SMS is the Platform

A good friend of mine, Rishi Bhargava, recently returned from a trip to India. He shares my interest in technology, innovation, and the emerging Indian market. We had a long chat after he returned and he had some very interesting observations, which I'm going to summarize here:

• SMS is the Platform. We already know about the importance of mobile devices to technology adoption in India, but my friend made an even more pointed observation: your product or service has to be accessible via SMS to have any chance of gaining a large user base. Even when people buy data-enabled smartphones, they often have no interest in mastering a new interface when SMS is familiar and easy-to-use. For example, jewelers are paying for SMS-based alerts for price changes in precious metals. These same people are not familiar with the internet and are unlikely to be early adopters of an internet-based marketplace for precious metals.
  

• Lack of Trust Hinders Adoption. The medium for social networking is the clearest indication of the generation gap. In India, for people in their 30's or older, social networks are largely physical. Business is done in this way and social relations are conducted in this way. It's a perfectly rational response to the lack of effective remediation and redress. If you got cheated out of some money, how would you get it back? The police are often inept and/or corrupt and the court system is notoriously slow moving. The only rational thing to do is to minimize your risk by dealing only with people in your social network. Today's teenagers are comfortable moving their social networks online, but this generally tends to reflect their physical networks. The same issue of trust, just in a different medium.

• Internet Connectivity is Cumbersome. Beyond a small number of tech-savvy users in large cities, the internet has largely not touched people's lives in a meaningful manner. Even when people sign up for email accounts, they don't check them on a regular basis (and certainly not at the frequency that has become the norm in the US). Setting up and managing a broadband connection can still be cumbersome. Customer service at providers like BSNL and VSNL are universally acknowledged to be terrible. Even providers such as Airtel are getting poor reviews in this department. This has resulted in a cottage industry of "computer service" technicians who often do nothing more than apply the latest Windows patch. Still, they are needed to provide peace of mind to the non tech-savvy. Pricing plans are still archaic in terms of pricing by bandwidth usage (as if people actually know their expected bandwidth usage!) This entire process has to become a lot more streamlined before we can expect wider adoption.
  

Take Web 2.0, add a dash of mobile and mix well

That seems to be the recipe followed by many Indian Web 2.0 start-ups. There is a good overview article in the Telegraph, a newspaper in Kolkata.

Looking at the current crop of Web 2.0 startups in India, I see the following general pattern.

1. Pick an existing product category in the US, whether social networking, local content aggregation or peer to peer file sharing.
2. Add an India "lens". The India lens can be in the form of context (pick generalized functionality and adapt to Indian context) or content (generalized functionality but locally generated content).
   

Examples of the various ways in which Indian start-ups have applied the India "lens" include:

• Local Context: Guruji.com, the Indian search engine. General-purpose search engine with an India filter built in.
  
• Local Content: Pixrat.com, the Indian Flickr and indialistings.com, an Indian classified ad site. Nothing is particular to India in the platform, but the content is local.

It seems to be that the vast majority of Indian web 2.0 start-ups are applying the content lens, with no real innovation in the context yet. However, that's precisely where the opportunity for product innovation lies - in adapting to the Indian context. I look forward to seeing more of that coming from the bright and driven entrpreneurs profiled in the Telepgraph article. What's the biggest opportunity in the Indian context? Clearly, mobile. There is already a ton of innovation in mobile, on the technology front (e.g. BubbleMotion, which allows voice SMS). Cloning Flickr, Orkut et al is not a sustainable strategy. Innovative mobile functionality added to existing Web 2.0 businesses is where the real opportunity lies for Indian consumer internet companies.

Google Checkout for Mobile?

Picking up where the last post left off, the ideal market for mobile payment systems should have three characteristics:

• Rapidly rising income levels (demand is high)
  
• Small internet footprint, and even smaller e-commerce footprint (supply is low)
  
• Large mobile penetration (potential is large)
  

Countries like India and Brazil provide great markets to test products before moving them more broadly to other markets.

The basic requirements for mobile payments systems include:

• Ease of use. No-hassle account setup and configuration.
• Wide device support. In developing economies this means not required data-enabled phones to provide the service.
  
• Built-in security. Specially important if service is provided on non-data-enabled phones.
• Flexible payment options. This includes support for different credit/debit cards, links to bank accounts and stored value (pre-paid) options.
• Localization. Gaining wide user adoption will require localization features, including language support and tie-ins to local payment processing (regional banks, microcredit organizations).
• Leverage existing infrastructure. Critical to building a large merchant base quickly is to make it as easy as possible for them to accept the new payment form factor using their existing technology investments, where possible.
  

The key shift is to use mobile payments as a "leapfrog" technology rather than a substitute technology. In other words, move the market from online last-click replacement to physical store retailing, or TV-based retailing.

There are two small entrants into the market, recently VC-funded, that I'm aware of:

• Paymate: Kleiner Perkins invested $5M. Broad device coverage (works on SMS), but only for Citibank customers.

• Ji Grahak: Helion Ventures invested $2M. Broad financial institution coverage, but requires a credit card and requires a GPRS java-enabled phone.

How far off do you think Google Checkout for Mobile is? And where do you think they will launch?

Mobile Payments: Where's the opportunity?

There's been a lot of buzz at the Consumer Electronics Show in Las Vegas this week about mobile payment systems. See here and here for product announcements. Let's take a step back and look at two different, but related, questions:

• How important is a mobile payments solution to you, the consumer?
• What are the requirements for an effective solution.

First, how important is the problem? Let's look at this question in terms of supply and demand. If you live in a part of the world that has a large base of sophisticated consumers, demand for a solution is high. If you live in a part of the world in which the payment infrastructure is already quite sophisticated, then good quality supply is also likely to be high. When demand is matched with good quality supply, then the bar for a solution will be correspondingly high (factoring in switching costs). In the US, this explains the lack of take-up with mobile payment solutions. The problem that mobile payment providers are trying to solve in the US is really not a major pain point for most consumers. The low hanging fruit is clearly where high demand is not matched with enough high-quality supply. This is precisely the definition of an developing economy that has developed a large mobile subscriber base (which happens quickly) but does not yet have an efficient payment processing infrastructure (which happens slowly).

What does this mean for entrepreneurs? In my view, it means that if you have a mobile payments solution, you need to enter the market where the need is greatest. No matter where you are located, you will need to enter emerging markets like India, Brazil, South Africa and others. Build a product that meets the needs of those consumers and learn how to build a successful mobile payments product that gains wide distribution. Once you can successfully do that, the offering will be of sufficiently high quality to surpass the switching cost hurdle in more mature markets like the US. At that point, you're ready to market your payments solution in these markets. But you have to start with the consumer who does not have alternatives today, otherwise you'll be struggling to jump over the high (and still unknown) switching cost hurdle.