BackSnapdeal can become India’s Alibaba: SoftBank CEO
Masayoshi Son says right now SoftBank's focus is on pure Internet companies and start-ups in India
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New Delhi: In India to announce around $840 million of investment in two e-commerce companies and meet with 15-20 start-ups, SoftBank Corp. chairman and Japan’s richest man Masayoshi Son is betting big on the country he is visiting for the first time in 10 years.
“We have the capability and the will to invest about $10 billion over the next 10 years," Son, 57, said in an interview in New Delhi on Tuesday, adding that the actual investment may be even more, depending on the opportunities that emerge. Son spoke of the potential of India’s digital revolution, entrepreneurial spirit and investment opportunities. Edited excerpts:
What changes do you see in India since your last visit 10 years ago?
India is now ready to grow…it has to have the infrastructure for the information highway for us to make investments in Internet companies. In my view, fixed-line Internet is still not that much available here. However, mobile Internet is taking off very quickly. I see this as the inflection point where the smartphone is now low-cost and available to anybody. It has a very powerful capability so a lot of Internet services can be accessed on smartphones or tablets. Now that is a great opportunity.
Which was your first investment in an Indian company?
InMobi was the biggest and it is growing pretty well. We are happy about that. InMobi is not just an India-focused company, but it is a global player. So, I don’t think InMobi can be characterized as an India-specific company. I am very excited about that investment.
This time, I am more focused on Indian start-ups that are focused on the India market. Ten years ago we were focused on China and Alibaba is one of our investments in China. We have done several others. But this time, I really feel that Indian domestic Internet companies have a great future.
You did not sell any of your shares during Alibaba public listing. Why?
It is still growing very quickly and it still has a very big opportunity in terms of increased service integration and reach. It hasn’t matured yet and is still in a growth stage.
How would you compare the digital and Internet environment in India and China?
Both countries are billion-people countries and have very smart people. Both have a big potential market. China was ahead of India in respect of Internet penetration, so 10 years ago China was the best opportunity and now India is the best opportunity.
Internet penetration and local entrepreneurship are at an inflection point, and so India is just about ready to have big growth.
Indian people have the language advantage...English is widely used. Another advantage is the software capability. Indian software engineers are the best in the world; even in Silicon Valley, the best software engineers are Indians. So the potential skill-set of English language and software engineering is good for the Indian companies to be successful in the Indian local market, and once they become successful locally, they can scale it globally.
What will be your investment strategy in India?
Our strategy is not to control or own a company. Internet as a service is like culture that you have to understand and each country has a local culture. We don’t force the American way or ask people to change their behaviour, culture, business practices or content.
To have real success and roots in a society, there has to be a local champion and hence we believe in identifying a local entrepreneur.
Also, when we invest we don’t try to take 51% or 80% or majority equity stake…we would very often be the largest shareholder with 30-40% equity share, but we don’t intend to control. Rather, we support the local entrepreneur to be the captain of the ship.
Which sectors are you bullish on and are there any that you will stay away from?
Our focus will be on all Internet companies. We don’t go into food business or real estate. Our focus is information revolution, so Internet is our key focus and that is what we understand...
Is there any corpus you are setting aside for India?
It’s all SoftBank money. We have many assets, good free cash flow that we can invest from. We have the capability and the will to invest about $10 billion over the next 10 years. If we see more opportunity we could invest more…if we have less opportunity we will invest less.
It all depends on the specific opportunity. It is not a budget that we must spend, we have the capability and we have the willingness to do so.
Would you look to invest in the telecom sector in India?
Right now, we are focused on pure Internet companies.
What will be the mix between early-stage and growth-stage investments?
Today, we are announcing investments in the first two companies in the range of $1 billion. We are more focused on investing in pre-IPO (initial public offering) stage companies. Some of them at the seed-fund level and some at the early stage. We are meeting 10-15 companies to get to know them.
That is how I did my first investment in Alibaba where I spent 10 minutes with some 10 companies in China.
