Mobile to fuel Indian digital growth

12 March 2012

NEW DELHI: The digital economy in India is set for an unprecedented boom in the next three years, a process likely to be driven by mobile phones, according to new analysis.

Writing in the Harvard Business Review, Jeffrey Rayport, an operating partner at Castanea Partners, the private equity firm, argued India's new media sector has a "stunningly bright" future.

"Practically any statistic you might cite about 'Digital India' suggests that something unusual is going on. And the impact will occur in the next 24 to 36 months," he said.

India currently has 80m web users, an extremely modest penetration of 7%, hitting 17% if considering urban markets. However, the government plans to spend $4.5bn on extending the broadband network to an extra 160m people by 2014.

Moreover, Avendus, an Indian investment bank, has predicted the online population should reach 376m people by 2015, offering opportunities to brands in a variety of sectors.

Mobile phones will play a key role in this trend. Currently, there are 800m mobile subscribers, and Morgan Stanley has forecast that 3G penetration will stand at 22% by 2015. A 4G roll out will also start in 2012.

Rayport argued that rising smartphone usage, in particular, would exert a beneficial impact. The cheapest such device available at present commands $65, a pricepoint that should continue to fall, thus further widening accessibility.

"One of every four internet users in the country now accesses the net using a mobile device. A leapfrog effect will mean that three of every four Net users will do so by 2015. Bye-bye to the clunkier and more costly PC," he said.

The mass appeal of "ABC" content – based around astrology, Bollywood and cricket – will further fuel engagement, Rayport added. The average Indian consumes 4.5 hours of media and entertainment a day, with these categories commanding attention.

Moreover, 70% of the population currently spends money on content, while, on a per capita basis, internet usage already comes in at 40 minutes every day.

Turning to ecommerce, at present only 11% of netizens buy goods online, and 87% of the $6.3bn market is attributable to travel. More positively, as Amazon, Infibeam and others compete and the web audience grows, sales figures should climb rapidly.

In keeping with the overall trend, Mergermarket reported that investment activity in the digital space increased from $111m in 2010 to $829m in 2011, with the amount of deals exactly doubling, to 66.

Among the obstacles which must be overcome are the fact 16 languages are spoken across India. The communications infrastructure also remains limited, intellectual property rights are not always protected and subscriptions do not yet appeal to consumers, Rayport added.

Data sourced from Harvard Business Review; additional content by Warc staff