My latest column in Business Standard:

I recently came across a report on search engines from 1999. Among the companies it discussed was Google. As I read it, I wondered if I (or anyone else) could have imagined then that five years later, this start-up would have so transformed the search space, build the world’s largest computing platform, and be getting ready to do an IPO that will create $25 billion of wealth for its founders, employees and investors.

What is remarkable about Google is that it flourished right under the noses of its competitors without being acquired or crushed. The likes of Yahoo and Microsoft did not do anything until it was too late to prevent Google from getting where it is now. That is the incredulity of it all.

A Google happens once in many, many years. It is almost impossible to predict before hand that such a company will at some point of time in the future occupy a position of great power and influence over not just across its vertical but across the industry. Because, if we knew, we would do something about it. Competitors would seek to put roadblocks and hurdles, or failing that, try and possibly acquire it. Even otherwise helpful partners may think carefully if they realise they are going to help in building the next big behemoth. In other words, events and circumstances which lead to the creation of the once-in-a-lifetime companies are rare and almost unpredictable.

That is what makes Google a black swan.

Nassim Taleb, author of “Fooled by Randomness” and founder-chairman of Empirica LLC, a research laboratory and financial products trading house in New York, has this to say: “A black swan is an outlier, an event that lies beyond the realm of normal expectations. Most people expect all swans to be white because that's what their experience tells them; a black swan is by definition a surprise. Nevertheless, people tend to concoct explanations for them after the fact, which makes them appear more predictable, and less random, than they are.”

In a paper entitled “The Black Swan: Why Don’t We Learn that We Don’t Learn”, Nassim elaborates on the black swan notion: “The Black Swan is defined as a random event satisfying the following three properties: large impact, incomputable probabilities, and surprise effect. First, it carries upon its occurrence a disproportionately large impact. The impact being extremely large, no matter how low the associated probability, the expected effect (the impact times its probability), if quantified, would be significant. Second, its incidence has a small but incomputable probability based on information available prior to its incidence. Third, a vicious property of a Black Swan is its surprise effect: at a given time of observation there is no convincing element pointing to an increased likelihood of the event.”

Think a little about what made Google thrive to get to the point where it has reached now. One, it had only one round of venture capital investment, giving the founders sufficient management control on the future direction of the company – including the right to refuse takeover offers. Second, they focused on an area which others had given up on – search. When Google started up, search was a forgotten area in the Internet backwaters. They not only made search work well, but also created a business model around it via the text ads. Third, they built up scale rapidly over the years. Their use of commoditised hardware and open-source software at the backend gave them the platform to keep costs low even as they layered their proprietary algorithms on top of the “GoogleOS.”

What Google has done is to build an alternative computing platform. This is becoming obvious as it starts our to roll out various services which go beyond just search – a shopping service, social networking, a blogging platform, email with a difference (not to mention plenty of storage), and a local search/yellow pages engine. Rick Skrenta had this to say: “Google is a company that has built a single very large, custom computer. It's running their own cluster operating system. They make their big computer even bigger and faster each month, while lowering the cost of CPU cycles. It's looking more like a general purpose platform than a cluster optimized for a single application. While competitors are targeting the individual applications Google has deployed, Google is building a massive, general purpose computing platform for web-scale programming.”

Tim O’Reilly takes it further: “In a brilliant Copernican stroke, [Google’s] gmail turns everything on its head, rejecting the personal computer as the center of the computing universe, instead recognizing that applications revolve around the network as the planets revolve around the Sun. But Google and gmail go even further, making the network itself disappear into the universal virtual computer, the internet as operating system.”

We have seen the emergence of a black swan before our very years in the past five years. Can the next black swan in the technology space come from India? In an interview with The New Yorker, Nassim Taleb quotes Scottish philosopher David Hume: "No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion." Just because something has not happened before does not mean it is never going to happen in the future. It is for Indian entrepreneurs to prove Hume and Taleb right by envisioning a future very different from today and building it out. I’ll be watching for a black swan in 2010.

[I would like to thank Chetan Parikh of CapitalIdeasOnline for introducing me to Nassim Taleb’s concept of black swans.]

I was speaking to a friend of mine who is keen to make an English language learning website (on a non-commercial basis) for non-English speakers in India. Any suggestions of (a) sites that exist (b) software / learning programs / books that make it easy for learning English?

