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India will see birth of new billion dollar companies who leverage technology rather than make an innovation themselves.

I am sitting at Changi Airport of Sngapore as I write this piece, having just spent a couple of very interesting days at a conference titled “Leapfrogging Technologies” run by a group called TTI Vanguard which has on its advisory board a few legends including Nicholas Negraponte, Alan Kay, Len Kleinrock, Gordon Bell etc.

I had the honor of presenting the realities of India, and the various challenges and opportunities that exist here. Much time was spent at that conference debating the definition of “leapfrogging technology”. It was very clear that the audience, consisting primarily of senior technology executives of large multinationals, were technology biased, in the traditional sense.

In other words, the way Silicon Valley might think of leapfrogging in true high tech fashion (megabits/sec to gigabits/sec; order of magnitude better or faster). But towards the end of the conference after looking at examples in India, Bangladesh and Philippines, many realised that leapfrogging often has as much to do with technology application, often with a local twist, as it does with technology development. Let me explain further.

Admittedly VCs (including myself) have been harsh with the Indian entrepreneurial community for not being innovative enough, not thinking big and thinking incremental rather than monumental. Call it an epiphany or just a delayed “wake up call”, I am changing my thought process.

Leapfrogging In Indian Context

In India and many other developing economies, at this stage, it’s quite honestly less about groundbreaking technology development (except perhaps the MNC R&D hubs), and much more about leveraging existing technology to significantly impact quality of life, and making a business of it.

And of course, the scale in terms of number lives impacted is potentially earth-shattering in India and other developing nations. Take mobile telephony, for example. That definitely represents leapfrogging, since legacy infrastructure didn’t really exist to adequately serve a country of over a billion people. Obviously the mobile phone, once affordable, has led to over 400M subscribers on its way to many hundreds of millions more.

There were innovations along the way with respect to distribution, business model, and generally getting the scale the telecommunication sector has achieved in India. Similarly, dish has gained traction where no landline infrastructure exists (I love seeing them on top of slums, for example); and surely wireless broadband will eventually break through where no optical fiber or copper has been buried underground.

At the conference, I also had a good chance to interact with several Chinese entrepreneurs and investors. After speaking with them, and also looking at the recent success stories that have come out of China, the point that hit me like a Dhoni chauka (for readers in the US, use a 2x4 as a metaphor) across the face was the fact that companies like Baidu, Sohu, Alibaba, Ctrip, Focusmedia are Chinese companies that became massive while focusing (at least initially) only on the Chinese market.

They could do it better than their US counterparts partly due to language and cultural understanding, some technology and I would argue partially due to national pride. Similarly if we look at India, companies are emerging and will continue to emerge in a broad range of categories targeting the Indian market.

Local Winners, Local Advantage

Let’s take travel, for example. Cleartrip and Makemytrip, not Expedia or Travelocity are recognised names. For online jobs, it’s Naukri, not Monster. In matrimonial, it’s shaadi or bharatmatrimony, not match.com. Even in local search, the number one name is not Google, but Just Dial, which, by the way, gained momentum not from the new media (online, mobile) but from the old one (plain old telephony).

Then there are completely “Greenfield” areas where India holds tremendous potential. In consumer media, one could argue that India currently does not have its Amazon, eBay or Craigslist (at least at any decent scale). The entire area of online and mobile commerce holds tremendous promise. There is no real e-commerce or m-commerce for hard goods (travel, matrimonial, movie tickets are early successes for obvious reasons), due to lack of both remote transacting capabilities in many cases (credit card penetration); logistics and distribution (reverse and forward logistics) and sheer trust for online or remote transactions.

But Amazon didn’t become today’s Amazon on day 1. It took years, just like it will take years in India. But whether it is broadband connectivity (mobile and fixed); credit card worthiness platform (a la FICO score in the US) or a reliable logistics infrastructure, opportunities exist for startups to truly have an impact in making the remote commerce dream become reality, and by doing so, create India’s own online giants.

