This story was provided to us by our content partner VCCircle.

Recently, Tencent Holdings, an affiliate of MIH China, announced that it would pick up a 50 per cent stake in MIH India, the owners of ibibo.com, a social media website. It also said it will invest $7.5 million in the company over next three years (this investment is not to be confused with the value of the 50 per cent stake of the company, according to company officials).
MIH China is 35-per cent owned by Naspers, the parent of MIH India. Although the deal seems to be an intra-organisational one, the tie-up will mean the Indian entity will have access to the technologies of Tencent, besides other capabilities in internet and mobile value added services. Catherine Chan, spokesperson for Tencent Holdings Ltd, said that her company has been “looking for opportunities to invest in a start-up team in India who is passionate about community and social networking services in a local market”. So a group company fitted the bill. MIH India has also been active in making acquisitions such as a stake in ACL Wirless and a couple of web 2.0 properties Bixee and Pixrat. VC Circle’s Shrija Agrawal catches up with Ashish Kashyap, CEO, ibibo Web Pvt Ltd, on what the deal means for the company, and also the potential for social media in India. Excerpts:

Q: What does the Tencent investment mean to you?
Ashish Kashyap: The partnership will result in the creation of a brand new joint-venture for the Indian market, which will be built-out together between Tencent and ibibo. The JV will have access to Tencent’s technology and ibibo’s local management team and existing presence in India.
It also allows ibibo to benefit from Tencent’s expertise in the area of providing internet and mobile value-added services, as well as online advertising services. This will hence enhance ibibo offerings in India and the market position in the long term.

Q: What are the deal terms?
AK: The structure of the transaction is as follows: Tencent will grant ibibo.com immediate licensing and access to its products and technologies. Tencent a leading internet company in China and owns the popular instant messaging and communication brand, QQ. In exchange, Tencent will receive an option to buy into ibibo over a 5 year period.
Tencent has the option of buying up to 50 per cent of MIH India (That owns ibibo). The price for exercising the option is subject to the total amount of funding injected by Naspers/MIH India into ibibo.com over the period.

Q: When do you see yourself becoming profitable?
AK: ibibo.com is a start up launched in early 2007, hence in the early period of the business, the focus is to build out products, localise the applications and execute on the strategy. All these aspects take priority over short term monetisation and profitability. The partnership with Tencent will further focus on providing robust internet based products and services, identifying new opportunities for the local market, so as to build a strong market position in the long term.

Q: How do you make money from the current internet properties?
AK: Advertising sales. As India is a nascent market and ibibo is a start-up operation, we believe strategy execution, product customisation and user experience have priority over monetisation.

Q: Is India ready for social media and web 2.0 businesses?
AK: Indian internet story share similar attributes as that of People’s Republic of China. The nature of the market and infrastructure is also similar to China 5 to 10 years ago. India has a long term growth potential; it’s the second fastest-growing economy; it ranks #4 in internet population (with 30.3 million Internet users) and growing at 28 percent year on year.
The emergence of young, educated and well-to-do people who are existing or potential internet users (69% under 35 year-old); looking for lifestyle, community & entertainment services.
Early signs in India are extremely positive for online social media businesses. Though there are challenges of broadband growth, yet there is a clear need amongst the new Indian youth to reach out, create their ‘new social graph’ and get recognition. For example on ibibo, more than 60 per cent of its users are from mid-size cities and towns, who have a need to express, collaborate and get recognized. Ibibo’s successful applications such as ‘iSuperstar’, ‘Public Ka Vit Mantri’ and very recently ‘iFashion Photographer’ are clear paradigms of the need for the Indian youth to show case their talent and discover new relationships.

Q: Are you looking for more acquisitions or investments in Indian digital media companies. What are the areas that excite you?
AK: We will be open to exploring new opportunities and possibilities.

Q: How big is your establishment in India? How many people do you have in India?
AK: 130 people spread between Delhi and Bangalore.