Over 500 mln Indians in the next wave of internet users

There is potential to unlock over $50 billion in online commerce in India by driving awareness, usage and transactions among the current and next set of internet users and shoppers.

According to a report 'Unlocking Digital for Bharat: $50 Billion Opportunity' released by Bain & Company, Google and Omidyar Network, this addition will be driven by more than 500 million Indians who will constitute the next wave of online consumers.

The report captures the changes in India’s emerging internet landscape over the last few years. Its findings show data usage on mobile is at par with developed markets (8 GB/month/subscriber).

With an average of 40 million new internet users added per year to online transactions, the report highlights that only 40% of India’s 390 million internet users transact online.

To bring more people online and drive growth of users to unlock their economic potential, the report highlights the barriers which need to be overcome and identifies key themes relevant to the next half billion internet users and online shoppers.

Based on a survey of 3400 customers, the report reveals three key characteristics which affects India’s digital ambition like sewed user base, small transaction base and large drop out rate.

Skewed user base and not equitable across socio-economic classes is primary hindrance to achieving digital ambition as of the 390M users, 80% are from affluent socioeconomic segments. "Penetration amongst lower income segments (NCCS D/E) is only 13%," the report states.

India is having only small transaction base as only 40% of the internet users today carry out digital transactions. "The remaining 60% do their research online but complete the transaction offline,"states the report.

As many as 54 million users today have not carried out a transaction after the first trial purchase, making India one of the highest drop-out rate country.

Speaking about the untapped digital opportunities for commerce, Google India Industry Director Vikas Agnihotri said with the user growth and adoption story on a fast growing trajectory, there is a need to grow consumer confidence to make digital a medium of choice for services and transactions for users across the country.

"With this report, we outline the need for much focused intervention for different subsets of the users who are now online and grow consumer confidence to make the digital medium a viable platform for all," said Agnihotri.

According to the report, it takes three to four months for a typical internet user to make the first online transaction, which makes it very critical for companies to retain customers through content.

The trust in the channel(s) increases as users spend more time on the internet. Among users, who have been on the internet for two or more years, 61 per cent transact online. However, it also notes that a large number of users (54 million) stop after the first online purchase

Arpan Sheth, partner, Bain & Company and one of the authors of the report, said Digital India is at a very interesting point – a large internet user base with significant varions across demographics, and only a small portion actually transacting online.

"While online spends are still low given lower per capita incomes, there is huge potential to unlock value by addressing user concerns at various stages of the digital curve; however, the path won’t be easy for businesses and they will have to innovate and be patient to monetise this user base and generate value," said Seth.

Omidyar Network Investment Partner Siddharth Nautiyal said all know that the key to building trust once a user is online is through engagement.

"Once engaged, the users that spend more time tend to transact more. The key is to build solutions aimed at those who are coming online over the next five years or the next half billion as we describe them," said Nautiyal.

"The report underlines our belief that entrepreneurs must focus on long-term, sustainable solutions that put trust and engagement front and centre," he said.

The report summarizes that despite the growth of the internet user base in India, online spends will remain limited due to the relatively low per capita GDP in India.

Scale and profitability in the online space is likely to take time, and hence businesses should focus on exploring alternative options such as monetising the ecosystem and capturing larger shares across the transaction value chain.