At the end of a riveting speech at the IAMAI Digital Marketing Conference yesterday, when asked by Google India MD Shailesh Rao about the 2-3 things he would like the IAMAI to focus on, Rediff CEO Ajit Balakrishnan suggested the following:

1. A change in the revenue share for the Mobile VAS industry
2. Improvement in the broadband penetration, and
3. Solving the language problem for the Internet

Balakrishnan’s emphasis on VAS and revenue share is quite interesting, but you don’t have to look too far beyond Rediff’s new-found mobile focus to know where he is coming from.

On 3G Licensing, VAS

“There’s absolutely no question that 5 years from now, the main acess of the internet will be mobile.” Towards the end of his talk, Balakrishnan stressed upon the need to engage with the government over 3G licensing. “We have to ensure that some part of it be used for data. I worry that most will be used for voice. If that happens, all the dreams that we have of a mobile based internet will not happen. The revenue share offered must also be reasonable, else it wont make sense. If the current mobile operators build (portals) by themsleves, it won’t go anywhere. They’re best at playing pipes.”

On Government Support For Innovation, Bridging The Language Barrier

“At around 50 million users you’ll come across the language barriers. What do we need to do? We need some policy initiatives, we need linguisting tools, voice to text needs to be funded by someone. These things take money. A grant of 4-5 crores (from the government).The present view is – let Google do it, Yahoo do it, Rediff do it, but it’s the wrong approach. Tech and tools need to be freely available. If one or two people do it, it doesnt become an industry. The Ministry of IT has an Annual Budget of Rs. 1000 crores.”

Importance of E-Commerce

“Unless you have a healthy ecommerce industry, the whole cash cycle does not start. At this time, Rediff shopping looks like the last man standing. The fundamental problem is that there are 9 million unique credit card users. The age group of 20-40 years possess only 3 million of those credit cards.” Balakrishnan stressed on the need for credit scoring, saying that though there is a Credit Reporting Bureau today, people only supply negative reports to it. The solution to that – “we have to push thegovernment to take action and force people to do that. The government was unwilling to act, and e-commerce will find it difficult to develop. More that 50%of what we (Rediff) do is cash on delivery, and there are only certain kinds of products you can do on a COD basis.”

“A debit card based ecommerce is possible, though there are challenges: You have to take the user to the bank side and get it done again. Unless the banks teleocm infrastructure is super, it can’t be pulled off. There are 100 million indians with debit plus atm cards. With mobile commerce, the challenge is margins. If the operator keeps 50%, no point. We need a payment system where the margin is no more than 1-3%.

On Broadband Investment, Peering of ISPs

“Broadband investment, like building roads,” Balakrishnan said “has a long lead time for payback. The funding of broadband has to take the same approach as the Bombay sea link – 25-30 years – and you need a subsidy. Unless that is done, you cannot have broadband. Those who started ISP businesses – 250 licenses were picked in in 1995 – found it difficult to get the last mile. Practically all of them have left the scene. Sify struggled on for some more time. The starting gate was so small, that it became very expensitve to become an ISP.” At the same time, the mobile grew, and it made more sense to invest in mobile, and “flip the license”.

Balakrishnan later said that it has been impossible to get individual ISPs to peer in India. The consequence of that is that if someone from Sify in Madras sent a mail to Rediff, it has to go to US and back. “Unless you have domestic peering, the costs are high. NIXI was set up, but no one listens to it. Strong government action is needed to force people to adhere to it. Google peers with us, Yahoo peers with us and Google… we need to act quickly in the next 2-3 yers. ”

Truthful Numbers?

When the IAMAI had initially approach the government for assistance related to broadband, they found they had shot themselves in the foot. Balakrishnan explained: “A part of the reason why the Government support did not happen is that the IAMAI focused on stating bigger and bigger user numbers. They quoted 50 million, when the base was 10. Most of members of IAMAI committee were youngsters looking to raise capital, so larger numbers helped them. When we went to the government, they said – what’s the problem? (i.e. you have a large base anyway)”. While the current lack of size of the Indian Internet user base, Balakrishnan is “sure that 10 years of now, India will have more than 300 million Internet users, followed by China and probably by the US. Many of you need to prepare for that event,” he told the audience.

On Venture Capitalists In India: Too Many Investment Bankers? Angel Investors

“You must also address the lack of an intelligent domestic VC industry,” Balakrishnan said. “Before the last crisis, there were more VCs in India. Most of them were experts at raising capital, but almost none of them had any operating experience. Some would give money to entrepeneurs and screw them for the next three years. I have this feeling that we need a domestic based VC industry. We need to put money into VC funds raised in India, and not get caught in the US investment cycle. The PE people are largely US players, that’s okay. VCs – I wish so many of them would not be investment bankers.”

“What we miss are the Angel investors, who will come and give you 10-20 lakhs. I know there are some who do that, but you need some 5,000-10,000 from them. What’s missing is a provision in Indian Income Tax act, which allows you to write off angel investments. the IT industry and NASSCOM will not make that pitch. Our industry in dependent on young entrepreneurs. 6 might sink, four might stumble. If that doesn’t happen, companies like mine and Shailesh’s (Google) won’t make much advertising revenue from them.”

IT Act And The Role Of Intermediaries

“We have a new Secretary (in the Government) who has an extremely high domain knowledge. We’ve had some success – one of the most dramatic things was to get the Infotech Act Amendment passed. There was a notorious incident with Avnish Bajaj (then of Baazee.c0m). The big danger lurking was that everyone who ran an Internet site would be directly liable for third party content. India did not recognise intermediaries.”

“The Indian Penal Code was enacted after the 1857 mutiny, and has remained the same. A lot of things got rearranged with the coming of the Internet. I wrote that new section (in the IT Act) myself. The President has signed it, and it’s awaiting a final notification, which should happen this month. The most important reason for doing that is that 30-50% of indians access the internet using cybercafes, since Internet access even at home is still too expensive. Cybercafes have been identified as an intermediary.”