Operations of TARAhaat.com

TARAhaat is an Internet portal supporting a network of franchised village Internet centers in rural India. It delivers a wide range of social and economic information, as well as educational and other services, earning revenues through fee for service, membership fees, and commissions. The locally-relevant content from market prices to marriage opportunities to educational material is what drives the model at the village and peri-urban level. TARAhaat hopes to stimulate employment and economic opportunities in the communities it serves.

The first kendra was launched in September 2000 near the city of Jhansi in the Bundelkhand region. Subsequently, TARAhaat opened three additional kendras in Bundelkhand and seven kendras in the Bathinda district in the state of Punjab. TARAhaat has only just begun to create its Kendra network - the company plans to open nearly 47,000 kendras by Year 6.

The pilot kendras are operating with varying degrees of functionality. A significant disruption came in March 2001, when TARAhaat lost satellite Internet connectivity due to a change in regulatory requirements for satellite service providers. Three of the four kendras near Jhansi, where dial-up connections are largely unavailable, lost Internet capabilities. Though the Jhansi sites have not shut down, they are currently offering only offline products and services. All of the kendras in Bathinda have been using dial-up connections. TARAhaat expects satellite Internet connectivity to be restored by the end of July or beginning of August 2001.

The two pilot regions, Bundelkhand and Bathinda, represent different cross-sections of rural Indian society. Bundelkhand, whose economy is based primarily on subsistence agriculture, is among the poorest regions in India. The areas around Bathinda are comparatively affluent and support more commercial activity. The choice of such disparate pilot locations was intentional, as it allows TARAhaat to test its concept in very different social and economic conditions.

Products and Services

TARAhaat is in the process of developing a range of online and offline products to be offered in TARAhaat kendras. A philosophy of "fluid product development" guides these efforts, the implications of which are twofold. First, TARAhaat management does not indelibly commit to what products it will develop or how it will prioritize its efforts in the future. It believes that the market for TARAhaat’s products is as of yet too immature to allow reliable predictions of consumer demand, dictating that TARAhaat’s development plans remain flexible and highly responsive to consumer feedback. Second, TARAhaat management intends to allow franchisees considerable latitude in developing offline products, believing that multiple revenue streams and the franchisees’ entrepreneurial creativity are critical to the financial viability of the kendras and, in turn, to the financial viability of TARAhaat.

TARAhaat’s products are still in relatively early stages of development, and those available to customers in the pilot kendras are in incomplete form. The following discussion will describe products and services both as they are today and as TARAhaat intends them to be over the next few years. Revenue streams associated with products will be described, but specific figures for the size and growth of revenues are reserved for Section 4.

TARAgyan

Computer-enabled education courses are currently at the center of TARAhaat’s product development efforts, and are expected to be the largest single revenue generator for the company and its franchisees over the next several years. The focus on education has emerged over the past few months in response to strong consumer demand for these services in pilot site regions: though TARAhaat has not yet released its course materials, already 170 students have signed up in TARAkendras around Bathinda for ad hoc IT courses taught by franchisees. Projections of student volumes are presented in Table 1.

Table 1. Student Enrollment

Notes:
Student numbers are on a per-year basis; year 1 begins April 2001
Source: TARAhaat financial projections

TARAhaat intends to offer courses on a wide range of subjects, though strong emphasis will be placed on courses that provide job skills and training relevant to rural and semi-urban customers. TARAhaat recently completed a basic IT course, and intends to add an English-proficiency course and a number of vocational courses, such as textile cutting, plumbing, and TV repair, within the next year. The goal of the course offerings is to train rural people to find jobs in one of four settings: self-employment, employment in local factories, shops, hotels, etc., distance employment (being employed locally by a company in a distant location), or white-collar employment in cities. TARAhaat expects the first setting to absorb the largest number of rural students, and the last setting to absorb the least.

TARAhaat and the franchisees each play a role in the provision of courses. TARAhaat is responsible for the creation (either in-house or outsourced) of written and computer-based course materials in users’ native languages, currently Hindi or Gurumukhi. TARAhaat provides these materials to franchisees, who then promote the courses in their local areas and enroll students. Franchisees may also teach the courses, but in most cases so far they have employed outside educators for this purpose.

