Why India has a long way to go before producing a Google or Microsoft?

There have been talks about how CXO’s from American companies see India producing a la Google or Microsoft. The huge IT capabilities lead them to believe that a world class product company is just around the corner. But, in my opinion, a product company in the league of Google/Microsoft/Apple is a long way to go and my reasons for the same

• Lack of Local Market – the biggest problem is lack of big enough local market in India. Any product company cannot become big unless they have a large enough local market to prove and refine themselves. Look at Google, Microsoft, Facebook, Twitter and one big reason for their early success is the large enough local market for them to grab. They ventured out of US only after they have established themselves in their local market. In India, barring a few domains like online gaming, no other domain provides a big enough market for any product company.

• Purchasing power of Indian consumer – The purchasing power of your customer decides how fast you can become big. If you sell a product for Rs2 to 100,000 customers, you make 200000 rupees, if you sell the similar product in US - $2 product to 100,000 customers you make 200,000 USD (~90 lakh rupees). The difference is to the ratio of the exchange rate (~45).  In terms of infrastructure cost of building and marketing a product is not in the same ratio (~45). As a result, Indian companies either need to sell to more customers or charge more. Both cases not so easy. All said and done, 200,000 USD will lot more compared to 200,000 rupees.

• Lack of Internet/PC penetration - Lack of penetration of internet/PC is another grouse for establishing any large product company in the IT product space. Mobile is the market where Indian companies can score. 600 million+ mobiles phones give you a readymade market for mobile applications. And we already see lots of product companies in this space selling doing everything to cater to the vast Indian consumer.

• Risk averse nature of Indian Companies – Indian companies are by and large risk averse. They are not willing to put their neck on line and go with a startup. They will still prefer to buy from a large known name instead of relying on a newbie. Like they say, nobody gets fired for choosing a IBM/Microsoft product.

• Lack of original ideas - most of the product companies getting started are replica’s of their successful US counterparts. But then, the Indian VC community is also responsible for this, as they tend to invest in those copycats. Copycat idea cannot create great companies although they can be good acquisition targets.

Given all the challenges, saying that Indian product companies have no future, will be wrong. It is just that they need look out of India to market their products. iPhone/iPad applications are being made in hundreds in India and these apps have led to some successful companies. Online gaming, we see already some successful companies.