The internet population continues to grow at a rapid pace. In 2001, there were approximately 7 million internet users in the country; over the past 12 years, the number has increased nearly 25 times, growing at a compound annual growth rate (CAGR) of over 30 per cent. Today, about 40 million Indians are online, spending 40-45 hours over the internet every month. India is the second largest market for social networking giants such as Facebook and LinkedIn; 58,000 new users get connected to a social network every day. Further, e-commerce is shifting consumers from in-store shopping to online shopping. Recently, Chinese smartphone manufacturer Xiaomi sold 75,000 of its Mi3 models exclusively online in five rounds of flash sales on Flipkart, most of which lasted for less than 10 seconds.

A joint report, [email protected], by the Boston Consulting Group and the Internet and Mobile Association of India (IAMAI) identifies the key emerging trends and growth drivers in the country’s internet market while stressing on the need for concrete and complementary actions by the industry and the government for accelerated future growth.

The following are the key highlights of the report...

Drivers of internet user growth

The report highlights three factors as the primary drivers for rapid growth in India’s online population. These are reach, affordable access and improved awareness.

Reaching semi-urban/rural versus metro cities: Nearly two-third of the cellphones sold in the country today are internet enabled, but they cost over $70. In order to make these affordable to a wider section of the population, the prices will have to be reduced. Over the next four to five years, data-enabled mobiles are likely to account for 89 per cent of the overall installed base of mobile handsets. Further, internet adoption will be driven by computers and laptops that will be provided as part of various government initiatives in education.

Network availability will be critical to make use of internet-enabled devices. The government and telecom carriers will have to play a proactive role in ensuring that the universal coverage of 2G networks in urban areas is replicated in villages by 2018, considering that 20 per cent of rural India continues to be deprived of this vital piece of infrastructure. A similar improvement will be required for the penetration of 3G and 4G services, which are confined largely to Tier I and Tier II cities at present.

Increasingly affordable access: The relatively steady rise witnessed in the median disposable incomes of Indians in recent years is expected to continue over the next half-decade, thereby increasing the percentage of households that are able to afford internet connectivity. Furthermore, the continuous fall in the prices of data plans has made internet consumption much more accessible and affordable for a large number of Indians. Telecom carriers are increasingly offering a range of inexpensive, bit-size data plans, while facilitating ease of payment with one-time processing options.

Enhanced awareness: While supply-side reforms such as improved access and affordability  will go a long way in driving internet penetration in India, stakeholders should also focus on increasing internet awareness among non-users.

According to an IMRB-IAMAI study on digital consumers in rural areas, 70 per cent of rural non-users are currently unaware of the internet and the range of benefits that it provides. This represents the foremost barrier to online adoption in villages, with the unavailability of devices (PCs, etc.) being a distant second factor.

Expected growth in the internet user base and impact on GDP

The report states that in the best-case   scenario, the number of people accessing the internet in India will rise from 190 million as of June 2014 to over 550 million by 2018. This will be made possible through near-universal 2G reach, improved 3G and wireline services, and government intervention in key issues such as public access, connectivity costs and consumer awareness. Reduced government intervention will lead to lower growth in the user base, resulting in approximately 400 million internet users by 2018.

By contrast, aggressive government interventions on all fronts will increase the urban internet population from 130 million as of June 2014 to 300 million by 2018. The real action, however, is set to unravel in rural India, where the internet user base is likely to expand by up to 40 per cent per annum, from a comparatively low base of 60 million as of June 2014 to 280 million in 2018. These projections, however, are based on the assumption that India will make progress at the desired rate in terms of affordability and reach, while overcoming the impediments to growth.

The impact of the rise in the number of internet users on the economy will be significant. In 2013 alone, the internet sector contributed $60 billion or 2.7 per cent to India’s gross domestic product (GDP). The internet is one of the larger sectors in the Indian economy, larger than sectors such as health care (2.5 per cent) and defence (2.5 per cent), but smaller than agriculture (14 per cent). It is estimated that the internet economy will grow to over 4 per cent of GDP by 2020, comparable to developed markets like the US, the European Union and Japan. The internet economy is also an employment generation engine. At present, the internet sector employs 400,000-500,000 people and is expected to create 1.5 million-2

million jobs by 2018.

Changing internet user profile

The next wave of growth in India’s online population is expected to give rise to a user base that will be significantly different from the current internet user base, in terms of geography, demographics, access devices and content media. The following trends can be expected...

Older netizens: The report estimates that those over 25 years of age will account for 54 per cent of the total number of netizens in urban India by 2018, as against 40 per cent in 2013. Meanwhile, older internet users with a higher disposable income are likely to transact more online, creating business opportunities for e-commerce players and other service providers.

Rural users: These users will increase from 29 per cent of the total internet population in 2013 to 40-50 per cent in 2018. This will open up significant growth opportunities for manufacturers and service providers alike, which can leverage wider, targeted and more cost-optimal online channels effectively to cater to an increasingly more internet-savvy customer base in villages.

Gender balanced: Over the years, there has been a skew in favour of males in the Indian internet population, with females accounting for merely 25 per cent of the total user base in 2013. However, this demography will change, with women expected to constitute almost 33 per cent of the overall online population by 2018. The increasing parity in gender ratios will have a major bearing on the internet economy in terms of marketing campaigns and other services directed at women as they control 44 per cent of the total household spend in India.

Mobile: Mobile internet users are likely to constitute 70-80 per cent of the total online population by 2018, as compared to 60-70 per cent in 2013. One important dynamic of this secular trend is that 70 per cent of rural users access the internet through their mobile handsets.

Vernacular content: As a diverse base of users, including rural netizens, gets connected to the internet, they may increasingly opt to access it in their native language. The use of vernacular content online is estimated to increase from 45 per cent in 2013 to more than 60 per cent in 2018, mirroring consumption patterns in mainstream media such as print and television.

Clearly, the internet user profile is likely to evolve significantly over the next few years, opening up new challenges and also providing new opportunities for all stakeholders involved.

Unlocking the potential

Understanding the potential of the internet and taking commensurate action are key to making the internet more pervasive and effective in terms of impact. The following areas have been identified in the report as the means to unlock the potential of this sector:

•Creating access through network reach and affordable data-enabled devices/ internet plans.

•Facilitating digital transactions and easing payments.

•Developing a regulatory framework that facilitates content development and does not hinder the growth of the industry.

•Internet governance that enables all stakeholders to function effectively.

•Enabling entrepreneurial ventures through ease of financing, mentorship programmes and a strong digital workforce.

•Facilitating the creation of a local language/vernacular internet in order to boost uptake in non-urban areas.

Call for action

Having looked at the internet opportunity, the potential for growth and current challenges, the task at hand is to take adequate steps to convert this potential to reality. The stakeholders and the government need to work together to lead this transformation and create an ecosystem to facilitate the shift to online services. s