Igniting India’s TA-FAANG tide 

At least four-five Indian platforms that cater to the needs of one billion consumers each are a pre-requisite to make our mark in the global Internet economy

By B Sambamurthy

India’s tryst with IT got a booster shot during 1991 with the unshackling of the Licence Permit Raj. This resulted in the emergence of Infosys, TCS and Wipro as global players in software services. They elevated the aspirations of the Indian middle-class and provided opportunities for decent software jobs. They had a huge impact on entrepreneurship, created huge wealth for shareholders and were darlings of stock markets for over two decades. They also set new standards for corporate governance and posited India as software superpower. In public good space, India built the world’s largest biometric-based identity platform. So far so good.

Platform Businesses and Tale of Two Nations 

No doubt, there has been global recognition for these splendid achievements. But let us look at the bare facts. The Bigtech (TA-FAANG — Tencent, Alibaba, Facebook, Apple, Amazon, Netflix, Google) revolution that swept the US and China during the last decade-and-a-half eluded India. According to the UNCTAD Digital Economy Report (2019), these two countries account for over 90% of the global digital economy wealth creation. The report also alerts that developing countries give data free to developed countries and buy back at a price. Intelligence is generated from this data. Data privacy and data localisation laws need to reckon this fact.

Many rue the fact that though we had a headstart in IT, we could not build internet global giants – the likes of Tencent, Alibaba of China and Facebook, Amazon, Apple, Netflix and Google of the USA (TA-FAANG) or a Microsoft, Apple or Baidu. We need to acknowledge that we revelled in our superior skills in software development/service and global delivery models.

But TA-FAANG had the cake by deploying technologies in innovative ways and sumptuously leveraging data. This is not to undermine the contribution of our own WITH (Wipro, Infosys, TCS and HCL), but to remind ourselves of the need to pivot for better impact on the economy. Let’s take a look at the market cap of some of the full-blown internet conglomerates. (See Table 1)

Linear, Platform Business Models

This huge gap in digital economy value and wealth creation is mainly attributed to the difference in business models. Most of our IT and other businesses still operate on linear business models, while US-China innovated highly scalable, impactful and lucrative platform business models. A few internet companies like Paytm and Oyo are emerging. Paytm is positioning as an inter-sectoral platform while the latter are sectoral.

Linear/Pipe business model: Ownership of Means of Production 

This traditional business model (Fig 1) is characterised by producers on one end and consumers on the other. Producers procure inputs, add value and exchange value with users. The value exchange to the consumer takes place in a unidirectional (linear) way and is thus called pipe model. But this model suffers from many limitations.

Firstly, value creation is limited as it is largely generated at just one point, ie, producers’ end. Secondly, they literally own means of production and thus entail a huge investment of resources. Moreover, being highly capital-intensive takes long to build. But given these characteristics, scaling of business is constrained and largely happens on the supply side.

Mass production and supply chain management are the hallmarks of this model, which served us well in the industrial era. But in this internet/information age, this model is a drag on the enterprise and macro economy. This is reflected in low market capitalisations as depicted in the table.

Platform Business Model: Ownership of Means of Connections 

This model (Fig 2) does not own means of production but only owns (orchestrates) means of connections between people-people-business. It connects external producers and users, sellers and buyers and other value-enhancing players like developers. Thus, it is multi-sided, unlike the one-sided pipe model.

The success of this model is attributed to massive network effect with a huge user base, large portfolio of use cases and merchant/producers access. It provides infra to facilitate connections among platform participants, be it producers, consumers, developers, merchants and all the stakeholders.

Platform companies make many gatekeepers between consumers and businesses. A typical example is mobile banking applications like UPI that makes card networks redundant and reduces these costs. Given this, a platform typically scales outside its organisation and as such is faster, huge and does not entail large investments. Platform business models signify a fundamental shift away from manufacturers and traditional business towards algorithm and data.

TA-FAANG‘s Massive Network Effects and Ecosystem Play 

The not-so-secret sauce of the phenomenal growth of platform companies lies in massive network effects. The TA-FAANG companies boast of a user base of 700 million to over 4 billion and hundreds of millions of producers and merchants. The second element of success is smart management of ecosystem with value creation at multiple corners. These platforms deliver value to consumers and enormous wealth to shareholders. Their economies of super-scale bring down costs to consumers. However, in the long run, it leads to winner take all, edging out all competition.