Education revenues will be split 60/40 between the franchisee and TARAhaat. TARAhaat will also earn revenues for providing course materials, primarily books and CDs, to students and for providing certificates of course completion.

B2C Activities (TARAhaat.com)

Creation of the TARAhaat.com portal is the second major element of current product development efforts. The Web site, set as default homepage on TARAkendra computers, will be TARAhaat’s primary vehicle for transmitting information and interactive online services to kendra users. The Web site incorporates strong visual and audio content to make it accessible to rural Indians who cannot read. The current TARAhaat.com homepage is shown below:

TARAhaat is designing its online content and services to meet both the "needs" and "wants" of rural users. To identify these needs and wants, TARAhaat both tapped the knowledge and insights of DA and conducted consumer research, including organizing a workshop with Jhansi members of the National Youth Cooperativeand utilizing a UNDP socioeconomic survey of 10,000 rural families in the Niwari region. Based on its findings, TARAhaat is developing 18 "channels" of content on such subjects as health (especially women’s health and child care), government schemes (programs for literacy, agriculture, women, employment, insurance, and so on),livelihoods (ways to start a small business, information on micro-credit, and the like), agriculture, education, e-governance, shelter, law, women, kids, entertainment, matrimony, astrology, and more. All information on the TARAhaat.com website will be available in English and local languages. Content will be a mix of country-wide and region-specific information; health care information, for instance, will be the same for all users, while local news, job postings, and commodity prices will, by necessity, vary by region. To date TARAhaat has created approximately half of its total intended content.

In addition to static information, TARAhaat’s Web site will provide a platform for a variety of interactive services and transactions. Besides basic e-mail, chat, and bulletin boards, kendra users will be able to request land records, obtain government redressal forms, submit complaints to local government officials, schedule doctor’s appoint-ments, post local jobs and ads, check daily local commodity prices, and request advice from agriculture specialists, doctors, career counselors, and other experts. In the coming years TARAhaat will extend its online services by adding e-commerce capabilities to its Web site.

TARAhaat intends to offer a variety of DA developed goods, particularly DA’s popular shelter products, agriculture products such as seeds, fertilizers, and pesticides, and durable goods such as bicycles, refrigerators, and other items that are difficult to procure in rural locations. Some franchisees are already selling DA shelter products at their kendras, though the transactions are not yet conducted online. A yet-to-be-developed sister portal, TARAbazaar, will provide B2C and C2C services connecting urban or overseas customers directly to rural craftspeople.

TARAhaat will generate revenues from its portal by way of paid memberships and commissions on the many interactive online services and transactions outlined above. A regular membership buys access to restricted content and services on the TARAhaat.com Web site while premium membership adds a TARAcard (a photo ID SmartCard) that can be used for online and offline transactions. TARAhaat will keep an upfront registration fee and all commissions on services provided. Members will also pay an annual membership fee, which will be split 50/50 between TARAhaat and the franchisees. Additionally, the Web site will generate revenues for franchisees by motivating general Web surfing, which is paid for on an hourly basis by members and non-members alike.

Franchisees are also encouraged to create or collaborate on creating online services and to share commissions for those services.

B2B Activities

TARAhaat management believes the company’s growing network of kendras has the potential to be of significant value to multinationals, large national corporations, and local dealers looking for a channel into the rural Indian market. B2B services under development include advertising and marketing, data mining, Web hosting, and supply chain management. TARAhaat will receive fees for these services, a portion of which may be shared with the franchisees.

On a more local level, TARAhaat will offer consulting services to individuals wishing to start technology-based mini-enterprises made possible by the information provided in TARAgyan courses and on the TARAhaat.com Web site. Freelance "barefoot consultants", called TARAgurus, will offer personalized mentoring and access to TARAhaat’s finance, marketing, and technology support services. Advisees will pay TARAgurus for their services with TARAhaat taking a commission.

