaaS (software as a service, air-miles as a service for Rolls Royce aircraft engines, call-completions as a service for Ericsson switches) has irrevocably changed the customer experience of acquiring and using software.

There are already far too many software incubators pouring money into unviable so-called startups.

I observed at close quarters a large software incubator whose actual output in terms of successful graduates was very poor.

This is because people are gaming the system.

MeitY recently did a policy on electronics hardware (reviewed in the April issue of Swarajya by me in 'The National Policy on Electronics is Ready and Here's What Will Decide its Success or Failure').

In that domain the number of incubators is small, and there needs to be more.

I ran such an electronics incubator, and found that it could add value to an entrepreneur's efforts.

The main reason Indian entrepreneurs fail is that they do not understand the market.

In my time running the electronics incubator I came across a number of people with technical skills, who had a limited understanding of customers, and of distribution channels, partnering, branding and manufacturing.

In software in particular, distribution clout is everything, and nobody is going to win without understanding that.

Section 4 talks about market access and trade promotion, but it is too vague and seems to be a macro perspective, whereas a micro (startup-level) view is needed.

Industry-academia-startup collaboration is beneficial for all parties.

I once wrote a report for the Kerala Higher Education Council on industry-academia interfaces.

I found that basically neither party cared about the other, because of poor incentives.

The other side of this is the value of bringing together mid-to-large companies and startups: Both will benefit because they have complementary strengths.

The policy seems to address this sort of collaboration only in a sketchy matching-grant program (section 2 iii)

There is a general nod to up-skilling in section 3.

But it seems to be colored by quantity metrics ('skilling/re-skilling of 3 million professionals in emerging technologies'), not quality and foundational skills.

This seems to be a hangover from IT services, which is all about throwing more manpower at problems.

Curriculum upgrading, a crying need, is mentioned in passing.

National certification tests are a good idea.

The needs for localisation (80% of India's population is likely to use digital services in local languages) is touched upon in passing (section 4 iv).

But an important point about computer science education in local languages is missing in the section on human resource development.

Taking a cue from China, where computer science is almost entirely a Mandarin Chinese project, it should be impressed upon Indian educators that there is good reason for students to think in local terms, and efforts can be made to increase the availability of books, MOOCs, certification and other support for Indian languages (an example of a successful Indian platform in the MOOCs space is Byju's).

Parenthetically, this can act as a barrier to entry for foreigners as well.

The issue with platforms is increasingly urgent.

We have seen how tech companies have become monopolists by building internet platforms: Amazon, Apple, Alphabet, Facebook.

Now there's an increasingly urgent platform gold rush: That for IoT.

This is why Amazon, Google et al are trying so hard to get their voice assistants (Alexa, Assistant, Siri) and smart speakers (Echo, Google Home) into as many consumer hands as possible: Because they can become the hubs for home automation, then interface to cars, and finally into industry.

Whoever wins the IoT platform battle is assured of a 10-year run.

Alas, India appears blithely unaware of this war.

Overall, the policy seems modelled on the policy on electronics from MeiTY, although their problems are a little different.

The main concern about this policy document is that seems to be fighting the last war, as generals famously do.

It's attempting to move the focus from ITeS to software products, but the world has moved on, and the war is now in platforms.

In that sense, the policy is backward-looking and not as visionary as I would have liked it to be.

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