Growing the Internet Market : What's the Big Deal ??

“ The economies of the last century were driven by railway connections, the economies of today are largely driven by the Internet and other ICT (Information and Communication Technology) links.”

– President Mwai Kibaki of Kenya, speaking a few days ago at the laying of East Africa’s first broadband cable line, connecting this region to Europe and India.

Why the big fuss about maximizing Internet users and usage? After all, among developing nations like India or Kenya, there are other areas for development e.g. roads, electricity, schools, hospitals and telecom. Which is true. All I wish is that Internet should figure actively among these top development priorities.

The Net is not just email, search, shopping, dating, social networking, portals, advertising revenues, IPOs and the like, or a poor investment, which at times the media has made it out to be.

It is now society’s most powerful tool for 'advancement'.

Consider:

A. During my travels around the country (more a few years ago than now, I admit) trying to popularize the Internet, I have found the desire to use the Net the keenest among the disadvantaged sections of society e.g. I found teenaged girls in small town Uttar Pradesh to be avid visitors of cybercafés.

B. Politically suppressed Iran now has more avid tweeters than perhaps most countries; Twitter has kept the ferment for reform in Iran, alive.

C. In China, which at 338 million users and counting is the world’s biggest Internet market, there is widespread usage of news and blogging. 79% of all Net users use it for News: this is the second most used Net application, behind music which has 84% users.

And there are more bloggers by far in China than in any other country, with 54% of all Net users i.e. 162 million blogging!

And China is still witnessing an explosive growth in Net users. Here is the latest available report.

It would appear that in a country with acute news censorship and propaganda, the Internet plays a major role. Media such as China Central Television (and I would imagine radio and press) are State controlled monopolies. Individuals can best inform themselves and voice themselves via the Net? Do we dare predict that it is the Internet that will one day willy nilly catalyze political change in the world’s largest non-democracy.

D. In Kenya, the laying of the new broadband link (see pic above) will, it is said, open up the door for it - and for other neighbouring countries - to join the BPO boom , creating jobs in economies which sorely needed (and posing competition to India’s call centre industry).

E. The Government of India has announced, in this year’s Union Budget, the setting up of an online employment exchange. India has just 8 million organized sector jobs, most people are in the unorganized sector.

F. Another recent announcement - that did not get sufficient attention - is the government’s intention to provide Internet marketing support to the country’s micro, small & medium enterprises sector. There are estimated to be 13 million such units, they employ 42 million people and account for 45% of the country’s industrial output. Online marketing can help them significantly, some players have been at it already, but there is much that can be done.

G. ITC’s E-choupal has placed 6,500 Internet kiosks across 40,000 villages, benefiting a potential 4 million farmers. These give information on crop prices, access to markets, weather patterns and farming knowhow, leading to improvements among small and marginal farmers - that would have been otherwise impossible. This is the world’s largest ‘rural digital infrastructure’, says the company.

Then there are other companies that have installed rural Internet kiosks for other (non-agri) purposes, e.g. Comat for e-governance.

H. This year, for the first time, online application was mandatory to admissions to colleges in Mumbai city. Nearly 200,000 graduating high school students have just submitted their admission applications online.

Till last year, prospective students hopped from college to college to first pick up and then drop by (submit) the applications. At about 5 colleges per applicant and 2 trips per college, this year that’s 2 million trips saved!

That’s the power of the Internet. And that’s what just one (admissions) website can do.

There is a humungous diversity of uses to which the Internet can be put. Agriculture, e-governance, recruitment, outsourcing, small business, college admissions and political change are some of these, as the above random examples show.

An economist would say that the Internet has high ‘social utility’. A rupee of investment here has a high multiplier effect.

See also previous posts on 'Growing the Internet Market' :

An Agenda to Grow the Indian Internet Market

More on an agenda to grow the Indian Internet Market

More on the Agenda to grow the Indian Internet market

In the last post ( at blog http://marketerskaleidoscope.blogspot.com, this is fyi for those following the Facebook feed) on July 11th, five actions (not exhaustive, it’s my pick) were suggested to grow the Indian Internet market :

1. Internet association IAMAI should join hands with other organizations and individuals
2. Studies that put a socio-economic value to the Net will help immensely
3. Talent needs to be developed
4. Adoption of Indian languages is the key bottleneck
5. It’s possible to identify “compelling applications”

There was some interest in that post, motivating this update.

