The India Internet Story

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The whole world, today, is eyeing the Nation, that is being drilled by positive sentiments and is being redefined by novel outlook under a dynamic premier Mr. Narendra Modi- the Prime Minister of the Nation called India.

To explain the paradigm shift across the world about India, here is a short story:

An American Author writes in an editorial of a States Newspaper:
“15 years back, when a child cried in America, the Mother used to say.. “Son, please don’t waste food, somewhere far away in India, someone may die of hunger”. Today, when a child cries in US, the Mother says, “Son, please study or else someone from India will come and become your boss”.

I think this story depicts the true picture of what the Indian story has been across decades. We are growing at a fast pace and so is the real dot com era in our country, the change in the mentality, economy growth, increased use of online services and the start-up rush with numerous technological advancements and enterprising youngsters with go-getter attitude and spirit.

The Indian internet market is growing leaps and bounds and the success story has just begun. As per a recent study by Goldman Sachs Global Investment Research team, the four key total addressable markets (TAMs) which could potentially catalyze transformation of domestic companies into multi-billion dollar businesses are:

(1) E-tailing market: US$220bn by FY30E
Indian e-tail market to reach about US$220bn by FY30E in terms of gross merchandise value (vs US$7bn currently) driven by online shopping penetration rising to 25% from 4% currently. The Indian e-tail market is estimated at US$220bn in FY30E vs current US market at US$240bn and China at US$134bn.

(2) Online travel market: US$40bn by FY30E
The online travel agency (OTA) market is estimated to grow to US$40bn by FY30E from US$8bn in FY14 driven by rise in online travel penetration from 41% in FY15 to 50% by FY30E. The Indian OTA market is estimated at US$40bn in FY30E vs current US market at US$137bn and China at US$23bn.

(3) Digital ad market: US$15bn by FY30E
The digital ad spend market is forecasted to grow to US$15bn by FY30E from US$0.5bn now, driven by the shift from offline advertising (such as print) to online with mobile (US$4.6bn) and social media (US$4.5bn) being the largest contributors. Whereas, the global online ad spend stands at 23% currently and is expected to go up to 36% over the next five years. A similar online ad-spend penetration is assumed in India by FY30E.

(4) Electronic payments market: US$5bn by FY30E
The electronic payments market in India is estimated to grow from just US$80mn in FY15E to US$5bn by FY30E, largely driven by migration of offline retail to: (1) electronic modes of payments and (2) e-commerce as data penetration improves. Further, the Government’s initiative to extend banking facilities to its previously unbanked citizens through the ‘Jan Dhan Yojna’ scheme has added significant number of debit cards (over 110mn in 5 months to Jan 2015), thereby providing these customers access to electronic payments.

This leaves us pondering over a question that,- What is so unique about India? The report spells out a handful of unique facts about our very own India:
(1) India has one of the youngest populations in the world with 68% below 35 years, and median age of 27 years vs. 37/38 for China/US, (2) India has a very diverse population, speaking 22 different languages and the second-largest English speaking population in the world at 125mn+, (3) Only 30% of the population have bank accounts and only 3% file their income tax returns, (4) Just 9% is covered by digital fiber and only 20mn people own a credit card. All this, along with suboptimal infrastructure are key triggers for the online economy to develop.

The opportunities for global internet giants in India are enormous. The Global technology giants have made inroads into the Indian market already and are eyeing a larger share of the pie. For most, India is already a top-3 market in terms of users, but in terms of revenues it has yet to materialize. For the potential revenue opportunities, there are three major avenues: 1) Digital ad revenues: Google, Facebook/Whatsapp, and Twitter with already a large user base in India are likely to target this pie. 2) Smartphone shipments: Apple, Samsung, Xiaomi are eyeing this market. 3) E-tailing: Amazon is already the third-largest e-tailer in India.

Apart from this, there are other major companies such as Alibaba/Softbank which have made strategic investments in several unicorns such as Snapdeal, Olacabs, and Paytm. Recently, Mr. Ratan Tata announced buying stake in Xiaomi (source: The Economic Times, April 27, 2015) as it plans to aggressively expand operations in India with a first India-specific handset model – Mi4i at Rs12,999 – launched in India on April 23, 2015.

As per the report, the Last reported valuations and investors in each of the top start-up companies in India today are:

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