During his recent visit to the US, Rajesh Jain had a chat with Kevin Werbach, Wharton legal studies and business ethics professor. The topic was “What’s New with Net Neutrality and India’s Mobile Markets?” In the first part, Rajesh asks Kevin five questions on net neutrality and in the second part, the roles are reversed and Kevin asks Rajesh about the Indian mobile market. Very informative and interesting. An excerpt follows:
Werbach: . . . Now I’m very interested in learning from you more about the market in India, where you have been active. Could you talk about how the Internet market and the communications market in India are different from the United States or other countries in the West?
Jain: The market in India is dominated by mobile. For mobile we have 400 million-plus users. Internet has been more stagnant in the last year or year and a half at about 45 million to 50 million. So what’s happening is that, unlike many other markets, mobile is becoming the dominant device for voice, for value-added services, and increasingly for mobile Internet also. It’s somewhat similar to what we saw in Japan in 1999 where, because of the limitation of broadband and computing, basically i-mode, the service which DoCoMo launched, became the center of people’s lives. Mobile is already becoming that. There’s a whole host of services being created around mobile, but there are two challenges with both.
The challenge with Internet is that there is not enough usage, and that has limited the growth in Internet advertising. The Internet-ad spend in India is about $140 million, which is about 3% of the overall media spend in India, but it’s still quite small. Mobile on the other hand, the value-added-services part, where if you look at non-voice and non-P2P SMS, that’s about a billion dollars. So you have a situation where the consumer spending is roughly seven times that of what businesses are spending. From an entrepreneurial perspective, you see these are two separate opportunities.
So while you create services you will be limited by Internet advertising, which is not growing. Google is getting a larger share of the pie and so on. In the mobile space, the problem becomes the mobile operator. Operators want a larger cut of end-user pays. You’ve got to give billing to the operator. There has to be some innovation, which needs to happen in one or both of these segments. That’s the lay of the land when it comes to India.
Werbach: How do you see that changing? Or do you see that changing? You talked about Japan, and in Japan certainly i-mode was fairly dominant, and still mobile Web services are big there. But also DSL and fiber became very significant.
Jain: In India there are two changes I see happening if I look at the Internet space and the mobile space. In India, on the Internet what we will see happening is the emergence of really mobile broadband. I was talking to one of the telecom providers recently and they have these USB modems, which are basically wireless modems on USB. Typically they’ve been used with laptops – people on the move, enterprise users. Interestingly, when I talked with them they said, “Look, the biggest demand we are getting for these USB modems – because they are high-speed, they are 3G speeds – is from consumers to connect their home PC, the fixed PCs, to the Internet.” Because in many places it is hard to get connectivity. The speeds are just not good. So even though people are willing to pay, the connectivity is pathetic for the most part. So that can drive the growth of the Internet. And devices, low-cost devices, which really are network computers. So we have to solve both the connectivity problem and the device problem for the Internet to grow in India. And then, of course, once that grows, more users start happening. Automatically the ad spends will increase. But that’s the change which needs to happen.
The mobile side is even more interesting. What’s required on the mobile side is to create an ordinate ecosystem for value-added services to the operator. So it’s not really happened, because companies tend to prefer to work with the operator, and once you start working with the operator it’s very difficult to break that relationship.
Two things have happened. The entity DoCoMo showed the potential for an open marketplace where they had tens of thousands of applications which got created, and that drove users. They went from zero to 30 million in about three years, in 1999 to 2002. Apple has shown what’s possible in the U.S. with a model which is basically independent – the App Store model – which is independent of the mobile operator. That is the opportunity which exists today to create what I call a digital-services operator, where there are four elements one needs to put together in the mobile space: alternate payments of collecting money independent of the operator, which Apple is doing in the U.S. through credit cards built up largely first through the iTunes music they sell. The second is having a large reach, so you can reach tens of millions of people cost-effectively so you can make them aware of the services. The third is an open publishing platform and marketplace, so third-party providers, content providers, service providers can comment. And finally, an initial set of compelling services, which get people to want to go create the account.
If these four elements can be put together there is a great opportunity to transform the mobile space and break the stranglehold that mobile operators have. What’s happening today is that, because of their focus primarily on voice and in India mainly launches in rural areas, the top of the pyramid – which is about 100 million people, 25% of the base – want new services but are not able to get to the operators.
So there’s an interesting opportunity which can be created in India and then made to work outside.