India breaks the Internet

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Good Morning Manan,
 
Welcome to the first (paid!) edition of The Nutgraf.
 
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The Nutgraf is a weekly newsletter which takes the most significant event that happened in India over the last week, connects the dots, and tries to explain the long-term ramifications of it. Sometimes conventional. Sometimes controversial. Sometimes contrarian. But we try to be intellectually honest, and hopefully we’ll both learn things along the way.
 
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Three Internet and Three Predictions
Before I go into the events of last week, allow me to jump back 2,000 years, when one of the most consequential events in history took place.
 
In January 49 BCE, Julius Caesar was the governor of a province called Cisalpine Gaul, which is in modern day France. Caesar made short work of expanding and consolidating Rome’s hold across Gaul—all the way to Great Britain. Rome’s power was at its zenith, and Caesar was getting more powerful. This alarmed the good people in Rome, including the Senate. So when Caesar’s term as governor ended, he was ordered to come back to Rome.
 
This presented a problem for Caesar.
 
At the time, the Roman Republic, scarred by a history of mad kings and dictators, had enacted a law called imperium—which loosely translates to an official power of rule granted by the people and the Senate of Rome. Governors were granted imperium in their provinces, but only the Senate and other elected representatives held imperium in Italy and Rome.
 
And now that very Senate was asking Caesar to come back to Rome. Since Caesar didn’t hold imperium in Rome, he didn’t have the power to command an army in Rome. That meant that the army had to be disbanded, and Caesar had to enter Rome, not as a conquering governor, but as a citizen.
 
For reasons we’ll not get into here, Caesar had his reasons to distrust the Senate. So he didn’t really want to give up imperium.
 
However, breaking imperium was a capital offence. Also, following someone’s orders who didn’t have imperium was a capital offence. Nobody had broken imperium in decades, maybe centuries. It was established law.
On a cold morning in January, Julius Caesar, along with the 13th legion, crossed the Rubicon river, which marked the boundary between Cisalpine Gaul and Rome, kicking off the Great Roman Civil War which lasted four years, across three continents, until Caesar eventually emerged victorious.
 
Historians argue that Caesar crossing the Rubicon led to a domino effect with reverberations felt across centuries—it precipitated the fall of the Roman Republic and established the Roman Empire that held power and influence across Europe and West Asia for over a thousand years.
 
Since then, the phrase ‘crossing the Rubicon’ is an illustration for taking an action that crosses a sacred line, to undertake moves that are both "risky and revolutionary", and to cause events that will alter the trajectory of history forever.
 
On Monday, 29 June, India banned 59 Chinese apps in the country, including TikTok.
 
By doing this, India did something that no major nation outside China has ever done—it blocked Internet software products as a form of geopolitical warfare. In the process, it has split the Internet into three parts, and things will now never be the same again.
 
India has crossed the Rubicon.
 
In today’s edition, I’ll give some context why this is a big deal, and I’ll make three predictions on how this will turn out.

“It’s like nailing jello to the wall”
 
In the year 2000—a simpler time—US President Bill Clinton made a speech at the Paul H. Nitze School of Advanced International Studies of Johns Hopkins University. A speech about China.
In the new century, liberty will spread by cell phone and cable modem. In the past year, the number of Internet addresses in China have more than quadrupled, from 2 million to 9 million. This year, the number is expected to grow to over 20 million.
 
“When China joins the W.T.O., by 2005 it will eliminate tariffs on information technology products, making the tools of communication even cheaper, better, and more widely available. We know how much the Internet has changed America, and we are already an open society. Imagine how much it could change China.
 
“Now there's no question China has been trying to crack down on the Internet. (Chuckles.) Good luck! (Laughter.) That's sort of like trying to nail jello to the wall. (Laughter.) But I would argue to you that their effort to do that just proves how real these changes are and how much they threaten the status quo. It's not an argument for slowing down the effort to bring China into the world, it's an argument for accelerating that effort. In the knowledge economy, economic innovation and political empowerment, whether anyone likes it or not, will inevitably go hand in hand
Bill Clinton, 2005
Fifteen years later, in December 2015, during China’s World Internet Conference in Wuzhen, in front of an audience of bureaucrats, tech entrepreneurs and developers, Chinese President Xi Jinping gave his response.
We should respect the right of individual countries to independently choose their own path of cyber-development.
Xi Jinping, 2015
After over a decade, and after massive investments in technology, surveillance and other software, China had done what everyone thought would never happen—it had created a massive firewall around its country, banned apps and websites like Google, Facebook, Twitter, WhatsApp and several others. And replaced them with ones made in China, by Chinese companies and...controlled by China.
 