Opportunities

There are significant opportunities wherever one looks – in healthcare, education, energy/power, water, transportation and list goes on and on. Let me delineate a couple. The area of healthcare provides phenomenal opportunity. Indian lifestyle (fried food, lack of exercise) as well as hereditary linkages mean that India is a time bomb waiting to explode when it comes to diseases like diabetes, hypertension, and heart disease.

Opportunity exists to create an HMO like infrastructure (without hopefully the juggernaut that has been created in the US) that truly ties insurance, pharmacies, and the medical community. On the energy/power front, there are 400M people in this country without access to electricity. That problem won’t be solved by extending the grid necessarily, but rather by generating distributed power (locally produced; locally used). By the way, DFJ and Cisco recently sponsored the first ever Global Business Plan competition in June of this year.

Scores of plans were submitted by entrepreneurs from around the world including China, Russia, Israel, all across Europe, Latin America and of course, the US. The winner was not some quantum leap technical innovation, but rather a small company called Husk Power, with its base in Bihar, India. Husk Power is using crop husk as feedstock for distributed power generation in villages with several pilot plants already up and running. Again, this is an example of using existing technology, with more of an Indian wrapper, to address a potentially multi-billion dollar market that will lead to successful companies here locally.

The entrepreneurial success stories of the next decade or two will come from companies that are at least mostly, if not exclusively targeting the local Indian market, and within large and growing Greenfield spaces, only some of which are mentioned above.

Bottom Of The Pyramid

Then there is the entire bottom of the pyramid piece with massive opportunity around the same sectors as previously mentioned (telecommunications, education, healthcare, water, power) but with its own set of challenges around distribution, payments etc., but those issues will be addressed over time creating several large companies in the process.

The question that was asked of me at the conference was “will India produce a Google?” My answer was a very convincing “yes and no”. If one is asking the question from a technology innovation bias, then the answer is “no”, at least not in the near future (IMHO). But if one is asking whether new billion dollar companies will be created in India that leverage technology, then the answer is an absolute “yes”. Whether that happens in the next four-five years, I don’t know, but will it happen over the next decade, absolutely.

Leapfrogging: Developed Vs Developing Nations

Coming back to the point of leapfrogging, in developing nations, I would argue leapfrogging comes often as a result of Greenfield opportunities like mobile phones leapfrogging fixed infrastructure, or wimax leapfrogging landline infrastructure, dish leapfrogging analog TV, essentially where the inertia of legacy infrastructure doesn’t exist. Leapfrogging in developed nations usually involves quantum leap in technology itself or getting a whole lot more out of existing infrastructure since that investment has to be recouped. While developed nations think about better, faster, cheaper the developing nations are simply thinking of “anything at all”.

I think innovation or leapfrogging has its spectrum. When a country has nothing, going to something at all is considered leapfrogging, usually having nothing to do with technology improvement or invention, but rather either process innovation or pure execution utilising existing solutions. The next phase most likely is indianising the product or process.

To give an example, one of DFJ’s portfolio companies is Attero, an electronic waste recycling startup based in Noida (near Delhi in Uttar Pradesh). They have licensed some parts of the process but rather than fully automating the system, they have used inexpensive but readily available and trainable labour to create a more cost-effective recycling process.

Only once the existing technology is saturated or close to it, does there come a necessity to innovate as a grassroots technology level. The key question is whether India will feel that necessity or desire (one could argue that Israel doesn’t need to invent - outside of defense perhaps - but has an intellectual capital and sheer desire to do so). Finally, there needs to be an ecosystem for entrepreneurs (specially for technology entrepreneurs that US VCs tend to be biased towards) that is just starting in India. Fear of failure and stigma attached to it still exists. There is a lack of seed capital in the country to really get startups off the ground. Some are doing their part, no doubt, but much more needs to be done.

Bottom line: India is a goldmine of opportunity for smart teams that can truly execute on vast spaces. I predict that those same large spaces will produce several billion dollar enterprise value companies over the next decade. There may not be leapfrogging technology that comes out of India in the near future for the world to adopt, but phenomenal sustainable success stories will be created in India (initially for the Indian market) that leverage technology in interesting ways, and execute flawlessly to create our own version of Google, Cisco and Apple.