By Sramana Mitra and guest author Shaloo Shalini
SM: I would like to pursue the pricing aspect. Let’s say you are using SurveyMonkey in your organization and want all of your client service representatives to use SurveyMonkey and have access to or accounts in SurveyMonkey to be able to view their sets of customers and their feedback, as well as analytics and so forth. In that case, is there an opportunity for an Indian company to come to this market and provide the same function as SurveyMonkey but offer it at, say, one-tenth of the cost in terms of the per-user price? Also, let’s say that the offering is on top of Amazon, so the infrastructure cost remains affordable. But in terms of per-user cost, if someone comes to you with a comparable offering and makes it more attractive than the dollar pricing, would you consider it?
SB: Absolutely, of course! I would say this is where Indian companies have the real advantage. Server prices are all in dollars because they are all manufactured outside of India, in the United States or elsewhere. For a company earning in rupees, buying hardware is extremely expensive. This factor is especially discouraging for India and something that is stopping India from having a real Silicon Valley because start-ups require very low costs in terms of people, offices, and infrastructure. But in India, the cost of setting up a technology-based startup is still significantly high. You need to factor in technology costs and things like routers and basic infrastructure. We spend about $4,000 in terminal equipment and customer premise equipment to set up an average branch in India. Now, $4,000 doesn’t seem like a big deal in the United States. But in India, if you put things in perspective, the branch itself earns about $4,000 a month. So it is a lot of money.
SM: I see; so the earnings get eaten up completely in the infrastructure cost.
SB: Yes. Four thousand dollars is one month’s turnover for a branch office in India. Therefore, buying hardware is still quite a big thing for businesses in India. If you think of Charles Schwab, for example, they earn an average of $27 per customer. We at IndiaInfoline earn roughly 350 rupees (~$7.77) per customer. That is considerably lower. Here in India, customers pay us in rupees.
SM: Are companies beginning to address this aspect of the Indian market? Are there companies that are building routers and servers in India and offering them to you at a price point that is substantially different from the usual vendors?
SB: Well, the hardware won’t get any cheaper; hardware is already as cheap as it can be. But in an Indian context it is still very expensive to set up a new business and buy hardware for infrastructure.
It is very unlikely, except in special cases, that we in India will be able to make a router or server cheaper than what it costs today. I mean significantly cheaper, an order of 10 times cheaper than in the United States. Such an order of difference does exist in areas such as medical equipment, where there is a large margin or luxury fee attached or a large gold-plating fee attached. But for barebones computers or servers, it is a hugely competitive market anyway. It is already stripped down to its absolute minimum. But we surely can make a car cheaper in India.
SM: Hopefully not too much more!
SB: Well, the manner in which the Nano is trying to do that . . .
SM: I hope not. That will be disaster for India. You may have a different point of view, but that will be disaster for India in terms of safety measures and other issues.
SB: No, that is not true. With the number of Nanos people are driving today, it wouldn’t make it a disaster. There were a few cases, but that seems to be taken care of now.
SB: Well, to put things in perspective, the Nano is not selling any better than any other car in India. It is not that the Nano is selling in millions. There are more iPads sold in India than Tata Nano cars.
SM: What else is worth discussing that is unique to your scenario, the Indian market, and what are other interesting opportunities for entrepreneurs? We have already ruled out the possibility of hardware being cheap. How about an Amazon-like service? The Amazon Cloud service is offered in India today. Would there be any possibility of an Indian company providing a comparable service cheaper than Amazon, or is Amazon already at the absolute rock bottom in terms of price?
SB: Well, there is certainly a possibility of such an offering based out of India being cheaper. In fact, both Netmagic and Tata’s cloud-based infrastructure offerings are slightly cheaper than the current Amazon-based cloud IaaS offering. There are a lot of regulatory and compliance issues for a company like ours in putting our servers on Amazon’s infrastructure. In addition, there is a latency issue to deal with. Besides these, there are other advantages in having local cloud access. Netmagic is a startup and not a very old company. It is still venture funded, but it is on its way to IPO.
SM: Are they going on a path similar to Amazon’s for offering a public cloud based in India?
SB: In India, there are two advantages that somebody who is competing against Amazon could have. With Amazon, you need a dollar-based credit card to pay, which many Indian firms will not have. Some will have it, and the people who have come back from the United States will often have one. But not everybody will. The second thing is that it is a bit cheaper to have an India-based cloud infrastructure. Also, Indians are still not into buying things entirely off the Internet; they still want to meet somebody and be sure that their data is safe. They need to ensure that somebody will service their requests if something goes wrong. That kind of customer handholding and customer service level is not something that Amazon offers, not even in the United States.