Have we been overestimating the potential of Indian startups all along?

I was at a conference the other day, speaking on a panel with VCs and angels, when we were asked a question: With the softening of valuations and the famous Flipkart markdown, is there still a large internet opportunity in India?

My friend and co-panelist from a large VC fund jumped up and trotted out the now-standard schtick: that the combined market cap of Chinese internet firms is half a trillion dollars and, as of now, the combined market cap of all Indian internet firms is just around $30 billion — so yes, there is loads of room to grow. Maybe 10 or 15 times or more.

Photo credit: sandeepachetan

But I believe there’s something terribly wrong with this logic, and the sooner we realise this, the better off we all will be.

Because you really can’t compare the internet opportunities in China and in India.

The Chinese market is a walled garden of sorts, open mostly only to Chinese businesses — after all, Google, Facebook and Twitter haven’t been allowed to freely operate in China. So Baidu ended up being the Google of China, RenRen is the Facebook of China and Weibo is the Twitter of China. And even Amazon has faced a huge uphill task there.

The Chinese have built their businesses without much global competition — that half-trillion dollar market cap came much easier, after much government protection. Sure, Alibaba beat eBay — but that is one exception. There are significant regulatory, political and language barriers for non-Chinese internet firms to win in China.

It’s the same in Russia. Yandex is the Google of Russia and vKontakte is the Facebook of Russia.

Meanwhile, in India, the regulatory barriers are almost non-existent, our internet is still mostly in English and our politicians aren’t able to control digital media companies like the Chinese and Russians can in their countries.

The result of our openness?

The Facebook of India is Facebook, the Google of India is Google, and the Twitter of India is Twitter.

And it’s just as likely that that Amazon — not Flipkart, will be the Amazon of India; that Uber — not Ola, will be the Uber of India; and that Tinder — not TrulyMadly will be the Tinder of India. And so on.

 The Facebook of India is Facebook, the Google of India is Google, and the Twitter of India is Twitter.

This has a few implications. First, if you want to see the size of the Indian internet economy, you MUST include chunks of Google, Facebook, Twitter and others in it, because these are India’s leading internet companies.

There are several ways to do it. One is to look at global revenues and market caps of these companies and attribute the Indian market cap to the share of Indian revenue in the global pie. I tried that but came up across a big issue — not knowing the Indian revenues of many of these firms, because it’s not separately revealed.

What are the takeaways here?