Franchisee Support Services

TARAhaat will devote considerable energy to supporting its franchisees. Through an extensive staff of network support professionals,3 it will facilitate access to financing, connect kendras to the Internet, provide business and IT training, augment local marketing efforts, and otherwise give the support needed to make TARAkendras commercially viable. TARAhaat will charge an annual franchise fee based on the number of computers in the kendra to offset these support costs.

Franchisee-Developed Services

As indicated earlier, TARAhaat will allow its franchisees considerable freedom in developing additional, mainly offline, services that contribute to the user base and financial health of the kendra. Potential offline services include but are ot limited to concessions, copying, printing, faxing and other business services, computer games,Web camera photos, and independently-developed education courses. TARAhaat hopes its franchisees will use this freedom to turn their kendras into multi-purpose community and business centers. One enterprising franchisee, for example, learned from discussions with local parents that the parents wanted their daughters to learn how to cook. The franchisee now offers a cooking class at her kendra. While this may seem unrelated to computers, some of these girls visit the computer room after their cooking lessons and are encouraged to use the computers and surf the Internet. The franchisee thus earns revenue from the class fees and generates interest in future IT courses and computer use. Though in most cases TARAhaat does not intend to take a percentage of kendra revenues generated in this manner, management realizes that the overall financial health and consumer draw of the kendras is critical to TARAhaat’s long-term viability.

Key Suppliers

The content and back-end technology requirements of TARAhaat’s education, Web site, and other product development initiatives are substantial, and could easily overwhelm a small start-up organization. Consequently, TARAhaat works in alliance with a large number of partners, outsourcing all activities that can be competitively done by others. For content, TARAhaat relies on a wide range of partners, including All India Institute of Medical Sciences (AIIMS) for health issues, Indira Gandhi National Open University (IGNOU) for distance learning, Agri-Watch for agriculture news and information, and a host of newspapers and freelancers for local news and information. All back-end Web site services are outsourced to a company called 4CPlus. TARAhaat is also in the process of establishing upply arrangements with key Internet connectivity and computer hardware providers.

TARAhaat Management

A team of approximately 25 people has been assembled to oversee TARAhaat’s early product and franchise development efforts. In contrast with many dot com start-ups, TARAhaat’s management is mature and experienced.

CEO Ashok Khosla is also president of DA and TARA. COO Rakesh Khanna, CFO Ranjit Khosla, and individual product heads all have extensive business experience. Early appointments to TARAhaat’s board of directors were Dr. Arun Kumar and Mr. George Varughese, Vice Presidents of Development Alternatives, and Air Vice Marshal S. Sahni, Vice President of TARA. They will provide advice, especially regarding social objectives, and develop synergies with the DA Group. These appointments also bring aspects of the DA Group culture to TARAhaat. Perhaps the most notable aspects of this culture are "no excuses", "just do it", and "we will persist" attitudes - all phrases heard repeatedly in interviews with DA Group management.

The Rural Indian Market

TARAhaat management believes strongly in the untapped commercial potential of the rural Indian market. This market’s most obvious feature is its sheer size. An estimated 75% of India’s people live in rural areas, making for a market size of about 750 million people distributed across 600,000 villages. Though 350 million of these people are desperately poor and survive only at subsistence level, the remaining 400 million are economically better off due to a combination of 11 years’ favorable monsoon conditions, increased agricultural yields, and a rise in rural mini-industries.

India’s National Council of Applied Economic Research (NCAER) estimates that of these 400 million people, more than 200 million, a number roughly equal to India’s urban population, are active participants in the modern economy. By this, the NCAER means that these 200 million people have enough disposable income to purchase (in some cases independently; in others, collectively) a few modern goods and services such as bicycles, water pumps, radios, kerosene lanterns, and more recently, tractors, motorbikes, TVs, and refrigerators.5 Rural purchasing power is apparent in that rural India accounts for a sizable percentage of the markets for many consumer goods sold in India. According to the NCAER, rural India comprises 50-60% of the market for motorcycles, 40- 50% of the markets for wrist-watches, black and white TVs, cassette recorders, and mopeds, and 20-30% of the markets for color TVs and refrigerators.