The Platformification Difference: TA- FAANG and India

Firstly, while we excelled in software development and service support, these internet companies amassed huge amounts of data and deployed persuasive, predictive and prescriptive technologies like Artificial Intelligence (AI)/Machine Learning (ML), Internet of Things (IoT) to deliver products and services through pull and push mode for everything and everyday purposes.

Secondly, they regularly pivoted their business models as new data models and technologies like AI/ML emerged. For instance, Microsoft and Amazon pivoted to Cloud services. Facebook and Google pivoted to highly contextual advertising and are now foraying into Indian digital payment markets as a gateway to enter financial services and e-commerce.

Thirdly, true to internet economy structure, they defy conventional classifications like B2B, B2C, and C2C and traditional industry categories. In terms of transaction volumes, they resemble highly lucrative B2C space, but they earn their revenues in B2B business. Freemium business model is a tool to acquire customers and turn them into commodities. For instance, Facebook’s messaging platform is free but the behavioural data of the users is converted to a commodity through AI and sold to advertisers. Similar is the case with other social media platforms like Google and Twitter. Same is the case with e-commerce platforms like Amazon. The commoditised behavioural data is used for political and religious purposes as well.

Jeff Bezos, founder of Amazon, when asked why he went beyond selling books, which he started with, famously said that they learnt anything can be sold, the way they sold books and hence expanded beyond books. Probably this is the best business lessons one may learn.

Ideas Capital Vs Financial Capital

Now the TA-FAANG tribe have become prime players in the Indian digital payment systems (UPI), which helps them capture interactions between consumers and business, build behavioural data and monetise. They are amassing huge data capital. They have built huge multi-sided platforms/e-market places yet are fluid business conglomerates.

Thus TA-FAANG defies conventional business labelling. What label can one give to their businesses for regulation? These business models have attracted huge FDI for the benefit of host countries as well as investors and have helped spawn high-intensity innovation hubs.

One would say that this is a comparison between oranges and apples. Yes it is. We celebrated winning oranges but they took apples by fully harvesting the internet economy.  They grew more from ideas capital rather than financial capital. Many ideas germinated from the portals of academic institutions. Of course, lobby corridors had their own role. High-risk capital is in hot pursuit of ideas capital.

India’s Internet Economy Potential

In a recent address, Prime Minister Narendra Modi referred to the huge potential of the internet economy. India boasts of the second largest internet connections globally at about 600 million with over 400 million unique users. But we do not have a public policy governing the development and regulation of the internet economy.

The internet economy — mobile or otherwise — is highly hyper-connected and not siloed as regulators do, into payments, e-commerce, social media, lending, insurance, investments, publishing, advertising, technology services like cloud, etc. Not surprisingly, business models of these global internet giants encompass everything that citizens and businesses need. Finance, commerce, social, domestic and entertainment are now embedded in these internet economy companies. They have become intrinsic to society.

This needs inter-regulatory dispensation (Financial Stability and Development Council, Commerce Ministry, and MeitY) as the offerings of platform companies crisscross several sectors with no industry boundaries, a la TA-FAANG. The regulatory dispensation needs to adopt an internet economy structure and not the other way round. The internet economy is open and sector-neutral in terms of access. Both aspiring entrepreneurs and regulators should try a true internet economy company, which may join the ranks of TA-FAANG.

New Regulation

Policymakers need to jettison an industrial mindset. They need to upgrade to information economy opportunities and challenges. There is an urgent need to balance development and regulation.

The world has discovered much to the chagrin that unfettered monopolies like TA-FAANG are difficult to contain. We need at least 4/5 Indian platforms, if not more, that cater to the needs of one billion consumers to avoid building too large monopolies. This offers powerful insights for the entrepreneurs of the proposed New Umbrella Entities (NUE). Think internet economy platform and not just processer of retail payments.

One area that cries for disruption in digital payment is device-dependent issuance and acceptance infrastructure. Make this device-free. Not just device-neutral.

Peter Thiel, Silicon Valley’s hugely successful serial entrepreneur, famously said there is no first mover advantage and businesses need to reframe their strategies on last mover advantage. Last mover’s breakthrough innovation is difficult to mimic.

(The author is former Director and CEO of Institute for Development and Research in Banking Technology (IDRBT), bsmurthy123@hotmail.com)

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