You have been in talks with Snapdeal for over a year now. What took so long to close the deal? Were you looking at other companies?
We were looking at all the global opportunities and I was not smart enough to decide to invest earlier…which could have been much cheaper for us. Still our belief is that Snapdeal is going to grow big time from here on and I think Snapdeal could become the Alibaba of India.
What interested you in Olacabs? Entry barrier in the cab aggregation space is too low…
It is a new form of transportation, it is not just a cab. There is a strong network effect…so Olacabs has the biggest cabs network. Entry barrier to Alibaba, Google to all these companies are low too.
Unlike Alibaba, none of the e-commerce companies in India are making money. They are burning cash. Snapdeal has burned Rs264 crore to earn a revenue of Rs160 crore. Does that bother you?
Alibaba for the first 10 years continued to make a loss, it was only in last three years that we started making money and this year it was several billion dollars of net income and it is growing very quickly. We don’t need to be in a rush to start making money; rather we should create a robust platform, good services and good number of merchants on the platform. This is still the investment stage and not the harvesting stage.
Unlike Alibaba, Indian e-commerce is still largely about selling electronics and organized retail online. India’s unorganized categories have not moved online. Do you think Indian companies can actually be compared with Alibaba?
For Alibaba, the biggest category is fashion and Indian people love Indian fashion. And most Indian fashion goods are locally made so those are great contents to be sold on the platform. Yesterday, we visited a local market and I was very impressed with the beauty and quality of local goods.
For Alibaba 99% of products sold are all locally made, it has 8 million merchants and a billion products. So Snapdeal listing merchants on its portal will be in line with Make in India campaign. They would bring the locally made products and small merchants together on the platform.
How far is an Indian e-commerce company from being ready to go public?
Even at the time of Alibaba IPO, we said there was no need to rush for an IPO. We told them if you need cash, we can still support you with additional money. All we wanted was for them to continue to create the best services and the best platform.
Are Indian e-commerce companies fairly valued?
We don’t think valuations are high. Of course, in case of Alibaba we got a 4,000x return. I am not expecting 4,000x from here (India). I think that India’s GDP (gross domestic product) and India’s economy in the long run will be among top two in the world and that is my strong belief. So India and China will be competing for the number 1 and 2 position in the market. If you think about long-term confidence in the future of India I will say everything is cheap. You can almost close your eyes and still make an investment and still make a great return, that is my view.
I am not good at predicting what will be the share price three months later…that is not my expertise…. What I am most good at is thinking about 10 years, 30 years, what segment of the industry to invest in and what part of the technology space I feel has good growth and, most importantly, when is the right time to strike… that is my expertise.
Can we expect Alibaba to enter India anytime soon?
You should ask Alibaba that.
You are the largest single owner of shares in Alibaba and in Snapdeal. Can we expect some synergies between the two?
Alibaba has already said that it is looking at and is interested in increasing inter-country trade. That is something that these two companies can look into as an opportunity.
How was your meeting with Prime Minister Narendra Modi?
Last month, he came to Tokyo and he invited us to come and invest in India. We had a good chat and that made us more confident about the leadership of the new government. India will have a stable, good growth.
Our follow-up meeting yesterday was quite good. It was very much engaging…they support our passion and most importantly their passion to make India a success.
Do you see any regulatory challenges in the country?
I don’t know enough about the regulations...that might be bothering, but in general, I am hearing that the government is looking at every aspect of regulations and whether they should make them more transparent.
They have a passion to improve. We had specific conversation with the PM for digital policies and we got a sense that they are looking into it.
Also the government can play a role in improving the infrastructure by guiding the mobile giants into bringing next-generation spectrum allocation…and through technology standards…
I gave them (the government) the example of Alibaba in China. What makes me happier about Alibaba investment is not just the return on investment but that Alibaba has created 50 million new jobs. There are 8 million merchants, small sellers on the Alibaba platform, 1 million truck drivers who deliver Alibaba goods and packets and people working on the supply-side creating these products. Fifty million is a phenomenal number.
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