India, a trailblazer in the mobile market but an Internet laggard, has reached an important crossroads in its online life. Although Internet penetration is still only about 10 percent, the number of Internet users recently passed the 120 million mark, and demand is accelerating. With 350 million users expected by 2015, the next few years will be a formative period for consumer attitudes and for new products and services. To get an idea of what lies ahead, BCG’s Center for Consumer and Customer Insight surveyed more than 4,500 consumers in 27 Indian cities late last year, supplementing the findings with additional research last spring. Mumbai-based BCG partner Arvind Subramanian discusses the results.
Is the Internet spreading beyond India’s top-tier cities?
Most definitely. As you’d expect, penetration is highest in major metro areas, but that’s because of how access was rolled out. When you look at demand, nearly 60 percent (as measured in aggregate Internet hours consumers report they consume) already lies outside the largest cities, and it is the midtier towns that will drive growth. For 2015, we project a four-fold growth in Internet hours, with nearly 40 percent of demand coming from tier 4 towns and rural areas; 22 percent coming from tier 1, 2, and 3 cities; and about 38 percent coming from metro areas.
How significant will mobile access be?
We expect mobile-only Internet users to go from about 10 percent of users today to 40 or 50 percent by 2015. Mobile will be the most cost-effective way to bring many people online, especially in the less densely populated areas.
Penetration of mobile Internet usage, via feature phones and smartphones, is already more widespread than PC and laptop penetration. In tier 4 areas, for example, the penetration of mobile Internet usage is 15 percent, not so different from the 20 percent mobile-usage penetration in metro areas. For PC- and laptop-based Internet usage, penetration is only 9 percent in tier 4 areas, versus 25 percent in metros.
New services are attracting new mobile users. One gives customized advice to farmers based on location, weather, crop, and soil details. In the health sector, an SMS-based query system provides diagnostic advice and prescriptions to patients in rural areas who lack access to good doctors. There’s more to come—for example, the push to use mobile connectivity to bring banking to the more than half of Indian households that don’t have a bank account.
Many see handset price as a big barrier to mobile Internet adoption. But we found in some recent work that out of the more than 225 million data-capable handsets in India, only a third actually have an associated mobile Internet service. And as many as 40 percent of those are only sporadic Internet users. More education, more relevant content, and cheaper data connections will help bring these consumers online.
What are the similarities with China’s experience? What are the differences?
In terms of penetration, India is where China was in 2006. China’s penetration rate is now about 40 percent, and its ecosystem has really burgeoned. For example, China is now the world’s biggest e-commerce market. E-commerce should also be a major growth area for India. It isn’t popular yet—less than a fifth of non-mobile Internet users in our survey say they engage in it, and the mobile numbers are even lower—but it’s attracting a lot of investment, and given the challenging economics of modern brick-and-mortar retail stores, the potential is clear.
A big difference with China is the strong position companies like Amazon, Google, and Facebook enjoy in India, thanks to the unfettered market access they have enjoyed and to the English-speaking elites who have been the main Internet users to date. Another is in building infrastructure, an area where the Chinese government has succeeded while India has fallen short. India’s National Optic Fiber Network, approved late last year and now getting underway, is an important effort that is long overdue.
What did the survey reveal about Internet consumer segments?
We were able to group consumers into four segments. We call the first one “the trendsetters”—young, affluent, and tech savvy, they account for 13 percent of our sample. They were early Internet adopters and have the highest usage, spending 54 hours a month online. The Internet has become an integral part of their life. They use it for both entertainment and work and are beginning to shop online. Surprisingly, they are just as likely to be found in smaller cities as in larger ones.
“Reluctant adopters,” 22 percent of our sample, are older and are tech dependent without being tech savvy. They were relatively late adopters who started using technology for work and have broadened their usage over time. They are not price conscious—they buy expensive phones and have expensive data plans—but they need education to increase usage. They have busy lives and find technology cumbersome and intrusive.
“Smart shoppers,” 32 percent of our sample, are tech savvy but price constrained. They tend to be students or people with lower income levels. As with the trendsetters, the Internet is an integral part of their lives. They use it for entertainment, e-mail, search, and blogging and are active social networkers. Often they lack access to computers at home and go online in cybercafés.
The “tech indifferents,” 33 percent of our sample, are older, late adopters. They started using the Internet because it came into their homes for their children or because they wanted to keep in touch with friends and family. Their usage is very basic. Though they have the time and money, they won’t become more active without instruction and more relevant content. While a larger proportion of users in smaller towns belong to this segment, tech indifferents live across town tiers and account for more than 20 percent of users in the top-tier cities.
What’s ahead for these segments?
We expect use to go up across the board. Trendsetters will use the Internet more as connections get faster and the content grows more localized. Reluctant adopters are beginning to use a lot of data on their smartphones and will use more as speeds improve. Smart shoppers are held back by the high cost of data plans and would benefit from lower-cost, heavy-usage plans.
The tech indifferents are the largest segment today, but we expect to see their ranks diminish as they slowly learn the benefits of the Internet and as user-friendly products and services help them grow comfortable with it.