🇮🇳 Where are the next half a billion Internet users going to come from?
The Indian startup ecosystem has seen a Cambrian explosion over the last decade, marked by the rise of Flipkart back in 2009. Since then it has witnessed massive internet penetration spurred by the rise of Jio, record funding levels that touched $10 Billion in 2020, and the creation of IndiaStack, a set of APIs that facilitate digital payments, unique biometric identity, and eKYC for 1.3 billion Indians. Interestingly, the first 10 years witnessed startups going after the first ~100 million Indians. But the next set of startups that will come up would have a different consumer market.
Why do I say this? To begin with, let me take you through two numbers-
12% (approximately 126 million) of Indians speak English, and there are 227 Million rural (opposed to 205 million urban) internet users as of May 2020.
These two numbers are critical in understanding why the next wave of startups that are created in India would cater to a non-English speaking user base comprising of consumers who are from Rural backgrounds and Tier 2/3/4 cities. This demographic is referred to as Middle India are the protagonists of my deep-dive.
Quick numbers about Middle India
- 👩🏻💼Number of consumers: 500 Million
- 💰Market opportunity: $50 Billion
- 🏠Where do they come from: Tier 2/3/4 cities and rural backgrounds who speak vernacular/Indian languages
- 🔺 What’s different about them compared to the first 100 Million Indian users: There’s quite a bit that’s different considering the distinct needs, purchasing behavior, and aspirations
What we are going to explore is not just a story about the Indian landscape but rather a narrative on backing and visualizing startups that are divergent from the iterations of digital financial services, messaging apps, education portals that we see in the Western world.
Note on terminologies used,
- Founders, VCs, and content creators in this space have used Bharath or Middle India or India2 to describe the same demographic. India1 refers to the first ~100 million users of India.
- Cities with a population of 100,000+ are Tier 1, between 100,000 & 50,000 are Tier 2, between 50,000 & 20,000 are Tier 3, and between 20,000 and 5,000 are Tier 4
📉Understanding Middle India users
Understanding the market is of paramount importance because the psychology, purchasing behavior, and unit economics of this group are very different.
- 💬 Language: There are over 121 Indian languages spoken by over 10,000 people. 7 languages have 50 million speakers, and Hindi is the most widely spoken with ~500 million speakers. This poses a unique problem (yet opportunity) for entrepreneurs covering the breadth of the country.
- 📱Mobile-first: An overwhelming majority of users are mobile-first users, and the owner of the device is rarely the only individual who uses it. This is apparent in the way apps create sign-up mechanisms in India which are using mobile numbers (individual-agnostic) rather than your social media username or email ID. Most phones are used by the entire household and therefore need a more imaginative product strategy for specific use cases like creating profiles, tracking user metrics, etc.
- 👩🏻💼👨🏼🎓Younger demographic: 54% of all users are between the age of 20–39 and 21% of users are between the age of 12–19. The younger age demographic also spurred the popularity of apps like TikTok that unlocked reach for creators from all parts of India. By enabling men and women of rural India to create short dance videos with creative moves, it gave them fame and fun in a manner that even Facebook and WhatsApp did not. Most of the users of TikTok in India were from Tier 2,3 cities, and 52% of them earned less than $350 a month.
- 🔈Voice or Video-first: The internet isn’t a friendly place for people who don’t understand English, it’s hard to type in your regional language using the Indic keyboard because of how complex Indian languages are. A key factor in overcoming this was by using voice-led interfaces and chatbots. Whether it’s with using Voice search on Google apps or with sending voice notes on WhatsApp, Middle India has pivoted to move away from the text. Another famous example of a startup that did this was Vokal, which built a question-answering system similar to Quora but it was voice/video led rather than text-based.
Two years ago, Google introduced voice search in nine Indian languages on Google Assistant. Hindi is now the second-most used Assistant language globally after English.-Caesar Sengupta, Former Head of Google India
- 💰Limited purchasing power: With the average annual income of $2200-$3700, startups need to become creative about monetization. Besides this, they also have to build trust in the system and help people overcome their apprehensions of transacting online.
- 💡Unique product strategies: Unlike the first 100 million Indian internet users, who are used to Google search and the DIY nature of the internet, this segment is making a sizable transition when they move online. This was an important factor for startups to consider when they model their User experiences and behaviors.
It is important for internet companies to look beyond the language problem because simply translating the current platform, designed primarily for English-speaking users, into vernacular languages will not solve the problems for these users.
While these are some prominent themes, the intersection of age, education, connectedness, and occupation creates even more consumer archetypes that will give rise to specific preferences. The World Economic Forum talked more about this in their prediction for India in 2030.
🔎What does the landscape look like?
