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Concept Arbitrage: Summary Trends

Posted on Wednesday, Jun 28th 2006

I have written about specific entrepreneurial ventures, deals, markets, and trends in the Concept Arbitrage series over the last week. In this piece, I summarize the trends that I see. You can also read the relevant prior pieces in context.

(a) Produced & Consumed in India:

* Concept Arbitrage : Electronic Arts
* Concept Arbitrage : Netflix
* Concept Arbitrage : Travelocity
* Concept Arbitrage : Match.com
* Concept Arbitrage : Juniper

  • Consumer is the early adopter in India’s technology market. This includes software, gadgets, internet services, and content. “Soft-good” e-commerce is, by far, the most compelling segment.
  • Classic “hard-good” e-commerce is the notable exception to this trend, although efforts like Baazi.com (purchased by eBAY) has worked. The main hindrance is the postal system’s inadequacy, and those who venture into e-commerce that requires a physical delivery infrastructure, will need to use some overlay service of their own. This makes the barrier-to-entry significant.
  • Digital photosharing is not on this list because digital cameras have not taken off in India yet.
  • There is hardly any enterprise or SME technology market yet.
  • I have also seen a digital payment deal and a shopping deal, which I am not as convinced about from a timing point-of-view.
  • There is also an effort to do a telecom equipment play (Tejas) which is more an exception bet than a broader trend.

(b) Produced in India, Consumed Abroad:

* Concept Arbitrage : Infosys
* Concept Arbitrage : Manufacturing in China
* Concept Arbitrage : Sylvan

  • The industry has gained momentum via the IT & IT Enabled BPO Services markets.
  • Now, new opportunities for labor arbitrage are emerging in Tutoring, Animation, and other areas. Those that have not yet seen traction could be Psychological & Spiritual Counselling, Memoir Writing (attached to the numerous digital photo and family geneology offerings in the US), Virtual Companionship (for older people), etc.
  • The US Small-Medium Enterprise market is a trillion dollar eco-system that has hardly been able to leverage Indian IT / ITeS so far. This could be the next big market for India to crack, especially by leveraging its Telemarketing core competency, which is essential to build a channel to sell low ASP products and services.

In later writings, I will discuss the availability of startup funds in India in more detail from entrepreneurs’ points of view, as well as availability of fundable deals from investors’ points of view. There is a clear shortage of seed stage investors, and an excess of later-stage funds. My question is, is there also a shortage of fundable early-stage deals / entrepreneurs?

This segment is a part in the series : Concept Arbitrage

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Hi Sramana,

I came here via Atanu’s blog. Interesting stuff. But some links are not working :-) And I do not understand how ‘Indian Animation’ arbitrage opportunity is put under ‘Infosys’.

Coming to the trends, yes, there is not only a clear shortage of seed stage investors, the budding /potential entrepreneurs also lack awareness about ‘who the investors are and how to reach them’. Another problem:There is a perception that VCs are accessible to IIT/IIM graduates alone. Most of the entrepreneurs seem to be NRIs who have returned to India (and thus have some seed capital of their own to invest). Some of the Indian IT biggies like TCS, Infy etc., have literally hundreds of associates with entreprenural skills and ideas, but they are content to use the talent to sell IT services outsourcing. They could simply use the large cash chest/s and incubate good ideas. They don’t seem to have the inclination to upset the status quo.

Finally, many Web 2.0 plays have been setup recently in Bangalore, Hyderabad etc. But there seems to be a little less clarity on revenue model, and lot of emphasis on increasing user base through social networking alone. Some of these startups could do with some handholding and advice.

Cheers,
Kumar

Kumar N Wednesday, July 5, 2006 at 8:03 AM PT

Hi Kumar,

Infosys is a labor arbitrage play, aided by good process. The animation outsourcing opportunity, for the moment, is also a labor arbitrage play. If you let me know which links are not working for you, I will try to fix them. Thanks,

Sramana

Sramana Mitra Wednesday, July 5, 2006 at 10:28 AM PT

There are entreprenuers but the point is that there is no support to nurture them. Here is a list that I use to track the very very early stage.

http://numsum.com/spreadsheet/show/23163

Rajan Wednesday, July 5, 2006 at 4:10 PM PT

Hi Sramana,

  1. When I click on the ‘Persistent’ link on the Concept Arbitrage: Preface page (http://sramanamitra.com/blog/297), the Electronic Arts concept page comes up.
    2.When I click on the ‘TutorVista’link on the same page (Concept Arbitrage: Preface), no page is displayed.

