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Can Digital Economy of India Make Money?

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One of the most interesting trends released by Mary Meeker was the comparison of the slowdown in the Internet growth globally and the trends in India.

Mary Meeker is a venture Capitalist and former Wall Street securities analyst, who has seen the ups and downs of Internet, be it the boom period of desktop and dot.com or the smartphone revolution. The annual Internet Trends report by her are considered not less than a bible of the business for over 20 years now. Her latest version talks about the connection of slow internet growth across the globe and the manner in which India is taking it. Source: www.slideshare.com

While we have been promoting Digital India for over 2 years now which has shown tremendous growth in the internet sector, it becomes obvious that the contrast has positive implications for economic growth and connectivity in India. However, there are pitfalls too.

Key Takeaways from the 2016 report

The boom of Internet in India are over.

In the past, the digital economy of India has been hit. However, there were external factors that were involved. One of them being the weak economic conditions as a result of the financial crisis. Now that the global Internet growth is as low as 9% year on year (Y-O-Y), it points at a deeper despair.

Market saturation to the point that the explosive growth of past years becomes impossible was inevitable at some point—at least in developed economies.

India with a whopping percentage of 43 for year-on-year growth indicates that the undeveloped and underserved economies are a matter of different concern altogether. The extensive market size of India is of 277 million users which have now overtaken the US to grab the second position for Internet user base with China at the top. Seeing the trends, the probability of India occupying a unique position over the next few years has increased.

India’s Position in Global Internet Usage

The rise in Indian internet traffic will be more than four-fold by the year 2020 at an annual growth rate of 34% from 2015.

The growth in the new internet users is expected to be more than 600 million, the factors which will drive this growth is a combination of various factors like wi-fi, video services, increasing mobile access etc.

“India finds itself in the middle of a digital revolution and, by 2020 Internet traffic will be equivalent to 249x the volume of the traffic in 2005, growing at a compound annual growth rate of 33% y-o-y.” – Sanjay Kaul, Managing Director, Service Provider Business , Cisco India

As per the reports by Cisco VNI, networked devices in India will jump from 1.3 billion in 2015 to 1.9 billion in 2020. Out of which PCs will account for 43.8 million while tablets will show 2% rise from 12.1 million in 2015.

2 Particular Trends From the Report

1. Slowdown in the global smartphone shipments

One of the trends is the slowdown in the global smartphone shipments. The year-on-year rate has lowered to 10% from 28%.

We can relate this trend to mobile companies struggling in India. For instance, Apple Inc. has shown a growing focus in India and this is evident from Tim Cook’s (CEO, Apple) recent visit to India. The smartphone technology hasn’t achieved a perfect stage and will never. However, they have come to a point where they are ‘good enough’. This is when the new models are launched every year become monotonous and repetitive instead of being revolutionary. Therefore, the incentives to upgrade decreases which in turn lengthen the product cycle.

This whole trend implies that the sales in the developed countries are going to be highly stagnant considering the level of market saturation. Talking about India, the smartphone markets are expanding increasingly with 21.4% year on year for the third quarter last year as per the reports of International Data Corporation’s Quarterly Mobile Phone Tracker.

This means it is going to be the prime focus for Android and Apple manufactures.

2. Rapid rise and fall of digital brands

Whereas, the second being the brisk rise and fall of digital brands as well as constant push for creativity and innovation.

The digital commerce for the time being is in a volatile in nature. Only a handful of companies such as Amazon, Alphabet, and Facebook are in a strong position. The network effect, feeding into the vast mass of user data they have collected is essential for the direct, personalized marketing that drives digital/electronic commerce which won’t be easy to displace. However, down the ladder, the competition is immense and cut-throat. This means there has been constant disruption and innovation from single-product brands becoming feasible to hybrid digital models and the sharing economy.

These points are only favoring India. Companies fighting for market share with respect to smartphone means lower prices in India. Also, greater smartphone penetration will mean greater Internet penetration. These two implications are symbolic in the Indian market with nearly 60% of the country’s Internet users using it via smartphones.

Similarly,in an economy that doesn’t have much of the infrastructure, innovative digital commerce can be probably a low-investment boon.

Hurdles in the Way

There are major obstacles in the way of India: policymaking and government thinking. In recent past, various state governments as well as the Modi administration have failed to show that they are capable enough to deal with the regulatory challenges that come along with the growth opportunities.

While India is not the only one struggling with these issues, there are many other countries as well. We have more to lose as compared to our developed world counterparts if we don’t make it right. The digital advantage is theoretical until and unless it is enabled properly and exploited.

There have been significant signals lacking the skills needed to keep pace with the rapidly evolving digital economy of India which is evident from the insistence on a 30% domestic sourcing rule that damaged Apple’s plans to set up shop in India, vague restrictions on foreign direct investment or FDI in domestic e-commerce companies to drive against app-based taxi aggregators.

Do you think India can compete with its developed counterparts overcoming its hurdles? 

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