India’s New Internet Audiences
Understanding the economic value of India’s vernacular internet users
In the past couple of years, India’s online user base has exploded and a number new audiences have come online e.g. SME owners, users in rural areas, more women and children. They have access to cheap data and are spending multiple hours everyday on their smartphones. A majority of these users prefer to (or can only) use the internet in their local languages.
However, even the largest Indian technology companies have a monthly active base of much lower than 75 million users vs the internet user base of at least 300 million (removing duplicates). Hence, there is clearly a massive opportunity to build apps and services for these new users, and even for older users more comfortable with products in local languages, built catering to their needs better.
Many believe it will be difficult to extract enough monetary value from India 2 / 3 (for the lack of a better word) — an oft discussed question is whether there is significant economic or business value in targeting these audiences. I am bullish on this and strongly believe that there will be significant value created by technology companies targeting this base.
First, a number of industries have already been built on this user base. Second, the revenue per user potential is large enough to build valuable companies. Third, technology companies will have an inherent advantage serving these audiences due to lower marginal costs. Additionally, there are a number of potential multiplying factors — income growth, urbanisation and providing services that have never penetrated that deep.
Let’s look at some of the more deeply penetrated industries and where they get their revenues
FMCG
- 44% of the branded FMCG market by revenue is in Tier 3 & 4 cities and rural areas (and more for the even larger unbranded market)
- This share is expected to grow to over 50% of the market by 2025 -> T3/4 cities and villages will account for over $100 Bn in FMCG sales, driven by income and consumption growth
Television
- The Indian television audience is ~750 mn and 54% of these TV subscriptions are from rural households
- Over 75% of Dish TV’s customers are from rural areas (though with a 30–40% lower ARPU, hence likely over 40% of revenue)
Telecom
- About half of Airtel’s 300 mn customers are from rural areas (despite low rural tele-density) and ARPUs across circles have almost converged over time (to ~Rs. 100)
The key takeaway from this is that this audience is massive not just in number of users but also spending potential. Moreover, they are already paying for a number of services we would categorise as discretionary.
Let’s try and think through the economic value of a vernacular user
For simplicity, let’s look at content / social companies and further limit economic value only to advertising revenue potential. In the US, newspaper ad revenue and readership moved heavily to online platforms. Before that, leading newspapers would make around $200 per reader per year from ads. Let’s keep $200 as a benchmark for offline ad value of a reader. Facebook already makes half of that per monthly active user in the US from ads, and this number is only growing (a number of other platforms make smaller amounts).
Now, let’s try and value an Indian user. For English newspapers, offline ad value of a reader is currently ~$40 on a base on 28 mn readers. Hindi newspapers made about $6 per reader on a base of 170 mn readers while other vernacular language newspapers made ~$5.7 per reader (on a 200 mn readership base).
Hence, the offline ad value of vernacular user is around ~$6. Conservatively, this will grow with GDP and be at least $8 by 2022. A leading digital platform, monetising at a similar level as Facebook, could capture $3-4 per MAU. At a 100 mn MAUs (less than a fourth of India’s user base in 2022), a social / content company could make up to $400 mn in revenue targeting only vernacular users from it’s own ad platforms. There are of course a number of challenges in this journey including competing with FB/GOOG, building out an ad platforms and moving loyalties of large advertisers and small businesses to digital platforms but the potential is definitely there.
What is the right way to serve this user base
There are of course some implications of targeting an audience with somewhat lower revenue potential — some business models will make more sense than others. This is where I feel technology companies have an inherent advantage. The core promise of technology companies is low marginal costs to serve new users.
It would be difficult for a media company with significant content and distribution costs to scale to 100s of millions of users but a UGC content platform can provide hours of entertainment to a user at an annual cost of less than 50 cents per user. Similarly, a bank would need to have offline branches to reach consumers while the internet enables newer models that could open financial services to newer audiences. There are definitely potential models in other verticals as well and it’s quite likely they will be look quite different from today’s tech companies.
Some of the factors that could significantly multiply this opportunity include — sustained GDP growth, increasing movement to the middle class in India, faster growth in consumption amongst lower income segments, rapid urbanisation, creating India first services that begin appealing to higher income segments or even expanding to other developing economies.
What is even more exciting is that many of these audiences have had limited access to high quality consumer centric services and products built specifically for their needs. This is a massive whitespace. Technology companies have the opportunity to not just solve incremental problems but be the first providers of essential products and services for millions of users.
All of this makes me certain we’ll see some of the most iconic Indian companies of the future being created in the next few years.
This is the first post in a new fortnightly newsletter, Bits&Atoms. I’ll be writing about various topics from the worlds of startups, technology and business in India. You can sign up here. If you found this post interesting, you’ll love the next ones — please do share and recommend to others who would find this useful.
If you’re excited about this opportunity as well, I would love to buy you a coffee and chat / debate / discuss. Drop me a line!
