Just Getting Started: India’s Internet Growth Story in 2018
Last month, legend VC Mary Meeker of Kleiner Perkins released her much-awaited 2018 Internet Trends Report. The prior year’s 2017 report had featured an entire section dedicated to the transformation India is undergoing, including a focus on the exponential growth forecasts across mobile and internet indicators. Upon release of this 2018 report, the Indian tech community lamented the lack of attention the market received. Some commentators extrapolated that perhaps Silicon Valley’s focus had shifted away from India. Based on the report’s omission and resulting press, I received more than a few worried messages from founders that the market for global capital in India was cooling fast. From my daily work with Indian tech innovators and Silicon Valley leaders, this didn’t “sit right” in juxtaposition with the dearth of deal activity taking place and momentum continuing to build about India’s role in the global innovation economy. Based on a handful of conversations about the 2018 Internet Trends report, it became clear a quick update would be helpful. Here is a snapshot of how India continues to progress since Meeker’s Internet Trends report in early 2017:
Internet Penetration
At the time of the 2017 Internet Trends Report, 27% of the Indian population used the internet (around 355 million people). Since then, internet penetration has grown over 12% year-on-year, with rural internet reach expanding even faster than in urban areas. In Q3 2018, the number of internet users in India will reach 500 million — more than the full populations of the United States, Mexico, and Canada combined. (IAMAI and Kantar IMRB)
Broadband Subscriptions
The number of mobile broadband subscribers had seen massive growth to 277 million in time for Meeker’s Internet Trends 2017. This number continued its steady increase to 378 million subscribers by January 2018. Top broadband service providers are Reliance Jio Infocomm with 168.39 million, Bharti Airtel with 75.01 million, Vodafone with 54.83 million, Idea Cellular with 37.33 million (their unprecedented merger underway) and public sector BSNL with 21.81 million. (Telecom Regulatory Authority of India). The reach of new products as well as access to information and services has expanded dramatically even over the past 12 months for millions of people.
Data Costs
The game was changed on data cost affordability with the entrance of Reliance Jio’s unbeatable low-cost data (Internet Trends 2017). This cash-fueled customer acquisition strategy allowed Jio to capture an unprecedented nearly 100 million paying subscribers in its first six months and sparking a wave of consolidation across its telecom competition. Afterward the promo period, wireless data prices on 2G, 3G, and 4G platforms rose slightly in Q3 of 2017. This was due to a 29% increase in data price implemented by Reliance Jio in July for its mass plan from Rs 3.68 per GB. Jio’s minimum price for data increased to Rs 4.75 per GB in July after it changed the price of its 84-day pack to Rs 399 from Rs 309 in early July. The initial unlimited offering was temporary but the net effects lasting: The average price of data in India rose by 21.7% in the period compared to the previous three months. However, in the past any increase in data prices in India had, as expected, been accompanied by a decline in consumption. However, this time, the landscape changed — Consumption increased by about 29%, highlighting the stickiness of delivering mobile connectivity value and penetration in India. (Telecom Regulatory Authority of India)
Smartphone Costs
The declining cost of both smartphone devices has, in part, propelled the immense adoption seen in both urban and rural India (Internet Trends 2017). Phone makers say that there is a correction in pricing strategy as many low-cost Indian brands have found their traditional business model unsustainable given the dominance of even-lower-cost Chinese producers. Foreign brands entered India with initial disruptive pricing that was not viable for them to maintain in the longer term. Now, they have either increased prices after gaining their target market share or reduced operations. However, with high availability and popularity of video and audio content, many consumers are willing to spend to get the complete 4G experience. While the average selling price has increased, low-cost affordable devices are not going away. For example, Reliance Jio recently launched a 4G phone at ₹1,500 (USD ~$20) which has seen huge demand. (IDC India)
GDP Growth
In the 2017 report, Meeker highlighted how India was the fastest growing large economy by GDP growth. This has indeed continued for the remainder of 2017 and into 2018. India’s economy is expected to witness a cyclical recovery driven by investments as well as consumption, and average GDP growth is expected to rise to 7.8% in the first half of this year. However, rising oil prices, tighter financial conditions and a likely slowdown in investment activity ahead of the coming national elections suggest growth may moderate in the second half 2018 with some analysts, including Nomura, predicting Q4 to end up around 6.8%. Corporate earnings are nonetheless expected to accelerate as a pick-up in demand filters through to bottom lines and bank clean-up continues to occur. The Reserve Bank of India (RBI) expects India’s economic growth rate to strengthen to 7.4% in the current fiscal, from 6.6% in 2017–18, on account of revival in investment activity.
Ease of Doing Business
One of the main concerns Meeker presented about India in the 2017 report was the difficulty of doing business. This warrants a 2018 update: After implementing an aggressive reform agenda including a game-changing bankruptcy code reform, and despite occasional sector-specific flare-ups in the press, Prime Minister Modi’s administration has successfully raised India’s attractiveness for domestic and foreign businesses alike. For the first time, India jumped 30 positions to become the top 100th country in terms of ease of doing busineass ranking in the World Bank Group’s latest Doing Business 2018. The World Bank attributed the change in India’s ranking to the sustained economic reforms and recognized India’s efforts as one of the top 10 most-improved in this year’s assessment. India is also the only large country this year to have achieved such a significant shift. It remains a predictable bright spot amidst volatile global markets.
Outlook Forward
Herein these numbers lies a game-changing story of technology-led economic development driven by both internet and broadband penetration — especially in rural India where livelihood changes can be dramatic and lasting. Silicon Valley and Wall Street’s attention on the market will continue to ebb and flow, including occasionally as a product of more sensational stories in other markets, but the pace of change and inherent business opportunities in India’s internet ecosystem persist regardless. While it often feels as if India’s digital transformation has been trending for the past decade and is old news, the big story is just getting started.