China had successfully nailed jello to the wall.

The tech cold war begins
 
Since then, American tech companies have been fruitlessly trying to get into China’s lucrative market. Some, like Google, even tried to bend backwards. Barring Apple, all were unsuccessful.
 
Around a year back, frustrated by this and spooked by a rise in Chinese investments into Silicon Valley, the United States took action. It blacklisted Chinese telecom giant Huawei and cut-off access to the one thing it needed from the US—hardware.
 
From the US perspective, a software retribution with hardware makes perfect sense. China could build apps and websites that rival or surpass American counterparts in terms of technology, but hardware? That’s much more difficult.
 
As Tim Culpan, columnist for Bloomberg and someone whose understanding of China I trust, wrote about the ramifications of this ban:
We can now expect China to redouble efforts to roll out a homegrown smartphone operating system, design its own chips, develop its own semiconductor technology (including design tools and manufacturing equipment), and implement its own technology standards. This can only accelerate the process of creating a digital iron curtain that separates the world into two distinct, mutually exclusive technological spheres.
The Tech Cold War has Begun, Tim Culpan, Bloomberg
In response, China poured billions into chip manufacturing—the one area where it lags technologically. Right now it imports nearly 85% of what it needs, and while it won’t change significantly anytime soon, the path for China is clear.
 
The two Internets
 
A couple of years back, at a private event in San Francisco, economist Tyler Cowen asked ex-Google CEO Eric Schmidt an intriguing question.
 
“What’s the chance, say, in 10 to 15 years, we have just three to four separate Internets?”
 
This was Schmidt’s reply.
I think the most likely scenario now is not a splintering, but rather a bifurcation into a Chinese-led Internet and a non-Chinese Internet led by America.
 
“If you look at China, and I was just there, the scale of the companies that are being built, the services being built, the wealth that is being created is phenomenal. Chinese Internet is a greater percentage of the GDP of China, which is a big number, than the same percentage of the US, which is also a big number.
 
“If you think of China as like ‘Oh yeah, they’re good with the Internet,’ you’re missing the point. Globalization means that they get to play too. I think you’re going to see fantastic leadership in products and services from China. There’s a real danger that along with those products and services comes a different leadership regime from government, with censorship, controls, etc.”
 
This was the same year when TikTok, a Chinese social network, spent nearly $1 billion in marketing to gain a foothold outside China.  
 
The idea that the Internet would no longer be one—and would result in multiple Internets—wasn’t particularly new. There was even a name for it. Splinternet.
 
Everyone had their theories about how this would pan out.
 
  • Schmidt believed that there would be two Internets - one that belonged to China and the other that was Rest of the World, led by America.
     
  • Some believed that the splinternet would be exacerbated by countries like Russia and Turkey.
     
  • The New York Times’ editorial board believed that there would be three Internets - America, China and the European Union. It believed that the EU’s focus on privacy and laws like General Data Protection Regulation, or GDPR, would result in an eventual third Internet.
 
In all these articles, when multiple possibilities are discussed, several countries come up. Iran. Cuba. Brazil. Saudi Arabia.
 
The country which would eventually split the Internet in a third direction is not mentioned.
 
Not once.
 
Nobody expected it would be India.

The Third Internet
 
At some level, the two-Internet theory makes sense. China has a version of the Internet that’s completely controlled by the state. The Western Internet is completely free—which essentially means that it’s controlled by Big Tech. They reside on two sides of the spectrum. State. Free market. It’s easy and intuitive to understand.
 
The reason why nobody predicted India would create a third Internet is because it’s not that intuitive. Some even doubt that it even exists in the first place.
 
I’ll explain.
 