Let me dig deeper into actions 1,2 and 4 above. Once again, I largely ignore the possible upsides from the mobile Internet (an area of which I know as yet little). This post is thus about Internet via the PC.

1. On IAMAI joining hands with other bodies

Last week the PC manufacturer’s association MAIT has gone ahead and published it’s own numbers on Internet use, numbers which are in variance with those of Internet association IAMAI.

There are, says the MAIT report, 8.6 million Internet “entities” and 60 million Internet users. (No definition is available on what qualifies as a user, appears to be closer to what the Internet industry would call “ever used”, rather than “active user”).

These vary from the IAMAI & TRAI estimates, not to mention those of others. ISP & telecom regulator TRAI’s Internet subscriber numbers are 12.85 million for Mar ’09. And the IAMAI had estimated 42 million active urban Internet users for Sep ’08. (Given the 20% p.a. growth being experienced - I had given 50 million as the current number).

To be fair to MAIT, their study is primarily a PC & IT hardware numbers study and Internet user numbers are only an add-on.

What stops the IAMAI and MAIT from talking to each other and putting out one set of numbers? Multiplicities of numbers dilute the seriousness with which the Internet sector is taken.

MAIT’s press release that put out the above numbers also made the following astonishing claim, and I quote: “MAIT has set for itself an ambitious target, 'Goal 511', 500 million internet user, 100 million broadband connection and 100 million connected devices by 2012.” No specifics of how this miracle is likely to be achieved, though there is a brief allusion to 3G and WiMax network rollouts.

Ironically, both IAMAI and MAIT use the same market agency IMRB but have different numbers, both of which enter the public domain...

2. Studies that put a socio-economic value to the Internet

We have probably all heard of the multiplier effect telecom is supposed to have on a nation’s economy. There is a correlation between telecom density and GDP growth, it is said.

You would have also heard of the stories about the fisherwoman (or is it the vegetable farmers?) who became rich once she got her first cellphone.

As regards the Internet, stories that have appeared with higher frequency are stories of dotcom IPOs (just 2 in India’s 13 year old industry so far, one on the NASDAQ and one on the BSE), of entrepreneurs could got or nearly got funding, robust ad prospects of this sector, etc.

There is one study though. This is by TRAI dated November 2003 and another 2003 study by CII. These were the studies which first made the case for Internet and broadband expansion in India. The CII study said (and I paraphrase) :

“Ubiquitous broadband is expected to create - between 2010 and 2020 - 1.8 million direct & 59 million indirect jobs, as well as create an increase in National Output (GDP) of $90 billion, calculated at PV (Present Value) in 2003 prices. Benefits are seen in improvement in productivity of the existing labour force ($47 out of above $90 billion), e-education at vocational and higher secondary level (worth $27 billion) and e-literacy programs in secondary schools (the balance $14 billion).

10 million urban broadband connections should be targeted by 2010 as well as 100,000 villages connected by Internet kiosks.

All broadband connected villages can enable

(i) the benefit of virtual primary, secondary & adult literacy and distance education through the kiosks,

(ii) e-health viz. each village kiosk acts as a telemedicine centre
(iii) every urban and rural connection acts as a single window Government interface for e-governance.
(iv) Entertainment and e-commerce services and employment opportunities will become available as well through broadband connectivity to all cities, towns and villages in India.

The total investments for achieving these milestones is summarized in the exhibit 4 of the report as $5.35 billion of which $2 billion were to be for content alone, $500 million was earmarked for rural infrastructure with the balance for urban infrastructure.”

If these old studies are updated and others presented it will revitalize interest in investments by government and private sector, interest seems to have taken a beating because the Internet sector is seen as one that has failed.

For example, it was recently reported that the Government is planning to spend Rs. 40,000 crores (INR 400 billion) to deliver services like the Unique ID number, healthcare, municipal services and some services from Indian Post. If this is indeed true, we will need an ubiquitous and robust Internet infrastructure first. Someone – it could be one of the IT biggies or Nasscom - needs to put a number and make a ‘must have’ case for this.

We now also need a Nandan Nilekani-type appointment to champion the creation of this infrastructure.

