[The Outline By Inc42 Plus] Welcome To The World’s Largest Internet Market

Dear reader,

Bear with me for a short history lesson.

Let’s go back to the year 49 BCE, to the time of Julius Caesar and before the birth of the Roman Empire. As his governorship was winding down, Caesar pined for more power.

Despite being warned about the potential consequences by the Roman Senate, he and his army crossed a river called Rubicon, leading to a civil war, the reign of Caesar as king and the birth of the Roman Empire, one of the most influential events in history.

Caesar’s act led to the phrase ‘crossing the Rubicon’ — put simply, a point of no return. Now, over 2000 years later, India crossed its own Rubicon.

India’s digital economy always held massive potential, but this promise is now being fulfilled with great enthusiasm, perhaps more than anyone expected.

The World’s Largest Internet Market

Outside of China’s insular ecosystem, India is clearly the world’s largest internet market today, and the boom is only beginning.

It ranks among the top in a slew of key indicators. The number of internet subscribers has soared to over 833 Mn (June 2021). Curiously, rural India has seen subscription numbers rise to 336.87 Mn, while urban subscriptions fell to 496.84 Mn.

App downloads, a key metric to measure mobile internet usage, has also grown rapidly. India is the second largest market in the world for app downloads to date in 2021, according to App Annie, with 24 Bn downloads.

This year has also been unprecedented in terms of capital inflow, the effects of this funding spring will play out in 2022, analysts told me. Startups that raised millions of dollars this year will now capitalise on it and look to retain users, acquire new ones and create a layer of education to bring the non-internet users online.

Outside startups even the corporate majors are flexing their muscles and looking to create moats within their digital services divisions with super apps. The biggest examples being Tata Group and Reliance, with the Adani Group also joining in. Reliance and Jio are going a step further with the hardware-based strategy to bring 2G users to its digital services umbrella, focused around the JioPhone Next.

Analysts believe that any market where super apps become dominant is on the verge of becoming an internet-first market, whether the super apps themselves work or not. This notion is backed by examples like China or Indonesia. The guiding principle behind a super app is that most transactions and commerce happens online.

And why not? After all, the internet is now intrisincally linked to every Indian’s daily routine.

Tech Permeates The Indian Psyche

While India has always been a massive market for most consumer companies, the consumer tech wave is capitalising on the latest transition to digital. So far, the biggest complaint about the Indian market has been that while users are more than happy to log on, online spending has been low and the general feeling was that it would take decades for this to change.

But the past 24 months have turned this around. Just look at the key digital trends such as payments, online entertainment and media, ecommerce, B2B trade, communication — nearly every sector has become a behemoth in of itself.

The might of the Indian digital consumer is now becoming apparent.

Market observers believe that more than anything it is the mindset of the Indian consumer that has changed. Now, technology permeates the Indian consumer’s psyche, which is reflected in the newer ways of transacting, communicating, buying and consuming.

Just think about a daily routine for a typical Indian. It involves paying for bills or recharges online, lots of WhatsApp, plenty of video time and some games. In fact, for certain audiences like students, there’s so much dependency on the internet that it’s impossible to envision a life without it now.

The Supreme Court seemingly showed some prescience in January 2020 by declaring access to the internet a fundamental right, in response to the government’s internet blockade in Jammu & Kashmir through 2019 and 2020.

The Indian Internet Pyramid

According to Sreedhar Prasad, who heads consumer market advisory for KPMG, based on the population figures, the potential addressable base of Indian online consumers in 2021 is around 1 Bn people.

This excludes those under the age of 16 and those over the age of 75, but he believes that even this cohort is now using the internet for some use-cases — WhatsApp, YouTube and UPI being prime examples. In the case of those young users, edtech usage has also skyrocketed.

His theory is backed by a Kantar report that says almost 9 out of 10 active internet users in urban and rural areas use the internet for entertainment and communication.

Looking at the Indian market as a pyramid, the bottom-most layer is composed of the digital payments sector. This is the most critical factor in India’s internet ecosystem growth. UPI, the flagship digital payments mode in India, has seen over 2x growth in the past year in value and 2x growth in volumes.

The overall digital payments has seen a 12x growth in volume between December 2020 and November 2021, according to official DigiDhan records.

If payments is the bottom-most layer in the pyramid, the next layer is made up of users of communication and social media. WhatsApp alone has over 530 Mn users in India, while YouTube is said to be second with 460 Mn users, followed by Facebook (350 Mn). Those numbers are larger than the population of most countries.

Entertainment and mobile gaming come next. Gaming is a massive opportunity in India with a user base of over 300 Mn and around $1.5 Bn in revenues, according to an October 2021 Sequoia report on the sector. This is expected to reach $5 Bn+ by 2025.

OTT or digital video in India is poised to grow to a whopping 650 Mn users by 2025 from a current base of 350 Mn. It must be noted that most OTT platforms are subscription-driven, so this growth is not just on paper, but is bringing in actual revenue from India.

Ecommerce — The Final Frontier

But if there’s one area that will cement India’s reputation as an internet nation, it is the vast digital commerce ecosystem — B2B players, horizontal and vertical ecommerce platforms, online grocery startups, travel and ticketing, food delivery and everything that involves buying things online.

It is nearly impossible to estimate the number of Indian digital commerce users, given just how vast this sector is and the number of major companies it covers. The ecommerce market in India is expected to be a $200 Bn opportunity by 2026, according to our latest report on the sector.

Reports indicate that India added 40 Mn new ecommerce shoppers this year, double of the 20 Mn new shoppers in 2020. But this only looks at marketplaces. In other areas, the number could be significantly higher.

Grocery unicorn BigBasket, which launched its first retail outlet last week, made some tall claims. “The stores will give access to the next 500 million customers who have not yet started buying grocery online and create a new significant growth opportunity for Bigbasket,” said the company’s CEO Hari Menon.

But that is a hard pill to swallow for analysts such as Prasad, even accounting for the major shift since 2020. He believes that there’s little chance of 500 Mn Indians buying groceries online in 2021, but adds that that day is not far off.

While it may not be easy to ascertain the growth in the digital commerce shopper base overall, one thing we can say with certainty is that India is fast becoming one market. So far, we have been dealing with infrastructural and cultural barriers that divided urban and rural India. It is no longer about Bharat and India, but one cohesive base that can make and break internet fortunes.

Till we meet again,
Nikhil Subramaniam

Images: Gayatri Sharma