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'I think we will now soon see more money going to young innovators'

Do you think culture-specific problems like the Indian middle-class mindset, which only believes in using yesterday's money instead of tomorrow's, will impede the growth of e-com and e-trade in India?

The problems are numerous, partially cultural, partially the existence of a limited middle-class and so many other factors. There are no such things as even large retail chains in India. The real cultural problem here is what is the promise of e-com to the consumer?

It is convenience, the saving of time. In India, there will be a certain type of middle-class customer for whom the saving of time is important. But even there, the odds are that he has got somebody else who can do that job for him. But in the West, time is so critical that the person will be willing to pay a premium to have someone deliver something to his door or have it done electronically rather than physically go out and do the transaction himself.

In the West, people have a certain confidence, saying they know they are going to be okay. Certainly, there is a greater tendency of saying, 'Let's go ahead and spend.' They are basically consumer-oriented societies, where the whole economy is driven by consumer spending.

In India today, people have a greater need for safety nets, for something to fall back upon. People have not yet reached the stage of saying, 'We have gone beyond getting the essentials plus something extra.'

You will see all this changing dramatically soon. You will soon see the stratification of society. Just visualise all these dollar millionaires being created in Bangalore. And it's not just half a dozen of them, there must be hundreds in Bangalore alone, and some more hundreds in Hyderabad, Pune and other software centres. These people will have the same psychology as everybody in the West, in terms of the confidence to say, 'We've earned, now let's go spend.'

Could you hazard a guess about the evolution of e-com in the near future? Globally, and in India? How will it evolve, which media will flourish: the ATM, the credit card, the debit card or more exotic stuff like the Java ring?

We are, I notice, focussing continuously on the consumer segment. One important thing we must say is that the business segment is going to be the largest for a long time more. It is this segment that will say, 'Hey, can we use Internet and e-com as a marketing tool to expand our business?' So you might really notice three angles here: efficiency, enlargement of markets and completely new business model.

I believe we will move in this sequence. In the first stage, it will be efficiency and customer satisfaction. The second stage will be how do we go out and enlarge our business or reach global markets through the Internet. The third one will be how do we completely dot com a business.

Some of these stages may happen parallely, but these will be the three waves. And on the consumer side, it will be the dot coms, but in a very niche way. Because we don't really have mass consumer markets in India, they will be in very specialised segments. This situation, I feel, will lend itself readily to multiple technologies, like Sun platforms, Oracle platforms, IBM platforms.

What about gadgets like the Java ring?

I'm afraid you've really caught me out on that one. You need someone who ranges from deep technologist to economist to answer all your questions! I'm really looking at this at a much broader level right now. I must confess I know nothing about what a Java ring is.

A Java ring is software that has a certain amount of e-cash loaded onto it, that you can actually use when you shop or spend.

I thought you were talking about technology like a genie or something! I think there are several issues here. No constraints apply in the business-to-business segment, the reason for this being the need for every country including India to integrate with the world market in this area. It's only in the consumer segment that you might say, 'Hey, nobody can just go make a purchase somewhere and settle it with a credit card.' That can be done today, but with certain value limitations.

The other issue being tackled worldwide is that e-cash has taken away the sovereign right that only the nation had of printing money. Now, this has a huge bearing in terms of what is the money supply in a country. How do you control monetary policy if somebody or the other is merrily issuing cash and that person is not a government authority, but is increasing the availability of cash in the system.

What do you think are the chances of e-cash replacing regular currency over the years? And how will governments figure into this situation?

This situation introduces all sorts of challenges. Until now, monetary policy and how much money is in supply was in the sole purview of the Reserve Bank of India and the ministry of finance. Suddenly, you have a whole chunk of money in the system. All these dimensions make this issue a huge macro-economic issue.

On a practical basis, technology will make all this possible. On a cultural basis, people may be willing to say, 'Let me go out and do my shopping through this kind of channel.' In cultures like India's, pre-paid cards may do better than a card through which you can do a transaction on Internet, as interconnectivity will certainly be less.

If the Java ring were to be a form of pre-paid, it may do well here. But the more important point here is what the government rules and regulations are going to be -- in terms of how much freedom is going to be given for the creation of e-cash.

