Why you should care

Because the world’s largest democracy and the nation that inspired the notion that the world is flat hasn’t even seen its best days yet.

Over the last fifteen years, India has become the IT outsource destination of the world. Companies based on the subcontinent — Wipro, Infosys, Cognizant and TCS — have all become well-known names inside corporate America. Global IT giants like Accenture, IBM and Microsoft all have a dedicated and substantial presence in India. They’ve created hundreds of thousands of jobs for Indians and Americans alike. One would think, with millions of people working on technology, India would be a hotbed of innovation. But it isn’t.

Not yet, anyway.

India’s Tech 1.0, was all about outsourcing — taking on everyday, mundane, information technology work, such as the implementation of big enterprise software platforms or the maintenance of IT infrastructure. With increased bandwidth, Indian IT companies could place a few people across the world and transfer these activities to India.

India Tech 2.0 is about creating new products and services entirely. It’s about building the enterprise software platforms, not implementing them. It’s about not just mimicking U.S. Internet companies, but also innovating and improving on them. India Tech 2.0 is about creating the next SAP or Microsoft, not just implementing the solutions across Fortune 500 companies.

And it all comes out of India Tech 1.0.

But first, some background: India Tech 1.0 started with General Electric in the 1990s. Then, the banks took to IT outsourcing. And then, amid the panic that Y2K was going to be a global catastrophe, suddenly companies desperately needed armies of coders in the late 1990s. Thanks to the dot-com bubble in Silicon Valley, coders were in shorter supply — so Indian companies stepped in to meet the demand. For the last decade, the Indian outsourcers have traded on that first stroke of global good luck, and they’ve continued to do everyday coding in India at a fraction of its cost globally.

Men at desks on computer in large room

Employees work on computers at the B2R center in Simayal, India.

Nowhere is India Tech 2.0 more apparent than in the cities that already saw Tech 1.0: Bangalore, Hyderabad, New Delhi and Chennai. Each of these cities are bursting at the seams and chock-full of engineers. Not to mention, over the last decade, thousands of Indians have gone across the globe and come back home, creating a whole new pipeline of talent.

Venture capitalists have realized this and are pouring money into India. There’s more funding for startups in India now than at any prior point in history. Sequoia Capital just raised a $530 million dedicated India fund. Many of the Silicon Valley VCs now have dedicated Indian operations. Angel investor groups are active throughout the major cities in India. Sasha Mirchandani, a co-founder of Mumbai Angels, has become an angel with the Midas touch — at least two of his seed investments now sport nine figure (U.S. dollar valuations). Similarly, Mahesh Murthy, co-founder of Seedfund, invested in redBus.in, which was sold for over $100 million last year to South Africa-based Nasper. Think $100 million doesn’t seem like a lot? It’s just the beginning.

The new talent can smell it, too: Young engineers, once content to aspire to jobs at big IT companies are now taking risks and starting up their own companies. Two of the top 10 companies listed on Business Insider’s hottest pre-IPO adtech companies are Indian: InMobi and PubMatic, both tech-driven mobile ad companies. Both will have $1 billion-plus valuations when they reach their IPO.

Others have mimicked Internet companies in the U.S. and are trying to replicate the model in India. Flipkart, Jabong and several others have raised hundreds of millions of dollars trying to become the e-commerce hub of India. In doing so, they have brought e-commerce to the hinterlands of India. Certainly, India’s Amazon may yet be Amazon, as Mahesh Murthy has argued, but even if these Indian e-commerce startups fail, they have helped to sow the way for an e-commerce sector in India, creating a legion of seasoned entrepreneurs on the way.

As for social media, Twitter and Facebook are entrenched leaders in India, and an Indian startup is unlikely to displace them anytime soon. At the same time, India is likely to become the largest market for both in the next few years. And that means the subcontinent’s startup economy is feeding Silicon Valley’s. While its WhatsApp acquisition made headlines globally, Facebook also picked up its first Indian company this year.

While Russia and China have succeeded in creating local copies of American Internet companies (Alibaba may become the world’s largest Internet company this year, but it’s still very much a local Chinese company), somewhere in the next decade, India is likely to produce its own disruptive, homegrown Internet giant. And that giant will be global, not local.

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