Friday, February 24, 2006

Will small towns be the growth engine for internet in India?

Internet seems to be on a move in the metros of India, but can it be the buzzword for small towns too?

Well if we look at the stats, it sure looks tough but quite possible. Today almost 70% of the total Internet users in India are coming in from the top 7 cities – Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Kolkata & Pune. Only 30% access is happening from all other cities put together.

Much of this can be attributed to the agonizingly erratic connectivity and pitiable bandwidth. No wonder, more than 2/3rds of the 30% from other cities are hooked on to the internet from cyber cafes.

If we look at logically, then a person in Gorakhpur should be a more willing buyer on the Internet as he can have more choices and lot of products / brands that may not be available in the local markets. A reliable e-commerce site would be like a Gurgaon mall for him.

When Indiatimes launched a branded 1.5 ton A/c offer at Rs. 12,000 around year and a half back, I know at least 5 people in Kanpur, my home town who bought air conditioners from Indiatimes shopping!

This can be a reason why e-commerce portals are already seeing almost 50% of their sales coming from the B & C class towns. eBay CEO Meg Whitman on her recent visit to India along with India Country Head - Gautam Thakar remarked about this as well

Categories like online travel & education also have a huge potential in these towns as there isn’t enough information / support on the ground providing information and options.

However, for people to plug into Internet in the smaller so called B & C class towns of India lot of work and focus is required from various stakeholders:

  • ISPs / Telecos to give good connectivity at reasonable rates (I hope we have some low cost mass access technology like Indian Wi-max coming in soon)

  • Hardware companies to provide low cost computers at easy installment schemes. (A 500 rupees per month scheme where you get a computer and internet access!)

  • Publishers to provide compelling & local content in local / regional languages

I place my bets strongly on the small and mofussil towns of India being THE growth engine of Internet over the next 2-3 years.

Thursday, February 16, 2006

Online Shopping in India

If online shopping has to become big in India, we would need scale both on the transacting buyers as well as on the sellers’ side. Currently, there are less than 1,000 merchants in the country who are doing business online. Large chunk of these merchants are SMEs. Most of them do not even have their own websites but are just plugging in as vendors / suppliers to the major online shopping portals.

The number of buyers who are buying stuff online also remains low. Major reasons are low internet penetration (around 25 million total internet users), low credit card population (less than 15 million credit card population with unique credit card owners even lower than 10 million), non-willingness of people to use credit cards for online purchases, adverse taxation rules etc.

No wonder, online shopping still remains a small activity. If we were to exclude Travel & online stock broking then the total size of online shopping in India will be in the region of US$ 60-70 million annually (Gross Merchandising Value basis). On the net commission basis it will be as low as US$ 15-17 million.

The current proposition online shopping portals are giving to their customers are “convenience” and scattered “deals” they are able to get from the vendors / brands. This is not compelling enough. The proposition needs to move away to aggregation & comparison. This can only happen when more merchants (SMEs), brand owners and retailers have their own online stores and strategies in place.

In US all major retailers – Walmart, Target etc have their own online portals. All the big brands too have their own online presence. However, in India barring LG who were early movers, I cannot even recollect any other Indian brand being available online! Amongst retailers, I know of only Pantaloon who are now in the process of setting up their online shopping portal. In 2005, ComScore Networks estimated to be the third most visited online shopping site after eBay and . Also, in 2005 online shopping in USA contributed more than 5% of all non-travel retail sales: Shopper’s stop, Pyramid, Lifestyle, Westside.. are you listening?

I am sure over the next 18-24 months we would see several national brands / retailers having their online shopping offerings. In the same timeframe, I estimate that the total number of merchants online would reach 50,000 and the total internet users around 50 million. Once this happens, I estimate that the B2C online shopping will scale up to US $ 500 million.

Friday, February 10, 2006

Flurry of top management movement in Indian online space

We are witnessing a change at the top management amongst the major online players in India. What is interesting to note is that most of these changes are from within the new media / technology space.

MSN India: Jaspreet Bindra appointed as MSN India Country Manager February 08, 06

Indiatimes: Dinesh Wadhawan of Microsoft joining Times Internet as CEO Feb 07, 06

Yahoo India: George Zacharias Logs Out of Sify To Join Yahoo! India As Managing Director Wed 18 Jan 2006

We now are seeing a renewed focus of the existing and new global players on their Indian operations / India strategy. Google recently has also formally launched their Indian sales operations . Online players in India are also gearing their organisations to face up to the challenge of realizing the potential of a growing internet business.

It will be interesting to see if any of these guys can have the same kind of impact that Terry Semel, the former executive of Warner Bros studio has had on Yahoo. Semel joined Yahoo as CEO in 2001 when Yahoo was trying to redefine itself after the dotcom bust. He has led a successful transition of Yahoo by focusing on marketing and consumer services. Semel not only rejuvenated Yahoo's ad business but he also instilled what Businessweek refers to as a “theme-park mentality” – Yahoo's various Internet services, from e-mail account to travel, interact increasingly with one another ensuring that the customer stays within Yahoo.