This is an issue that is occupying the minds of governments across the world. Its not that India is in an isolated situation. Many legal minds the world over are working on these issues.

Technology is moving faster than policies and the legal world can cope with. Also, frankly, these are all transnational issues today, as a transaction gets created in one country, executed in a second country and the buyer could be in a third country altogether. Who then has the right to impose taxes? What are the issues if someone has violated a given law? Whose jurisdiction applies?

These issues are attracting worldwide attention and a whole body of cyber laws will get created through cases and then the legal situation will become clearer. Or, maybe international bodies like WIPO will end up coming into the picture and suggesting global solutions. And then the answers will never come quickly, because in a global situation of this sort, you will have to carry at least a certain number of member states or organisations.

It's a rapidly and developing stage today, where the technology is galloping ahead, but people are saying, 'How do we modify the social, tax and legal systems?'

What are the chances of exotic things like the Microsoft Wallet or the Navio operating system or the Windows CE kind of software for gadgets gaining popularity and starting to handle e-com? Think of the possibilities opened up by your having your wallet on your pager or your cell phone, for example. After all, some smart companies are already working on these...

I think the major developments are going to be in the world of wireless. In think the single largest driver for e-com in the consumer environment, and possibly also in the business segment, will be wireless.

This is why you see a frenetic amount of activity today in the area of wireless technology, and devices coming in all the time. The PC, which is the main device today, will no longer be the predominant one. There will be new contenders once the field is thrown wide open and the leader is replaced by a new technology. It's difficult to predict what will happen.

Clearly, I think you should begin to visualise a world in which the PC will not be the dominant and exclusive -- or even the majority -- appliance for e-com transactions. The largest will probably end up being new Internet appliances, maybe things like pre-paid wallets and other forms of wireless devices. Maybe the cell phone will become a very critical appliance.

Do you think all this will happen quickly in India too?

Certainly. India is going to reflect world markets. You might see a different size and scale. But why do you think there is so much interest today in this country? So many Internet service providers are coming out, people are beginning to get pretty large valuations for companies of that type. It's simply because this market is also going to replicate other global markets.

What percentage of all transactions in India is electronic now (in terms of value transacted)? A calculated guess would do. How does this figure compare to others in the world (the US, Canada, Asian neighbours like China, Hong Kong, Singapore and Malaysia, for instance?)

The percentage is very small. I don't think it will be more than 15 to 20 per cent by the year 2000.

Do you think Indians will really learn to trust e-com soon? You know that trust can either make or break any form of currency. Will industry have to wait and sweat for it, or will it develop in time, as happened with ATMs and credit cards?

There are various forms again. In the business-to-business, we are not talking about any of those issues here, because we have those three segments we discussed. In the business-to-consumer, my personal belief is that what will hold it back is not trust or anxiety but that the promises of e-com, of any time, anywhere, or convenience and the value of time, are less relevant to the Indian consumer than they are to the Western consumer.

The ego issues that it may help to achieve are equally applicable, and your upmarket buyer will say, 'Alright, I will do my shopping in this format because I have suddenly found the right time to buy a gift for my wife.'

So I don't see trust as being a retarding factor. There are security concerns across the world. It's not as if the West is not worried about them. In India, we are saying that this segment is going to take time to pick up, and by then, technology will have advanced so tremendously that the next wave we are going to see is what we will call as bio-informatic.

A lot of the security will come not through the conventional encryption that people are now saying should be made more available in the world.

I do believe that this technology will become more available, but I think it will itself be replaced by bio-related security identification. This will make such a dramatic improvement in identification and lack of possibilities of avoiding misuse, that the trust issue will probably become a non-issue by the time this market becomes a large market in India.

Will the increased volumes of goods sold because of e-com compensate for the reduced profit margins it usually brings in? Or will consumers initially end up paying a premium for the speed of e-com? What are the business models that you see emerging?

You've really raised a very interesting issue here. You are wondering whether people will really make money on this thing at all, and will the arithmetic work out?

There are two different issues here. There will be start-up costs, which will be high because communication costs are high, and the volumes may still be low. There has to be an initial period where you may say that the new form has to be subsidised by, let's say, somebody who has a cash stream, like, for example, a bank that will say, 'We know that this business is going to be profitable, so we don't mind a loss in the early years.

