Kartik Hosanagar--an associate professor of internet commerce at The Wharton School of the University of Pennsylvania and co-founder of DFJ, Bessemer and Jafco-backed Yodle Inc, an online marketing and lead generation company for SMEs—predicts that the dotcom companies will make a comeback in the US and will once again catch the fancy of venture capital investors. In an interview with VCCircle, Hosanagar, the internet business enthusiast, indicates that the dotcom bust eliminated the weak models and the scarcity of funding has led to the survival of the fittest. The new models of internet commerce in the retail space are inviting the US VC industry back. Back in India, it will be mobile commerce that will hog the spotlight, he predicts. Edited excerpts:-
What are the current trends on VC investing in the e-commerce space?
Internet commerce has somewhat matured but is no doubt heading towards the next phase of growth. This in turn will open up several opportunities for venture capital firms. Internet advertising, mobile commerce and e-retail are showing healthy signs and will likely be the main areas of activity. The dotcom bubble and subsequent bust early this decade has been responsible in many ways in shaping the industry for strong fundamentals.
What does the comeback of e-commerce in the US mean for Indian markets?
The e-commerce success stories in the US will no doubt encourage investments in that sector in India as well. But it is still early days for e-commerce in India.
What is your assessment of the growth prospect of internet commerce market in India?
In India, the broadband penetration is low relative to potential market size. Though internet adoption is steadily increasing, it is not enough to support a solid e-commerce industry. Further, the limited use of credit cards and lack of a good shipping or distribution system are major impediments.
What is interesting in India, however, is mobile commerce. It is great to see the current uptake and the continued growth of mobile commerce. Increased banking transactions, mobile advertising, personalised services on mobile devices and greater rural adoption will be catalysts of further growth. I see a lot of VCs showing interest in innovative mobile commerce ventures in India.
What is the outlook of funds that invest in the dotcom sector?
These things are always cyclical. In the mid to late 90s, VC firms got great returns from their dotcom investments, even from some questionable investments. The bust then made the sector unattractive briefly. But such downturns are often helpful in strengthening business sectors as they force more efficient allocation of resources on part of both investors and firms. Today the sector seems to have emerged yet again with strong fundamentals.
What is so attractive about the internet commerce space?
Internet companies are sought after by VCs for their lower cost structure, scalability and high growth opportunities.
What are the visible changes in the fundamentals of the e commerce sector?
There are a number of changes afoot in the sector. Some of the next generation retail companies are doing extremely well like the invitation-only companies Gilt Groupe and Ruelala. There’s also the clothing rental firm Rent-the-Runway. These firms allow consumers to better access deals and allow firms to better manage their inventory. Personalisation of internet media offerings and integration of TV and internet are the next generation space of internet commerce. Television with ethernet ports are going to drive a convergence between the TV and the Internet and will help fuel a new phase of growth. This will eventually be a factor in India as well. I even invested in a startup called NyooTv that is helping drive the convergence of TV, Internet and mobile for Indian entertainment content.