When India banned TikTok and 59 apps last week and spawned a thousand op-eds, one bit of big news flew under the radar.
Privacy first search engine, DuckDuckGo, appears to have stopped working for users of Airtel, Reliance Jio and Vodafone Idea in India since Thursday midnight.
 
Reportedly, the search engine is working fine for Excitel Broadband users. So far, it is not clear if the Indian government has blocked the US-based search engine, after it banned 59 Chinese mobile apps earlier this week.
Users report privacy first search engine DuckDuckGo not working in India, LiveMint
Here's what DuckDuckGo said in a statement.
Think about that for a moment. A US-based, privacy-first search engine wasn’t just arbitrarily blocked, it didn’t even know why or even whether it was blocked.
 
Think about WhatsApp’s payments product, which remains un-launched in India, stuck pending approval—for reasons that remain vague and unclear. However, Google Pay, which despite some confusing statements and clarifications by the RBI, is...legal.
 
Chinese Internet is controlled by the state. You succeed if they want you to. You fail if they want you to. If you are from outside China, and too big, chances are you won’t be allowed to play.
 
Western Internet is controlled by Big Tech and protected by a legal and regulatory system. One can argue some of these companies are way too powerful and the laws are way too liberal, and need to be changed to protect smaller companies from antitrust and monopolies. But the rules of engagement are clear.
 
India’s Internet is controlled by...<checks notes>...nobody knows.
 
And that’s exactly how it’s intended.
 
That’s the point
Three predictions
 
So what happens if the largest non-China Internet market in the world is controlled by rules and regulations that seem arbitrary, unforeseen and dynamic—with little legal protection or recourse?
 
I’m not sure, and I’m generally not in the business of making predictions, but I’ll take a shot at it today. If it helps, I’m wrong all the time. Just last week I was certain that there was no conceivable way for India to ban any Chinese product with any degree of effectiveness, and here we are.
 
Prediction 1 : More companies start to market themselves as being “Indian”
 
In many ways, this is already happening. Just look at the Flipkart homepage, just below the navigation bar—its prime real-estate.
 
Flipkart is owned by Walmart—an American company.
 
Now look at what Xiaomi displays at the centre of its navigation bar on its mobile website—arguably the first place a user’s eyes are drawn.
Right now, brand managers of companies with Chinese connections, investments and ownerships are all busy figuring out exactly one thing—how to say and display that they are actually Indian. Some already go the extra mile to claim they aren’t Chinese.
 
Made in India. Made for India. Made by India. Jobs for India. Indian employees. Indian small businesses. India.
 
The effort to signal purity will become more pronounced, both in the short term and the long term.
 
Prediction 2 : 80% of the Indian digital consumer market will be owned by seven entities
 
Over the next 24 months, due to uncertainty in the Indian consumer market, and due to drying investment opportunities by international VCs and Chinese capital, the majority of the India’s digital-only consumption market will be owned or controlled by the following seven entities:
 
  • Google
  • Facebook
  • Amazon
  • Paytm*
  • Jio
  • Times Internet
  • Government of India
 
The last player is significant. Think BHIM. Think Aarogya Setu.
 
Some players who own proprietary content, hardware or pipes may create niches or areas of influence in the Indian consumer Internet. Companies like Airtel, Flipkart (through Phone Pe), Netflix, Star + Disney and Xiaomi. A couple of companies may prove to be exceptions to this rule—maybe InMobi through Glance and Roposo, and possibly ShareChat.
 
Prediction 3 : TikTok’s users will get distributed across multiple platforms.
 
The biggest beneficiaries will likely be Instagram, Roposo, ShareChat and JioTok (which doesn’t exist, but by the time this gets published, it probably will).
 
There will not be a single winner.

There will be multiple winners.
 
None of them will be new startups.
That’s about it from me. If you liked this edition and are a subscriber, you can gift it to anyone using your special invite link below - which gives the recipient access to this newsletter for the next 15 days. WhatsApp. Twitter. LinkedIn. Anything.
 
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Take care.
 
Regards,
Praveen Gopal Krishnan
 
 
* Vijay Sekhar Sharma, Founder and CEO of Paytm is an angel investor in The Ken
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