Product Innovation in India

I was recently asked to comment product innovation in India – i.e. the often-raised questions around why we haven’t seen extensive product-based innovation from Indian companies, what the challenges have been, and how that can change etc. I have given thought to this issue a few times in the past, and I’ve copy pasted some of my thoughts below.

Product innovation is a step in the life-cycle of an industry’s evolution that comes after significant maturity. Product innovation requires a complex interlinked talent pool (engineers, researchers, designers, managers, executives, lawyers etc), sufficient amount of risk capital, and proximity to the customer. None of these had achieved critical mass in India till a few years back, but this should happen soon (possibly with the exception of the ‘researchers’ category).

Moreover, the need for path-breaking innovation wasn’t very apparent in the past. Most consumer needs were best satisfied by taking concepts already invented elsewhere, and customizing those to the Indian landscape. This still continues to be the case – after all, what is the point of reinventing the wheel? The best returns to customers, investors and entrepreneurs still continue to be from these so-called incremental products. However, the zeal within a lot of Indian entrepreneurs, engineers and even investors for helping build some truly innovative products is tremendous.

However, there clearly are several encouraging success stories now in the product domain in India (especially wireless equipment and mobile apps), but I think there is still some ways to go for Indian products in the areas of:

  • User interface: The UI of a large chunk Indian products and websites has a lot of catching up to do. There are obviously some notable exceptions though, and the situation will change as UI design talent availability in India improves. The core of the IT ecosystem in India has been composed of teams working on outsourced or off-shored work, and in the past, the UI design work was typically not done in India, which propagated the dearth of UI design talent in India.
  • Product management and customer focus: Most products and services built in India in the past were targeted at a Western/foreign customer. Innovation is an exercises that is intricately intertwined with customer input and feedback, and becomes an order of magnitude harder if the innovator is removed from the customer. 
  • Focus on quality
  • Research-based Innovation

We are now seeing some decent products coming out of Indian startups. Also, large tech companies such as Google, Cisco, Microsoft, Adobe etc are now developing a few of their products almost entirely in India. This will create a viruous cycle that iteratively reduces the intensity of the aforementioned challenges. 

I think that the first wave of products is/will be around areas where there are direct customer touch points in India, so this would include areas such as:

  • Information and advertising services tailored to more restricted interfaces such as SMS, VoiceSMS etc
  • Payment and micro transaction mechanisms
  • Products around new media formats such as interactive TV, digital signage and animation
  • Gaming (both mobile and otherwise)
  • Wireless equipment
  • Productization of services such as security testing, banking software, specialized accounting etc

I believe (and hope) that we would start to see extraordinary companies of the magnitude of Apple, Google, Microsoft and Facebook being created in India within the next 5-7 years.

Vacuum Spaces

Given the knowledge of today’s key structural trends, how do you determine what the right market timing for implementing your cool idea is? If you know the answer to this question, I’d like to meet you.

Google, Apple, Facebook, MySpace, Skype, Youtube… These are of course some fabled companies that are known, especially in the popular media, to be the most innovative entities of our times. But what was it early on in the life of today’s category dominators that put that put them on their incredible growth trajectories? Was it that they invented a new path breaking product that didn’t exist before? Or was it that they identified and created a brand new market?

The answer to both questions is No! In fact each of these companies’ success was (and still is) about finding the perfect timing, and then following it up with flawless execution. Here’s a quick look:

  • Altavista, a leading claimant to the title of The First Search Engine, has been around 1994 (“The Search” makes for an interesting read). Google burst on the scene in 1997 with a technically and visually superior product. Moreover, the concept behind Google’s now legendary AdWords and AdSense systems (originating around 2000) finds their roots in Goto.com (later Overture, now a part of Yahoo), which was operated an ad marketplace with a similar concept way back in 1997.
  • Mp3 players and portable music players have been around for years and years. Apple surfaced with the iPod in 2001, and by 2003, it owned the entire category.
  • Friendster, in 2002, was the first on the online social networking block (in its current form), but how many of us have Friendster accounts now? facebook and MySpace of course own that category today.
  • I started using Yahoo Messenger’s Voicechat functionality sometime around 1999. Skype came to the scene with similar functionality in 2003 and owned the entire category within a year.