WSJ writes that "a new report from Jupitermedia's JupiterResearch predicts that dollars spent on online advertising -- defined as a paid message featured on a Web site, online service or other interactive medium, such as instant message or e-mail -- will match dollars spent on magazines by 2007, then surpass them in 2008."

Web offerings have become "more targeted and much smarter" about how they measure their audience, says Gary Stein, a Jupiter senior analyst. Driving the money, he says, is the burgeoning popularity of paid-search advertising, which allows marketers to link their names to very individual Web activity. Also important: The spread of high-speed broadband connections will spur more use of ads that are more like TV commercials, creatively using video and sound. Meanwhile, Internet display ads have shown new momentum this year. The report calls for usage minutes and ad dollars to cluster around four top properties: Yahoo, Google, Time Warner's AOL and Microsoft's MSN.

Here. "Faced with a seemingly endless onslaught of virulent Internet worms, spam, and e-mail scams, less than half of IT professionals report strong confidence in the security of their enterprise networks, according to the results of the 2004 InfoWorld Security Survey."

A fascinating story by Rich Karlgaard about a talk he had on aflight with Bill Gates 11 years ago:

Halfway through the flight, Mr. Gates closed the book, shut his computer off and we talked. Out of nowhere, he told me that he had recently figured out who his competition was. It was not Apple, Lotus or IBM. He waited a couple of beats. "It's Goldman Sachs."

"Is this a scoop? Is Microsoft getting into investment banking?"

"No," he said. "I mean the competition for talent. It's all about IQ. You win with IQ. Our only competition for IQ is the top investment banks." During that trip, I must have heard Mr. Gates mention "IQ" a hundred times.

The obsession with smarts is embedded deep in Mr. Gates's thinking and long ago was institutionalized at Microsoft. Apply for a job and you'll face an oral grilling that probes for IQ. It is oral and informal because of Griggs v. Duke Power, the 1971 Supreme Court ruling that banished written IQ tests and "tests of an abstract nature" from job applications. But Microsoft knows what it wants. It wants IQ. And Microsoft always has been savvy at getting what it wants.

Or at least it used to be. Today Microsoft is struggling to figure out what attracts and motivates the most talented employees within capitalism's free-agent system.

While it is a good start, the way we have been looking at BPO in India is not necessarily the way it is likely to be in a few years. First, many of the BPO operations are concentrated in cities where the cost of operations are high. But given the problems with infrastructure, companies have little choice at this point. Second, the people being employed in the BPO sector are among the upper end of the educated pyramid who are attracted by the high salaries. Given the mundaneness (and in some cases, the hours) of the work, they quickly tend to get bored – this is reflected in the high attrition rates at most of the BPO companies. Going ahead, if India is to build a deep backend in outsourced services, both these factors need to be addressed.

India has 784 cities and towns with population greater than 50,000. BPO needs to spread outside the top few cities into the hinterland. But for this to happen, the infrastructure in terms of power and telecom has to improve dramatically. The same applies for education. India’s Tier 2 and 3 cities need to the ones where the new BPO centres need to come up. In fact, if one looks at the US, this is what has happened – outsourcing centres are in low-cost and relatively less wealthier states and cities. India too will go along the same path. But for that, a concerted effort needs to be made to improve the infrastructure in these cities. Today, in fact, other than Mumbai and Delhi, most Indian cities do not even get reliable 24x7 power! There’s a lot of work to be done if the BPO dream is to be sustained.

Indian companies also need to start addressing the internal SME segment for outsourcing. This is where the opportunities are far greater – and a market that hasn’t really been addressed. IT services would be a good place to start. By using the commoditisation of IT and a near zero-cost of communication through VoIP (Skype, for example), Indian companies can provide the IT backend for the millions of US, European and Japanese SMEs. What is needed is standardisation of the offerings and solutions by industry. This is where the real benefits of the Internet start getting used to substantially reduce operating costs for SMEs. In addition, Indian companies can also help create new opportunities – whether it is by offering outbound marketing services or attending to customer calls. This twin strategy – using IT to automate and streamline business processes, and then helping them grow their business – can open up new business opportunities for Indian companies.

Tomorrow: Emerging Markets as Drivers