Shashank Mehrotra on what business opportunity will 30 million new internet users in 2012 really represent?

As I started to reflect on this question, my first thought was to look at all the amazing trends that we have witnessed in the Indian internet landscape in 2011. Here are just a few for context. The total number of internet users crossed the 120 million mark; ecommerce is now in excess of Rs. 40,000 crores annually; the Indian Facebook population is touching the 40 million mark; there are 50 million mobile data subscribers; new companies and eco-systems are being created around cloud computing, online advertising, mobile applications, web infrastructure, online travel, and much more.

By multiple estimates including reports published by BCG and McKinsey, India will reach somewhere in the vicinity of 250-350 million internet users by 2015. I took a liberal interpolation of those estimates to arrive at a number of 30 million new users that we will add in the coming year. That’s a staggering number – and larger than the entire population of Australia if you like those kinds of comparisons. However, to truly deconstruct this number and get a sense for what the potential impact this will have for a business looking to leverage this user base, we need to look carefully not just at the users but also at the following ‘inverted iceberg’- where there is more than that meets the eye below the surface.

New internet users are without doubt the first step in this story. By any count, adding 25-30% to the entire user base (the growth between 2010 and 2011 was 13% according to the IAMAI ICube report) from 2011 will be an impressive achievement if make it. However, if you consider the various internet access modes (i.e., DSL, Cable, Satellite, GPRS, 3G, LTE, Wimax …) the only modes that are likely to create any impact will be variants of mobile Internet/wireless. Fixed wireline connections are unlikely to contribute as much to the overall number, growing roughly in single digits for even the major ISPs. The gargantuan investments in spectrum made by India’s Telcos, including Reliance Industries’ pan India license for broadband wireless access (BWA), will have to lead the charge here. What this will hopefully mean are two things: 1) cheaper and faster access as Telcos rush to monetize and 2) form factors to access the Internet such as tablets that go beyond the drab ‘scroll-with-your-thumb-until-it’s-sore’ on miniscule screens. Already, both of these look like distinct possibilities. The recent launch of Aakash, a sub Rs. 3000 tablet, portends of good things to come. Also, mobile telephony in India has some of the lowest rates anywhere in the world so there is an argument that wireless Internet access will follow suit.

That’s great, but until we can make consumption of content much easier and cheaper we’ll still never be close to achieving the next goal which is increased engagement and frequency of use. Active internet users in India are currently defined as those that access the internet once a month. I argue (from my admittedly biased view) that this is not really characteristic of an active user. The BCG study on internet’s next billion puts the average number of hours spent online per day by Indian internet users at 0.52 hours, again this number is likely skewed and the small number of ‘truly active’ users inflate the average. The real indicator of how active a user is how important the internet has truly become in her life, has it truly started to reach a point where she cannot get by for a single day without it? Here too, there has been tremendous progress over the last year. Use cases such as shopping for books, apparel, electronics, and such have really exploded this past year. However, consider that these ‘applications’ currently comprise not only of just 14% of the total online ecommerce spends (travel comprises the remainder) but also a similar percentage in terms of the Internet users who have actually ever used them. Snapdeal, a popular deal shopping site has only recently grown to over 10 million users. Not to undermine those numbers, but what are all the other users doing then? In my opinion, it still represents a gap from a business opportunity standpoint – email, reading news, social networking, checking cricket scores, browsing music and videos.

Obviously if you’re one of the (big) players providing the services outlined above you’ve got a piece of the pie and the ability to monetise – but the reason I wanted to draw attention to applications is that the real addressable user number may be significantly smaller than what is initially visible. An important side note here is the accessibility of content in local languages. The Internet in India is still mainly an English only phenomenon. Everything from computer keyboards, to user interfaces, to domain names operate primarily in English. At some point, when we run out of an English speaking population that consumes this content the fulcrum will have to shift. How? I don’t have a good idea at this point though there are lots people trying to crack the vernacular Internet. Finally, to assess the business opportunity one also has to look at online payment options available in India. This topic has been the source of great debate and while the number of online payments are increasing (as they very well should), some of the other indicators appear strangely stagnant or even regressive. Consider that the number of credit cards in India has been declining for two years in a row. The not-so-secret secret in ecommerce circles is the high number of failed transactions due to poor banking systems, architecture, and reliability. Mechanisms such as cash-on-delivery are filling in this gap and have become recently important in this context.

There’s obviously a lot going for Indian businesses looking to leverage the booming internet population and rapidly expanding user base. Opportunities exist in abundance for players big and small, and 2012 is likely to see more fiery entrances and perhaps a few damp exits. My parting thought is that we need to recognise is that it’s not the 30 million that we will add in the coming year but the existing 120 million who really count – personally I didn’t exactly purchase anything the very first year of being online and I imagine they won’t either.

Shashank Mehrotra is the business head of BigRock (a part of the 300 million $ group of web products company- The Directi Group)