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EXECUTIVE SUMMARY

TARAhaat is a business enterprise of Development Alternatives (DA), an NGO focused on sustainable rural development in India, and its marketing arm, Technology and Action for Rural Advancement (TARA). TARAhaat uses a franchise-based business model to bring computer and Internet technology to rural regions and plans to use these technologies to create revenue streams leading to financial viability for itself and its franchisees.

The business combines a mother portal, TARAhaat.com, with a network of franchised village Internet centers, or TARAkendras. TARAhaat will deliver education, information, services, and online market opportunities to rural consumers via the Internet and its kendra outposts. It also hopes to provide a cost-effective gateway by which larger corporations can reach rural customers. It will offer information, e-mail and Web services, and eventually e-commerce and fulfillment services, earning revenues through membership fees and commissions. These business objectives are balanced with the social objective of uplifting rural India through easy access to relevant local and global information and propelling it into the twenty-first century. TARAhaat also hopes to find the right balance of rural and peri-urban franchises to be able to subsidize rural locations with lower earning potential. It encourages innovation by its franchisees and seeks to assist entrepreneurs in developing businesses using its services.

Where possible, TARAhaat will use existing telephone lines to connect its franchise Internet centers. But it also plan to install VSAT links where necessary to provide connectivity, utilizing satellites operated by others. Thus TARAhaat is largely dependent on India’s existing commercial infrastructure, which is less than ideal. Depen-dence on the satellites has already caused interruptions in service for some franchises, and is a relatively high-cost solution. Connectivity, and bandwidth capable of supporting a graphics-rich Internet experience, are likely to remain in short supply for the near future, posing a continuing challenge to the venture. In addition, electric power outages are frequent, so much so that the company provides a diesel-powered generator as part of the franchise infrastructure, adding considerably to costs and maintenance needs.

One factor that bodes well for success is the company’s flexibility in developing its products. TARAhaat has shown high sensitivity to customer needs, allowing products to evolve to meet these needs. For example, TARAgyan products, TARAhaat’s education offerings, came into being only recently to address the strong demand for computer and computer-based education in the initial customer base. In addition, each franchise has latitude in developing products and services that meet local market needs. TARAhaat hopes to create a brand image in which the local TARAkendra is seen as the place for a family to find products aimed at the entertain-ment, information, and commercial needs of each member. The company provides content in two local lan-guages as well as English, and expects to provide content in other local languages (India has 18 official languages) as well.

India’s telecom regulatory policies are improving, but fall short of fully open competition. As a result, prices are relatively high and service is generally quite poor, especially in rural areas. Since TARAhaat is largely dependent on commercially available infrastructure, this poses a substantial long-term challenge to the venture. The company has off-line revenue sources from education to develop the market pending infrastructure improvements. The company faces no major regulatory hurdles.

TARAhaat provides extensive support for its franchisees, including assistance with financing, Internet connec-tions, business and IT training, and marketing. It plans to create a TARA university for franchisee training. Many franchises offer computer or other IT classes. Nonetheless, illiteracy among many of its intended customers poses continuing challenges to its business strategy.

TARAhaat’s association with Development Alternatives brings a wealth of rural expertise and a resilient attitude towards overcoming all hurdles. Some of the initial challenges described in this report have been handled with creative solutions, both at the franchise level and at the enterprise level. However, the venture has substantial financing needs and faces long-term challenges relating to product development and franchise operations that still await resolution. Unlike many startups, however, its management team is seasoned and strong.

Interviews with users of TARAhaat’s services demonstrate the venture’s social benefits, including empowering the education of girls, inspiring confidence and higher aspirations among rural children, and enabling farmers to gain market information and substantially higher prices for their crops. The staying power of TARAhaat’s business model is not yet proven, but the positive customer response is an early indication of viability. The venture’s franchise model seems likely to harness local entrepreneurial energies to the benefit of both. Its emphasis on locally-relevant content, in local languages, and strong orientation to product development based on customer feedback is also an important characteristic, one that takes advantage of India’s large rural middle class. Finally, the company combines both commercial and NGO characteristics, potentially giving it an advantage in pioneering the relatively risky Internet market in rural India, and is unlikely to face major competition in the near future.