4. Language adoption is the key bottleneck

Also in the last post, two interesting numbers were ‘thrown into the ring’: 20 and 205. 205 million is the number of urban literates. And 20 million is the number of people who can actually converse in English, out of 86 million odd who claim to ‘know English’.

If we look (IMRB, Mar ’08) at the number of ever used Internet users (50 million), these are fewer than PC users (72 million), which in turn are fewer than the number of English ‘literates’ (86 million). And English speakers are growing much slower than the number of PC literates and Internet users.

This could be the key bottleneck in the growth in PC and Internet usage.

Did a quick (am no expert) check and learnt:

a. What’s needed for language use are keyboards (hardware), fonts and scripts (software) and content.

b. No one is talking much of external keyboards anymore, they don’t seem to be readily available.

c. As regards fonts and scripts - after years of work thereof - Windows now support most Indian languages. However, a friend of mine, who has been an IT infrastructure manager for over a dozen years - admittedly in big metro Mumbai - has himself never seen a PC being sold with it’s OS pre-configured with any Indian language.

d. Microsoft could have shaped the language agenda. They seem to have been at it for a long, long time, without a breakthrough in the market. Their site on language computing does not seem to have been updated since 2006, leading one to believe this is not something actively engaging their attention.

e. Over and above the OS, there are several applications available that claim to ease the convenience of giving a language input on a PC, these are typically transliteration tools aimed to help (say) the English Internet user send an email to his granny in the village. They don’t address the language requirement per se.

f. There also seem to have been some sincere government initiatives. But these have been on for at least ten years ,in fact earlier ever since the 80’s, when PCs came into being.

g. Multiple softwares and the lack of a dominant player mean that there are no standards in existence. We are stuck at the PC bottleneck (software & hardware) end itself, not at the content end.

h. With none of the major PC manufacturers on to the language trail, the marketing thrust to popularize languages is missing.

i. It’s believed by many that we Indians prefer English per se for PC or work related use, and our own languages don’t stand a chance. Why turn the clock back, the world is going English, they say. Fair enough, but in a large country like India, this is going to take generations. It’s taken 2 years for the number of ‘English-knowing’ adults to grow from 77 million (2006) to 86 million (2008).

The company I work for is also into English education, so this is something I know a bit about. There is and will remain a big unfulfilled gap between demand and supply of English, both in schools and in teaching institutes. We can’t bypass language use if we want to progress.

j. The great Google doesn’t have an answer to this one yet, either. When Shailesh Rao, Google India’s head was asked a couple of months ago about the Indian language Internet, he seemed to duck the question and started talking about the mobile.

Shailesh believes there are 35 million people with a functional command of English (I have been touting 20 million, matters not, both are lower than the number of claimed English knowing people of 86 million and under 20% of India’s urban population).

The future does look bleak for the balance 1000 million + Indians, their not knowing English may deprive them of the joys of using a PC and the Internet the way you and I know! "Let's give the poor guys the Internet via a mobile phone" is the refrain.

I don’t quite understand the absence of success in developing languages for PCs and Internet. Other countries have all popularized their own. This is preventing the (bottom-up) generation of mass demand for Internet services. This is the choke point.

An Agenda to grow the Indian Internet market

This (somewhat lengthy !) post will be of interest to well-wishers of the Indian Internet industry. We will arrive at five things to do by and for the industry.

A. Growing the Internet user base has been a key thrust area for the Indian Internet industry.

Internet firms today derive their revenues primarily from advertising, and they believe online ad market revenues correlate with the overall number of (Internet) users. And these user numbers for the Indian market have, as I wrote in this blog in Oct 2007 as well, been growing at just about 20% a year.

Estimates of the current Internet user base vary. The most reliable numbers are those from IMRB, India’s well-known research agency, see summary graph here. By this measure we seem to be at about 50 million active users (active = used Internet at last once a month, the globally accepted definition).

The same graph also shows growth in Internet subscribers, as given by TRAI. The IMRB and TRAI numbers serve as a proxy validation for each other.

The industry believes this user base is rather small in absolute (Internet penetration versus other countries) and in relative terms (mobile users have grown over 8 times faster). Notwithstanding this, by one estimate, India is today the world’s 4^th largest Internet market (after China, U.S. and Japan).