As the Internet space explodes in India, there will be a need to get talent from outside the industry to fill in the leadership roles. I am sure we will see this happening in the near future.
Let us hope that at least some of them turn out to be Terry Semels.

Friday, February 03, 2006

Action in Indian online Travel space

After SoftBank’s funding of $ 10 million in makemytrip in may '05, past 2-3 weeks has seen a spate of investments into various travel start-ups.

Related Links

Online Travel Company Gets $10 Million Funding
Kleiner Perkins Debuts In India With $2.7-3 Million Investment In
Kleiner Perkins Makes First Investment In India; Invests $2.7-3 Million In
WestBridge Capital Invests In Travelguru
Travel sites make hot investment option
E-Travel Company Yatra Online Gets Funding From Reliance Capital, Norwest Venture Partners And TV 18
Yatra Online Gets $5 Million; Indian Travel Mart To Attract VC Attention

Once all these and maybe few more online travel portals start their operations in India, will they be able to grow the online travel space and more importantly create differentiators for themselves to survive? Any wagers?

Update : March 10, 2006

Sahara has also anounced their intentions to launch a travel portal. Read this story on

Thursday, February 02, 2006

Users & market size estimations: Internet in India


Various estimates put Internet users in India between 15-50 million. I estimate the total number of Internet users at 25 million.

Let us put this in conjunction with figures for television and telephones.

There are 108 million TV homes in India out of which 61 million have Cable & Satellite access. This makes the estimated TV viewers in India between 500-600 million.

Mobile phones have vaulted to 75 million and Landline users are estimated to be 48 million making the total telephone users to 123 million.

Key growth drivers for number of Internet users:

Growth of Internet users has been sluggish in India. The following will be the key growth drivers for Internet usage.

Connectivity from home: Almost 60-70% Indians connect to Internet from Cyber cafes. The connectivity from homes need to go up significantly. At current rates the bottleneck is the cost of a PC. If the hardware players are able to provide a PC bundled with Internet connectivity at say Rs 500 per month EMI it can provide an impetus to people for getting PCs + Internet in their homes. This is similar to the reliance offer of monsoon hangama that catapulted the number of mobile users to a different orbit.

More local language content and offerings: Most of the current Indian Internet content and offering is largely in English. Estimates put the total circulation of all English publications in India at 8 million with an estimated readership of around 20 million. Can we conclude that by and large Internet has reached almost all English conversant population of India?

More compelling content & services: With compelling services like filing of statutory dues like challans, payment of taxes etc, school / college admission process getting online will boost the Internet usage. We can learn from the success stories of players like IRCTC & Air Deccan who have driven a lot of non internet users to start transacting !

Market size:

I estimate the current Indian Internet industry size between Rs 2700-3000 crore. This is not including B2B or access business.

The Indian Internet market is still small but is growing at a fairly fast pace. Everyone in the Indian Internet industry is waiting for the inflection point to be reached. This will obviously need more and more users to be connected through various devices leading to a larger revenue size of the Industry.

My take is over the next 18-24 months we will see a 50 million Internet user base, up from current 25 million. Doubling of the user base would lead the Internet market to grow to around Rs 10,000 crore.

Here is a split of the market size:

Advertising: 150-175 crores.

IAMAI estimates it at 162 crores

B2C Ecommerce: Transactions at gross value 1,500 crores.

This includes transactions on IRCTC & Air Deccan sites. Of course, one can argue that these are not pure-play Internet businesses, however I have decided in taking these numbers in my market size analysis. I estimate the travel business contribution to the total B2C commerce market at around 75%. This number is at best around 30-35% in the developed Internet markets. Travel has moved online because players such as IRCTC and Air Deccan have given good value proposition and convenience to the users.

If we were to remove IRCTC and Deccan from the business then the total B2C ecommerce market would be in the region of around 450 crores with travel contributing to around 125 -150 crores. This number would be in line with the global trends.

Online Stock broking: 500 crores

The 500 crore market size is of the “brokerage” earned. If we were to convert into gross value aka e commerce this will translate into a total value of between 1,50,000 – 2,00,000 crores. This is a segment that is the largest and growing very fast. I would not be surprised if this doubles in next 12 months.

Listing / Information / paid content : 300 crores.

I have included all revenue streams of players like Naukri, Shaadi, Bharat Matrimony etc. This revenue category is a personal favourite of mine. I feel this segment has grown largely due to tremendous work done by players like Naukri, Shaadi etc. They have put a humungous number of feet-on-street and are influencing even the small businesses to advertise on their portal. My wife who runs a small Interiors business has advertised twice on Naukri and has got a very good response!

Not surprising that this segment is larger than the advertising business. More about this segment on my future posts.

Mobile VAS players: 200-300 crores. All telecom brands of leading internet portals like Indiatimes 8888, Yahoo etc.

Caution: The numbers I have quoted here are my estimates and I request the readers not to take these as “definitive”.