In any internet landscape, people would want to:
- Communicate & collaborate 📲
- Obtain news and entertainment 📰
- Gain education 🎓
- Utilize services for food, clothing, banking 🌯
So let’s look at all use-cases and understand what’s happening in each segment.
📰 Communication and Consumption Stack
Messaging, Social Media, News & Entertainment
Messaging and social media account for over 80% of time spent on the internet by Middle Indian users. They are also the largest segments currently ⬇️
It all started with the chat app
The most fundamental of them, messaging was one of the earliest adopters of multilingual support for Indian languages. India is the largest market for WhatsApp with 340 Million MAU’s and all messaging platforms support a varying number of Indian languages and are familiar with bi-lingual usage with the India1 segment too.
User-Generated Content unlocked infinite possibilities
Most content & social media platforms have banked on the exponential growth of user-generated content (UGC) for Middle India. This podcast by ShareChat’s Ankush Sachdeva would tell you all you need to know about how they discovered and capitalized on UGC. A quote I found to be quite insightful was one that talked about why ShareChat discontinued the English language feature on their app ⬇️
“Users were choosing English because of their aspirational value, not because of comfort. Indic language users showed the highest levels of engagement. This propelled us to discontinue English and go the Indic language way”
- Ankush Sachdeva, co-founder and CEO of ShareChat
These social platforms have also come up with alternatives for apps like Quora, Twitter with vernacular support and product strategy that complements the preference of a user in this segment. This playbook has helped ShareChat acquire enough traction to a point where it has displaced western alternatives like WhatsApp. Monthly impressions on ShareChat are more than monthly impressions on WhatsApp.
So what comes next in this content space?
- Aggregating content and enabling creators to self-publish content is a pivotal next step, but we have not seen too much attention so far. Pratilipi is a startup that is trying to change this by creating storytelling platforms for both professional and amateur writers to publish in 10 Indian languages.
- There is a need to incorporate IP focus, plagiarism detection, tools to assist writers like spellcheck, which is uncommon for vernacular languages.
Short-form videos are attractive sub-segments
As discovered previously, there is a strong preference for audio/video-led content rather than text-based content. Short-form video apps are currently riding the wave compared to other formats, which are evidenced by the stats on daily video consumption, which is 82 minutes per day on average. Ever since the ban on Chinese apps like TikTok — Josh Talks, Roposo, Ma TakTak, Chingari have all been gaining market share in this space.
Educating through entertainment is a prominent theme
Today, our (India) population has the data-pipe with very little value-added content in the regional languages, with a few exceptions of course. But it is a complete mistake to assume that this segment is looking for only cheap entertainment. What they are looking for is information that will directly, and without any frills, lead to better lives on a day-to-day basis. -Koreel Lahiri, Director, Media Development Investment Fund
Platforms like Josh Talks are acquiring users by appealing to the user’s desire to upskill. In fact, that preference was so strong, that Josh Talks was able to launch Josh Skills, a Whatsapp-based learning module that was successfully monetized and has over 160,000 subscribers.
This trend of educating users through casual learning is a strategy that Indian influencers have been using across a range of interest areas like gardening, home decor, healthy cooking.
Audio content is a dark horse that holds promise
We (Middle India ) all come from small towns in Rajasthan where people constantly listen to audio content. As regular podcast listeners, we always felt a huge gap in Indian audio content. We felt that there was no place to listen to Indian shows or stories or famous poetry, etc., in our native languages. We also started noticing that everyone around us was looking for ways to reduce screen time and always had earphones on. All these observations coupled with the steep rise in internet penetration made it the right time to enter the audio market
-Lal Chand Bisu, CEO & Co-founder, KukuFM
In addition to this, despite the current popularity with short videos, audio first formats, and podcasting show potential due to their ease of consumption and possible saturation of the short video space.
Khabri, Pratilipi FM, Kuku FM, Hubhopper are all taking bets on this thesis. There are distinct strategies within this segment with Khabri going after the news, Kuku FM going after audiobooks, Pratilipi FM fulfilling the demand for storytelling experiences (in synergy with their self-publishing portal), and Hubhopper taking a more creator-driven approach offering a wide stack of solutions ranging from hosting to distribution. Focusing on tighter synergies between content creation and discovery is going to be a key driver.
The creator is indeed king!
While this segment started out as creator agnostic, we are observing models (Bulbul, Pratilipi) that are centered around the creator’s brand. As the content space explodes, differentiation for platforms would be achieved by taking this path.
The gender divide over the Internet is very much alive and needs more attention
Creating gender-inclusive platforms and bridging the gender divide that exists is a key target that startups need to be addressing. Platforms like Shereos have been able to create high-trust environments that enable first-time internet users to come online and use them for employment advice, entrepreneurial insights, and capital.