The Internet ad revenues themselves have been growing at a fair pace - by one estimate they today constitute 5.4% (Rs. 5 billion) of the total ad market, and will grow at 44% in the current year. But this is clearly not enough to satisfy every Internet player’s aspirations, the lion’s share goes to 2-3 (Google with Yahoo a distant second) of the hundreds of players. Hence the industry’s clamour to grow the user base.

B. Recommendations to grow the user base were recently tabled at a Keynote at the 5^th Digital Marketing Conference of industry association IAMAI.

IAMAI is the Internet and Mobile Association of India.

Recommendations that were given at this keynote address, being taken here as a proxy for what the industry believes, are not new. Some look correct in principle, but will be tough to implement.

These recommendations include:

1. Government needs to play a catalytic role by
- boosting the broadband subscriber base (TRAI recommendations of year 2004)
- provide support to ISPs

- Encouraging the cybercafés business
- encouraging debit cards for e-commerce
- enable easy funding for start-ups
- and (this is new and important) reserve part of upcoming 3G spectrum allocation for data (not voice alone)
2 Indian languages need to get a boost on the Net
3 Mobile operators need to play ball with content providers by giving higher share of the VAS revenues to them and by not moving into content themselves,
etc.

Various questions arise related to the above. In this post, we concern ourselves with just two :

1. Is the government likely to do something at all? Who will bell the cat? Is the IAMAI well suited for this?

2. The above wish list is rather long, if one were to prioritize, what would these priorities be?

C. Roadmap to grow the Indian Internet Market (5 suggestions)

1. Join hands

The tasks before the industry is huge. The IAMAI does not have a history of lobbying the government, nor do it’s members itself have much experience in government affairs.

Other associations like MAIT, the PC manufacturers association and the ISP Association ISPAI as also software association NASSCOM itself, have been at government lobbying longer. Internet growth will benefit them too. An organization like TIE has clout. Then there are start-up associations like Proto.in.

IAMAI would do well to ally with one or more such experienced bodies to move the government faster.

At times, some of the causes IAMAI champions seem rather small, fiscal measures, not on any big visionary thrust.

IAMAI’s seven founder members are in fact the country’s leading portals, who derive their revenue from advertising. IAMAI remains essentially rooted to it’s desire to grow industry revenue, rather than grow the Internet market. It’s power structure as well as it’s membership is still skewed in favour of media (read ad-revenue) firms.

An Internet association should have thousands of members, individuals included, not just a few dozen firms as is the case currently. The Internet is a public good (no different from water or roads) and too big and important to be represented by just one Association, no matter how well-meaning. E-governance, for example.

2. Understand the full value of the Net
We need organizations and professionals who can educate, nay form public opinion about the benefits of Internet use; preferably with empirical data from research studies.

The Internet can make a mammoth socio-economic contribution, giving a high return on investments made in it’s infrastructure. The above studies can establish the viability of government and financial institution funding for the Internet sector in the Indian context.

The government recently announced in the Union Budget that it would set up an online employment exchange for the country. The tragedy is that Internet access itself is restricted.

3. Develop talent for the industry.

There is a crying shortage of good web designers, trained product managers and Internet marketers. I work at a company which is a big player in informal education and we do provide certificate courses in web design, but neither we nor our competitors have kept pace with the fast changing knowledge. No university or college degrees or diplomas exist in the Internet field. These occupations are outside the province of IT companies and ad agencies as well. And all this in a field that advances by the day.

There are but few Seminars or events regarding Internet which provide great learning value. (The Bar Camps and the like are infrequent and of uneven quality). The ones which exist are often pure media events designed to cash in on the Internet hype (“Web 2.0”) and/or are “plugs” for a select group of industry captains. Silicon Valley is 10,000 miles away, where does a professional renew oneself?

A few digital firms as well as IAMAI have begun with Internet Marketing courses, but on the design and product side there is still a vacuum. Without good people, compelling applications and great user-experiences cannot be provided, and the Internet market will not take off.

The space is ripe for entrepreneurs to move in?

4. Language, language, language

Online content in Indian languages has been created over the years, but these sites failed to get traction. This is because today’s PCs do not support language OS and language keyboards are not in common use, so current PC users, ;eave alone Net users, are only those comfortable with English.