I really liked the post on SiP. You have a way of explaining concepts clearly to non-technical persons like me !

So, I am just thinking aloud here: In India, Television is all pervasive. And now, even more than PCs, it is mobile phones that are spreading every where. I have read reports that in UP, Bihar etc, rural mobile users are using mobiles to download ring tones, play songs, surf for bollywood and political news and so on. This non-voice component is much higher than what service providers estimated. So, to bridge the digital divide, it is probably effective to take the mobile phone route than the PC route. And if by using SiP technologies (some what like the chip in a Samsung D600 mobile), if we can bring convergence in TV and Mobile usage, it could work wonders. I visualise a scenario where a villager can use the TV set as a monitor and the mobile phone as the CPU, and access information, e-commerce services, entertainment etc. From what I know, the technology is already available and may need some improvements (ability to connect a mobile to a PC key board and a TV at the same time) and economies of scale to make it affordable.

I am novice in this area. Will be great to know if it makes sense to you.Thank you.

Kumar N Thursday, July 6, 2006 at 9:04 AM PT

Kumar,

Thanks for pointing out the link bugs.

And yes, the “architecture” and “usage model” you are pointing to are already technically viable, and it is very likely that the industry will move in that direction. Samsung is perhaps in the best position to bring this architecture to market, because their SiP expertise is formidable, and their marketing is also very good. Last but not the least, they have a TV business as well.

I will invite some other experts, Lavi Lev and Shashank Goel, to add their thoughts. In general, you are right.

Sramana Mitra Thursday, July 6, 2006 at 1:03 PM PT

Rajan, Your list is great! I am sure it would be very useful for a lot of people. If you want flesh it out further, with the funding sources, funding amounts, stage, contacts, etc., I will be happy to do a separate post around it. Let me know. Sramana

Sramana Mitra Thursday, July 6, 2006 at 1:09 PM PT

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Sramana Mitra on Strategy » Blog Archive » Concept Arbitrage: Web 3.0 & Enterprise 3.0 Wednesday, February 28, 2007 at 8:15 AM PT

Excellent article. Enjoyed reading it. I recently moved to bangalore from the United States and have been wondering why people in India haven’t really taken to online shopping. I used to buy several items online in the US and often visiting comparison shopping sites to find the best deals. Sites like shopping.com, pricegrabber, nextag, etc. In India it looks like only Bechna.com compares products from online stores. It is really basic but functional for someone like me who still converts prices to US dollars before I buy to figure out if I am getting a good deal or not.

Despite the shipping issue in India, I think price comparison shopping sites like Bechna.com are great in India even if you don’t buy online – just to get a feel for the pricing.

Online Travel shopping is actually quite good in India. I have purchased a couple of tickets online and found some good deals. The railway sites are pathetic though. I can’t believe the amount of ad clutter on sites like southern railways. Very painful to use these sites.

Sarojini Tuesday, April 3, 2007 at 11:05 AM PT

[...] the same time, I also wrote my popular Concept Arbitrage series, which led up to the widely read Venture Capital in India article. In these, I explored what [...]

Entrepreneurship in India « Startup Dunia - Indian startups and Entrepreneurship Thursday, April 5, 2007 at 9:30 AM PT

Nice!

Georges Tuesday, May 22, 2007 at 5:08 PM PT

Articles are nice. But my question is where are the VCs who can fund startups with less or none expereince and financial background.
If a young software programmer wants to fund his project where he will go for the money?????

Sumit Kumar Friday, June 1, 2007 at 8:52 PM PT

interesting

Antonios Saturday, June 16, 2007 at 8:25 AM PT
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