🙇🏽♀️ Learning stack
EdTech
India has the second-highest number of EdTech startups globally. According to the EdTech thesis by Omidyar Network, Edtech is expected to comprise a user base of 100 million.
This space carries disruptive opportunities and has a lot of commonalities between Middle India and India1 demographic in terms of the user categories, exams that both segments aspire for.
A few distinctions to bear in mind
- While the CBSE curriculum is the national level board, only 1.17 million students out of a total 14 million high school graduates go to schools that follow this. The rest of the students study in state-specific curriculums, which call for a more customized approach by startups that cater to K12 education in this segment.
- Accessibility is a key difference that startups should note in India2 segments, Children are more comfortable interacting in their mother tongue, especially when their school has a vernacular language as its primary medium. All exams at the National and state level can be taken in an Indian language too.
- There is a preference for teacher-led content along with reliable customer support. 55% of parents in this segment cited pricing to be a cause for not being able to pay for something. At the same time duration, trial periods are all important factors to experiment with.
Interesting startups in the Middle India-EdTech space
- Vidyakul is an interactive vernacular platform that enables teachers to create study material, lectures, and tests for exams.
- Brainly is a Peer-to-peer company that has diversified into 8 Indian languages, I think that P2P learning has immense potential to increase the quality of learning keeping in mind vernacular constraints.
- Doubtnut has made significant progress with their video first questions portals for students to use in 12 regional languages. A third of their users navigate the app in vernacular languages and this is a significant advantage to have with the parents who will also prefer the same.
- Entri is an app that offers upskilling courses to people who want to land jobs in the state and central government offices.
🛠 Service stack
Utilities, Fintech & Commerce
Utility and banking represented the first internet transaction for most according to the Google, Bain, Omidyar report. Travel, ticketing, transportation is the next use cases that users will use the internet for. With India stack, Fintech payments have also become an easier milestone to unlock for companies.
There are quite a few sub-segments with E-tailing being the most prominent of them, but we haven’t yet seen enormous potential or market adoption the way EdTech or Entertainment has. It is only a matter of time before service-based offerings like eCommerce, Fintech disruption extends to this, but what people need to understand is how different building for this group is.
Indian language internet users perceive exclusivity, product range and convenience as key benefits of e-tailing. Cash backs and discounts are not perceived as the key benefits by more than 90% of users — KPMG Report on Defining India’s Internet
The do-it-for-me economy
The English-speaking model of the internet thrives on “doing it yourself”. This behavior trend started with the advent of search, extended to how we carry out eCommerce and virtually any purchasing decision. But for this segment, they rely on substitutions of the service-based economy that exists offline.
For instance, creating eCommerce capabilities means replicating the Ramu Khaka who sits at the Khirana shop (small grocery store) in a small town to give you a specific item when you request it without getting into price comparisons, brand comparisons, reading the label, the way we see at Amazon/Big Basket. This is why Sachin Jaiswal the founder of Niki.ai calls the India2 segment, the Do-it-for-me economy.
This is also what Dan Hock talks about in his article on marketplaces and also wrote about solving the Coordination problem.
“Coordination is all of the work to identify and close a transaction. This includes making the product or service legible (categorizing, scoping, and pricing), matching suppliers and customers, and establishing trust. Many marketplaces don’t do all of this today”
This can be something that helps a startup create a moat. Because you can now ensure the predictability of the supply chain and have synergies with specific suppliers. By solving for coordination you would be able to guarantee scale with fewer variables as long as you build a great operations team that performs the scoping and pricing functionalities you need to bring in.
Distribution needs creative approaches
Building a great product is only half the job because when it comes to any great startup distribution is an understated part, founders’ building for Middle India are even more intentional about this. There are a few interesting examples that depict this.
- Niki.ai reached people through videos after identifying them through data-backed insight on the time spent by people on videos. They would explain to people what the app does and guide them to download it on their mobile phones in a walkthrough of sorts.
- Indus OS, when they were trying to sell phones with their own Indic OS (built on top of Android) conducted pilots where they went to Khirana shops in Gujarat and sold them. Alternatively, Indus OS pivoted to offer an Indic app store that sells apps made in vernacular languages, with search being a less sticky process for this segment. We should be seeing more such models that offer Discovery-as-a-service.
Social commerce opens doors for both consumers and sellers
Another way of solving the coordination problem is using the influence-led commerce offerings we are seeing with Bulbul’s video shopping experience or Meesho’s WhatsApp-led experience. Numerous startups are taking the social commerce way, and it will be interesting to understand how they will play out. This is an exciting trend not just for consumers but for Indian sellers who were otherwise neglected in the eCommerce opportunity so far.