There is evidence that the No.1 factor stalling the growth of the Internet is language. If one looks at two numbers, viz. the number of computer-literates (as presented in the annual Internet market surveys of the IMRB) and “English knowing individuals over the age of 12”, there has over the years been a good correlation. These numbers are currently 72 million computer-literate (IMRB 2008) and 86 million

English-knowing individuals count is obtained from the National Readership Survey (NRS). I remember reading elsewhere that only 20 million Indians can really speak English. This comes as no surprise to me. When a few years ago I ran Rediffmail, Rediff.com’s email service which then had 35 million registered service, much of the customer mail I received was in abysmal English.

In effect, of 205 million literates in urban India, only 20 million have reasonable English-skills. The Indian PC & Internet industry has not yet marketed the right product for 90% of the urban population! It’s no use complaining about the lack of vernacular web content, let’s get the average user started first in Word & Excel in Hindi or Tamil.

A further discussion of what’s gone wrong regarding popularization of local PC hardware, software and web content requires a separate post.

However, it’s worth noting that India is perhaps the only country in the world where a local language (say Hindi) is not the lingua franca at the workplace. There is an inadequate push for the adoption of non-English PCs and mobile devices. This is a situation unique to India, which we need to break out of.

Separately, apparently, Hindi is the world’s third largest spoken language, after Mandarin and English, with about half a billion speakers !

5 . Compelling web applications
The Indian Internet companies and entrepreneurs themselves have a role to play by introducing compelling applications. What exactly is a compelling application ? How can an entrepreneur be sure he has one? This is a subject fit for a follow-on post.

(A declaration : I was, as Chief Marketing Officer for Rediff.com, involved in tracking and pondering on the growth of the Indian Internet market during 1999-2005 . I helped IMRB kickstart their annual Internet market surveys in '99. Was also briefly on the Government Sub-Committee of the IAMAI in 2004-05 ).

The Indian air & rail travel market

Most posts at this blog have been about the value-addition online is bringing to our world.

However, the bigger underlying story this blog was begun with is the Great Opportunity the Indian market offers. And online has been presented as one important enabler to realize this Great Opportunity, given the poor offline infrastructure that prevails.

This post itself is about the sheer potential of the Indian travel market. Some interesting facts on the air & train travel market :

Air travel market

Capt. Gopinath of Air Deccan-fame informs us :

• The number of air tickets sold in India has grown 4 fold in 5 years, from 13 million in 2004 to 50 million currently. This, in a country of over 1000 million.
• In contrast, in Ireland, a country of 5 million, 25 million tickets are sold a year. That's a clear 100x per capita consumption on a country to country basis.
• In Malaysia, in a country of 25 million, 15 million fly. This is probably the same number flying in India, a country over 40 times the size.
• In the United States, 40,000 flights take off every day, in India the corresponding number is less than a thousand.
• The U.S. has 18,000 airports, India has about a hundred,etc.

In short, while in India the aviation sector has of late grown by over 25% p.a., it is still a vastly unserved market, lagging behind other countries in terms of per capita use by about two orders of magnitude.

Unfortunately, despite these long-term prospects, the aviation sector is currently in the doldrums.

Rail travel market

The Hindustan Times of today has the following interesting stats about rail travel in the country. Did you know :

• 8,984 passenger trains are in operation each day
• These trains carry 15 million people a day
• Mumbai city itself runs 2606 suburban trains
• These suburban trains carry 7.5 million passengers
• Thus, Mumbai city alone runs 29 % of the country's train services and carries 50% of the train passengers !
• The average journey distance nationally in 2007-08 was 102 km
• The average journey distance nationally in '08-09 was 117 km, an increase of 15% (an unusually large number bears closer examination) over the previous year.
• The total number of train passengers in '08-09 at 6.97 billion, was 6.3% more than in the previous year, an impressive number considering the large base.
• Passenger segments which are witnessing big growth are :

- farm labour travelling from Bihar to the Punjab

- Students travelling from some northern States to Pune, Bangalore,Hyderabad & Chennai

- great increase in outbound traffic from NorthEast (due to increased rail infrastructure)

Urbanisation i.e. migration is the biggest long-term factor causing increased rail travel. The Railways also believe demand will continue to grow manifold in coming years.

If we look at air & rail travel - together, as above - India is 'on the move'.