You should not charge the customer more for this. That would be a fatal mistake. But there is a much larger issue involved here. I feel there is a battle taking place for the minds of the consumer as well as for markets for futures, which is why a lot of the dot com businesses today are measured not by profitability but by market capitalisation.

Their market capitalisation is so high that they become the envy of people who spend decades building up their market and in a few weeks, without any turnover, the company gets very high market capitalisation.

What is the logic and reasoning of this? Is it that somebody has become irrational? Clearly, markets are not being irrational. There has to be some reasoning, and the reasoning is that there is a battle taking place for the mind of the consumer of the future. E-com is giving an access into consumer buying habits, and what you're saying is, 'Once I've understood this, I can use that as a database for human needs for maybe a variety of products for several years.' The cost of getting the consumer is being paid for now. You get a stream of perpetual revenue, or a stream of years and years of revenue in a variety of ways.

Rediff is in the best position to do this today. I am sure there will be a whole lot of others coming in. Businesses will be able to use their initial databases to do a larger and more effective job of addressing the consumer's needs, buying habits, creditability, perhaps proactive in terms of going and telling the consumer, 'Look, I know you like this, and this is what I've got.' That is the real battle that is being fought.

E-cash has the advantage that it can be paid in very small fractions like, say, half a paisa. People are looking at online service businesses where very large volumes and small payments will work well together. Will this really happen in India?

E-cash is basically a currency that is in itself class-conscious, and it therefore makes a distinction between the haves and the have-nots. Then you wonder whether because it is so flexible in amounts, will it become the driver for growth?

There is no question about it as far as the second part is concerned. I think in the end everything that is really going to grow has got to come through very large, mass volume transactions, which can get settled online. They do not necessarily need to be settled through very small fractional transactions. But e-cash could become a major lubricator or one more driver for this growth, and maybe a significant one at that.

All these monetary issues and economic issues that I talked about, that are neither technology issues nor culture-specific ones, that's for governments to see how they want to tackle.

E-cash, by virtue of its mechanism, digital gadgetry and silicon chips, is distinctly elitist, unlike the normal rupee, which is universally the same. What are the implications of this feature of e-cash in a poor country like ours?

Yes, as you say, e-cash class-conscious. But well, let's look at how many people own or afford telephones, or credit cards? Almost any technology that is not a basic survival item will always be only with the haves, and not the have-nots.

Secondly, assuming that there is a gap, Indian creativity has improved. The same approach as all these STD booths, which are now gradually getting enhanced into cyber cafes, can be adopted for e-cash too. I have had foreign visitors who have said, they have never found a country where it's easier and cheaper to send and receive e-mail from public places. We already have this unique mechanism. We can use the same approach in other areas too.

Do you think e-cash will have all the features of good money, like anonymity, verifiability, liquidity, security and mechanisms for issuing values in relation to the bullion system?

I must confess that this is a very large economic issue that someone in the Finance Ministry might have a better understanding of! I cannot say I have applied my mind to it.

What are the chances that over the decades, e-cash may replace regular currency? Will governments ever issue e-cash instead of minting and printing?

The way the world is changing, I don't think one should be too surprised by anything that happens. I think governments everywhere are going to say, 'Let's do the most efficient thing. We are already using electronic transactions for revenue collection, land documentation and so on. It could be extended to cash too, and thereby take care of the issue of haves and have-nots very simply through the fact that the government makes it universally available.'

What kind of growth model will e-com companies in India have? Will they follow traditionally revenue-driven business models or follow the funds-driven hyper-growth model of Net companies like Yahoo! and Netscape?

When we say e-com companies, we are really talking of dot com companies, not of companies converting their businesses to make them more efficient. Basically, I think both of those patterns will keep on growing parallely.

As far as the dot com companies are concerned, there will be, like in the West, people will be driven purely by the fact that they must grow rapidly. So growth, and not possibility, will really be the prime consideration, and of course, after that, probability will have to get into place.

Forex regulations like the partial convertibility of the rupee do not allow an ordinary Indian to buy in dollars over the Internet. In such a situation, we may have an amazing paradox on the Internet:

While most Indian services on the Web may target the NRI, commercial transactions would be limited to citizens within the country. The other scenario is that the rupee is made fully convertible and a parallel dollar economy pervades the country over digital networks and satellite communications. Which is lesser of the two evil -- partially convertible rupee with geography limited e-commerce or fully convertible rupee with a parallel dollar economy?