Each of these snippets is about a product that came to a space that had existed for a few years, but was stagnating or linearly growing. The new product then bowled over the consumer with a technically superior product. But perhaps most importantly, all of these products entered the scene at a time when consumer attitudes in these spaces were at their inflection points. I call these spaces Vacuum Spaces – spaces waiting for a fresh new wind of change and innovation to come rushing in, and fill them up.

The good news, then, is that in order to build a behemoth category dominator from scratch, you don’t need to identify and create an entirely new market. You have a shot at identifying spaces that are ripe for disruption, and then enter them with full force and slick execution. One of the hard parts, of course, is identifying what these spaces are at any given point (the other one is carrying out the slick execution). Knowing that some of the spectacular successes of tomorrow will be in spaces that already have a few players in them today, how do you identify and bet upon them?

Macro trends that underlie massive successes

Some of the biggest successes in today’s Internet and information economy were created by powerful underlying macro trends that allowed the disruption of status quo.

Exploding amounts of online information in the mid-nineties gave rise to the likes of Yahoo and Google, which provided a way to organize the clutter and mechanisms to search through it. An inflection point in broadband penetration, coupled with the rapid advance in compression and streaming technologies enabled the spectacular rise of YouTube and now its plentiful successors. Prevalence of broadband, coupled with falling call termination prices and improving UI technology were the force that helped Skype bubble up to the top. Each of the 20 biggest successes of the last 10 years can be mapped to underlying structural shift(s), that someone rapidly capitalized upon.

Obviously all this looks so clear in hindsight. How can we use this information to predict the major opportunities over the next few years? A look at some key trends that are currently near or at their inflection point can provide a clue. Here are some ongoing large-scale structural changes in the media/mobile/internet sectors that will likely give rise to the behemoths of tomorrow:

  • Advertising Shift: The massive shift that is currently underway in the $250 Billion advertising industry (that’s in the US alone) from traditional modes to online and interactive advertising is perhaps one of the most significant structural changes currently going on, and opens tremendous opportunities for innovation that can and should be capitalized upon. The fact that this trend perhaps has the most direct relation to monetization makes it even more interesting
  • Digital Media: The rapid adoption of digital media is currently transforming an entire industry. Opportunities will continue to get created around creating, managing, monetizing, hosting, searching, improvising, merging and providing access to digital media.
  • Wireless Data and Multimedia Penetration: The ubiquity of the cell phone, and the ongoing rapid uptake of data plans and multimedia devices is finally providing an additional platform that could be comparable to the Internet in the magnitude of opportunity it provides.
  • Universalization of Gaming: Gaming, which was hitherto a pass-time of a miniscule, committed set of people (youngsters and geeks), is undergoing rapid expansion of scope, providing another brand new platform and ecosystem for building opon.
  • Everyone is Social Networked: Social networking is no longer a new trend, but the ubiquity and wide adoption of social networks is. Emergence of facebook as a platform is only the tip of a much larger structural shift. The disruption that social networking platforms could fuel will be of a magnitude comparable to the change that the emergence of internet brought to the brick-and-mortar economy.
  • Prevalence of Digital Signage: The cheap availability and quickly arising ubiquity of LCD screens and digital signage used for advertising, retail displays and dynamic information screens provides yet another platform that is already starting to engender significant innovation and its subsequent monetization.

This list could go on and on…we live in exciting times!

Initiatives that leverage some combination of these trends will be aided by significant tail winds over the next few years. Over the next few posts, I’ll start to delve deeper into each of these trends and their implications, and use these as a framework to help identify specific opportunities.

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