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India Replaces China as Next Big Frontier for US Tech Companies

India Replaces China as Next Big Frontier for US Tech Companies

By Vindu Goel, The New York Times | Updated: 28 September 2015 17:38 IST

US technology companies desperately want to win over people like Rakesh Padachuri and his family.

Padachuri, who runs a construction business in this city, the center of India's technology industry, uses his smartphone to reserve movie seats through BookMyShow and to order pizzas from Domino's. His wife, Vasavi, orders clothes from Myntra and Amazon.com, and downloads videos and games from YouTube and the Google Play store to entertain their 4-year-old daughter.

(Also see: PM Modi in US: Beyond the Hype of Those Big Silicon Valley Announcements)

They all stay in touch via a group chat they have set up on WhatsApp, a free messaging service owned by Facebook. "There's no need to call each other," Rakesh Padachuri said last month during an interview at his home, which is next to a Best Western hotel.

The Padachuri family's love of technology helps explain why India and its 1.25 billion residents have become the hottest growth opportunity - the new China - for US Internet companies. Blocked from China itself or frustrated by the onerous demands of its government, companies like Facebook, Google and Twitter, as well as startups and investors, see India as the next best thing.

"They are looking at India, and they are thinking, 'Five years ago, it was China, and I probably missed the boat there. Now I have a chance to actually do this," said Punit Soni, a former Google executive who was lured back to India recently to become the chief product officer of Flipkart, a Bangalore e-commerce startup similar to Amazon.

The increasing appeal of India, now the world's fastest growing major economy, was underscored in recent days.

During a meeting in Seattle on Wednesday with US technology executives, China's president, Xi Jinping, was unwavering on his government's tough Internet policies.

India's prime minister, Narendra Modi, on the other hand, was on a charm offensive during his own US tour.

After a stop in New York City, he headed to Silicon Valley, where he visited Tesla and attended a dinner with tech chieftains including Satya Nadella of Microsoft and Sundar Pichai of Google.

On Sunday, Modi participated in a town hall discussion with Mark Zuckerberg, Facebook's chief executive. He also planned to drop by Google and Stanford University, mingle with entrepreneurs and address a sold-out arena of 18,000 people in San Jose, California, before heading back to New York to meet with President Barack Obama on Monday.

"For India to keep making progress, it needs to be a leader online," Modi said during the Facebook event. He acknowledged that tech companies like Facebook were not connecting people out of pure altruism, but he told Zuckerberg, "I hope this will not just be something to enhance your company's bank balance."

The overall message to Silicon Valley from Modi, who posts regularly on Twitter and Facebook: Help India become an Internet powerhouse.

Two years ago, India's rise as a digital nation was hard to imagine. Internet penetration was modest, mobile phone networks were glacially slow, and smartphones were a blip in a sea of basic phones.

Since 2013, however, the number of smartphone users in India has ballooned and will reach 168 million this year, the research firm eMarketer predicts.

India already conducts more mobile searches on Google than any country besides the United States. Yet "we are barely scratching the surface of availability of Internet to the masses," said Amit Singhal, Google's senior vice president in charge of search, who emigrated from India to the United States 25 years ago.

Indians have long loved to connect with one another online, accounting for much of the growth of early social networks like Friendster. So it's not surprising that Facebook already has 132 million Indian users, trailing only the United States.

WhatsApp, the messaging service that Facebook bought last year for nearly $22 billion, has become the most popular app in the country, offering free texting and free phone calls in a place where many people earn just a few dollars a day. Facebook's Messenger app is No. 2, according to the analytics firm App Annie.

And that only touches on Facebook's ambitions in India. "We need to focus on the billion people who are not connected," said Kevin D'Souza, head of growth and mobile partnerships for Facebook India.

To reach them, Facebook is offering basic versions of its service that work on simple phones and slow networks. Under an umbrella initiative called Internet.org, Facebook is also working with a local cellphone operator to offer a package of free services, including news, job listings and text-only versions of Messenger and its social network aimed at those who can't afford a data plan.

India still poses many challenges. Internet.org has come under fire from regulators and activists who are concerned that Facebook is favoring its own services. And despite Modi's outreach, government agencies are trying to censor content they consider unfavorable or offensive. Last year, Facebook received 10,792 requests from the Indian government to remove information, far more than from any other country.

Making money is also difficult in India, where the amount spent on digital advertising is expected to total about $940 million this year, according to eMarketer - a fraction of the $58 billion (roughly Rs. 3,82,999 crores) that is expected to be spent in the United States.

While revenue is tiny so far, Internet companies say they are playing the long game, focusing on getting more people online now and profiting later.

Google, for example, wants 500 million Indians online by 2017. Most of these newcomers will be using phones powered by Google's Android operating system, which accounts for most of the Indian smartphone market. That will let Google expose these users to its other services, like search and YouTube, as well as plenty of ads.

The effort to get more Indians online, however, has forced tech companies to re-examine some fundamental assumptions.

Only one in six Indians knows enough English to surf the Web in the language. But there are few Web pages in Hindi or India's 21 other official languages.

Google, Facebook and Twitter have all added support for more Indian languages and are prodding developers and users to create more local-language content.

To deal with India's poor mobile data connections, which can run at a hundredth of the speed that Americans expect, Google is compressing Web pages on its servers so that they use 80 percent less data and load four times as fast.

Similarly, Indians can download YouTube videos while they have a high-speed connection, such as Wi-Fi at school or work, and save them to watch later when they are offline.

Of course, none of this matters to those who have never used the Internet. To reach them, Google has formed a partnership with Intel and a local charity to send female tutors, who travel by bicycle, to thousands of villages to teach rural women about the Internet. So far, 200 bikes equipped with solar-powered tablets and smartphones are on the road, and Google hopes to increase that number to 10,000.

The immaturity of India's Internet market allows companies like Twitter, which has just 20 million users in the country, to treat it as a laboratory.

"If you are starting from a clean slate, what should Twitter look like?" asked Valerie Wagoner, Twitter's senior director for growth, who joined the company after it acquired her India-based startup, ZipDial.

Hundreds of millions of Indians still use basic phones that cannot run apps, but they can receive text messages free. Using technology pioneered by ZipDial, Twitter allows people to view the tweets of cricket stars, politicians or brands by calling a special phone number, then immediately hanging up. The subsequent tweets are delivered as texts.

Last month, Twitter began testing a new idea in India - a tab of tweets made up entirely of news stories. The idea is to reposition Twitter as a real-time news service, instead of a collection of random items from random accounts.

"This is a market where we can do tests," said Amiya Pathak, a founder of ZipDial and a director of product management at Twitter. "Prove it out in India first, and as you prove it out, take it to other markets."

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