I must be clear that I am not sure this is a black and white issue. There are some things that you can buy through the Web, and be able to remit the money. But again, I am not an expert on this, so I think we may need to check up on this. Supposing someone wants to buy a book, and as per RBI rules, remittances for that type of expense is free, and whether this is the same whether you remit over the net or through a bank, I am not so sure. They would probably say that you might still need to route this through your bank, and take several permissions.

Now, let's assume that the picture you paint is correct. You end up with two issues, and wonder which of the two evils is lesser ; geographically bounded e-com or a fully convertible rupee with a parallel dollar economy?

The first thing I must say is that a parallel economy of any kind is, in my view, a very negative thing. We cannot afford to have that. On the other hand, when you say that, by definition, e-com has a global market, clearly somebody who can only address the domestic market, or the NRI element of the market, is at a disadvantage with respect to the people who can go and address global markets.

To that extent, people will probably end up finding solutions like relocating to Singapore, where they can conduct their businesses unhampered. We have seen this in the past, of people going out and doing transactions. At some point, people will see the functionality of this, and say, 'Let's enable the transactions in India itself.'

So I believe we should not tolerate this kind of parallel economy. I think our own government will have to start visualising and saying, 'How do we then make a level playing field for our own players within our country? And what are the mechanisms we have to institute to get that?'

This will happen when governments see the constraints of this kind that Indian businesses are really working under, which are creating the paradox of geographically bounded e-commerce.

Is it easy for start-up companies in India to find venture capital when the entrepreneurs are low-profile or have not yet proven their talents?

Things are changing dramatically. I think the bulk of the money that is going to come will be to the young with ideas. You will have money available in plenty -- venture capital funds -- but ideas and good people will be in short supply. And increasingly, businesses will be willing to say they will place their bets on someone who has an idea.

You might have people making money now -- like maybe older businessmen who have already made their money, or people who have created venture-based companies and been successful in them -- will take on the role of angel investors. I think, with these two forms of venture capital coming in, you are going to see a sea change. You are going to see a proposal a day just in Bangalore.

But you know very well that right now, there is a severe dearth of angel investors in India.

We do have several, like Shaurav Shrivastav, Pradeep Gupta, Praveen Gandhi. They have formed a group where they collectively take the role of angel investors. We have Mike Shah who used to earlier be the head of DEC. He has also done 3-4 projects in an angel investment type of role. So that breed is picking up...

Don't you think that the purpose of venture capital is defeated when entrepreneurs who already have a standing in the industry are the first to get it?

I remember that Somshankar Das, general partner of Walden International Investment Group, which has also funded Mindtree, said that as soon as he got a call from you saying you wanted to start a new company, he agreed at once... It's hardly likely that a graduate just out of college would have got such a response!

Draper did a pioneering job of also approaching new people when they first came around, but much of the money they gave was to offer firms like Wipro and Microland additional funds. To my mind, that was not a venture-based funding as it was not creating a new entity. I think the purpose of venture capital is to create new businesses. Having stated that, who starts the new business, whether it is a man with five years of experience or one with less, is immaterial.

When leading NRI venture capitalist Kanwal Rekhi was here, he actually stated that the best bet for venture funding was the failed entrepreneur. His hunger for success was going to be that much higher. I think we will now soon see more money going to young innovators. If you see the Arzoo story, it's just that -- people still in college, being identified by Sabeer Bhatia, and working exactly at that level.

What is behind the trend of industry executives opting to leave the security of their high-profile jobs and starting out on their own? Why is this more pronounced in the information technology business?

The IT industry lends itself to entrepreneurial activity. There is new opportunity being generated every day, therefore it's a good thing for start-ups. I think you will see more of this soon. A certain amount of wealth gives people options, and they tend to say, 'Hey, now that I've achieved so much, why don't I look at something else.' They are also prepared to take risks.

This never happened in India until now. That's why you see so many entrepreneurs at an older age, because they had no need for a safety net any longer; they have created their own. Today, as younger people get richer, they are going to say, 'Let me step out and start something on my own,' a lot sooner than before.

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