What does the latter statement mean?
While the two waves of commerce unlocked opportunities for Indians, it failed to make it a profitable alternative for the Kanchipuram saree retailers who sell offline even today or for the Tanjore paintings we use for gifting during different family occasions. A recent report by Reuters on Amazon showed that 35 sellers in Amazon India (out of its 400,000 sellers ) account for two-thirds of online sales.
Social commerce is already improving these numbers. 85% of sellers using social commerce are small-scale, offline retailers, social commerce has already demonstrated the potential to empower the 40 million entrepreneurs in India.
So there is an enormous opportunity for players like Meesho, BulBul to capture commerce market share from a previously ignored supplier chain too.
Trust is an important expectation for this demographic, with at least 75% of users purchasing from people they knew before. So while influencer-led commerce models like Bulbul’s video shopping experience can hold potential, the highest propensity to buy is within social circles.
WhatsApp and Facebook are critical to driving future adoption
Sellers also cite ease of transfer between the commerce app and social platforms as an important factor. This would enable easy sharing of catalogs, product links between the app and WhatsApp/Facebook groups for group buying or feedback. We observed a similar trend with China’s social commerce success Pinduoduo, where it gained virality (585 million active buyers within 4 years of launch ) due to the widespread use of WeChat as a platform.
Empowering Indian SME’s through B2B apps
With over 63 million enterprises in the country out of which only 20,000 have more than $1.2 million revenue, it was only a matter of time before digitalization touched the B2B Space. We’ve seen a lot of funding buzz and talk around this space over the last two years centered around key offerings like digital ledger technology, on-demand payment gateways, consumer interactions. AJVC has an interesting piece on this trend.
White spaces that exist
Government tech 💬
Online government services are estimated to be accessed by 172 million Indian language internet users. But the limited engagement in local languages and discomfort with the interfaces are barriers to further usage.
We are already seeing voice-led solutions with initiatives like that of the government of Maharashtra in creating a chatbot that allows access to information on public services managed by the state government in collaboration with Haptik, an intelligent virtual assistant business.
CoRover, another player in the Chatbot-as-a-Service space also launched a new app called AskSarkar which provides information relating to government services, GST, taxation policies, etc in 7 Indian languages.
While these are great starting points, I think government tech needs to be refocused to be looked at from a more platform perspective rather than as an app with one-way communication. There could even be micro-SaaS apps at play here considering the complexity and coordination involved in government processes and the degree of customization each use case might need.
Monetization strategy is still a TBD 💸
Considering the relatively small size of the Ad market, pursuing advertisements for monetization is a low-hanging fruit without much yield. As Sajith pointed out, a combination of ad sales app purchases is necessary for creating sustainable business models. An important factor to note is the limited purchasing power and the effect it may have on conversion rates. So far data on this segment is relatively limited, but with the first wave of Middle India-centric apps, we will have more analytics and customer understanding that can unlock more targeted methods of reaching the end consumer.
Companies like VerSe (parent company of Daily Hunt) have been able to see wins in this space, particularly because of the sheer size of the market they have been able to capture. So while advertising is possible, it requires enormous volume to work.
Concluding note 📦
The Middle India thesis has exploded over the last 3 years. It’s become the central focus on some VC funds and an integral component of the Indian startup playbook.
When I picked up this thesis, a large part of the argument was about bridging the vernacular divide and understanding user behavior. But with the first wave of startups that have emerged in this segment, I think the next wave would be centered around a different set of trends
These trends are:
- Providing intelligence and enabling the daily lives of Middle India users to be exponentially improved by the internet. Decision-making tools for agriculture, healthcare would all be examples.
- Creating communities that help users derive collaborative benefits the way the English-speaking population has had. Shereos is a great example of this.
- Enabling users to be able to fully unlock the benefits of going digital by offering easy access to credit. Spandana was one of the earliest players in the market addressing this.
These trends will move beyond establishing bridges between Middle India users and the Internet and help them truly reap the benefits of collaboration, offer better decision-making tools. And all this is only possible if they can be empowered with the financial capital required to obtain them.
I’m quite excited to see how Indian startups will transform the lives of millions of users across all consumer tracks and the experiments that would fail or succeed. Over the course of my Fellowship program at Included VC, my Fellows and I have also come across many parallels with other Emerging markets. I would love to hear about any insight you discover, so feel free to reach out for a coffee chat.
Thank you to Sajith Pai (Blume Ventures), Sachin Jaiswal (Niki.ai), Akash Dongre (Indus OS), Koreel Lahiri (MDIF), Kartik Sahni (Omidyar Network) for offering their insights which shaped this article, and to Shubham Khetan for reading very early drafts of this and providing great feedback.
