The massive opportunity to reach India’s next billion users
In a country labelled the world’s fastest-growing economy, with a population of 1.3 billion people, it’s somewhat of a surprise that most startups have historically built for the “Elite of India” – a growing, but still comparatively small part of the population.
But things are changing rapidly – post 2016, we have witnessed exponential growth with new segments (think Gen Z, women, the elderly, and the poor) entering the digital economy empowered by smartphone penetration and data access. It is important to recognize these ‘Aspirers’ and the ‘Next Billion’ – the 650 million+ Indians whose lives are being transformed and ‘organized’ by technology.
Source: Boston Consulting Group
Of course, there are those who will dismiss this as a numbers game and claim that a big population does not equate with purchasing power, and that these segments are low on the profitability (and ROI) scale.
Here’s why they may be wrong:
- GDP per capita can be a false negative in assessing by segment spending power: India’s GDP numbers are less than half of China’s, and less than Indonesia, Philippines, and Sri Lanka. However, we have more people living below the poverty line than all of them combined. It’s easy then to have GDP per capita extrapolated across income levels distract you from the value the middle and near-bottom of the income pyramid.
- Volume and cost efficiency make up for margin: When it comes to large markets like India, it is imperative to recognize the aggregate buying power of the addressable market. By definition, software-based solutions can benefit from large-scale distribution by deploying solutions quickly through internet-enabled hardware and by leveraging digital customer acquisition channels. Indian engineer salaries are also 13x and 4x cheaper than Silicon Valley and APAC respectively. With ~500 million internet users (and growing) increasing online consumption produced much more cost efficiently than anywhere else in the world, VCs should expect strong ROI with the right startups.
- Disposable income can be increased and/or re-distributed: Currently, the middle and low-income brackets spend a disproportionately higher percentage of their income on food, health, and education (according to the World Bank). For instance, the affluent spend ~1 percent of their income on education, while the middle and low-income groups spend nearly 6 percent. The starkest difference is in food and beverages, where the middle and low-income brackets spend 20-35 percent of their income on this while the higher groups spend closer to 12 percent. Startups that are disrupting the consumer lending, healthcare, food, health and education spaces by making them cheaper and more accessible can increase consumption within these segments, while creating demand in peripheral verticals like entertainment, smartphone purchases, etc.
Additionally, these consumption verticals are fundamental to people’s innate physiological, safety, and belonging needs (see Maslow’s hierarchy below), and software solutions can now fulfil these needs.
Social pyramids and fortune hunters
So, what does this mean for startups and VCs? What’s the fortune at the (near) bottom of the pyramid?
- Given the lack of precedence,startups building on deep consumer insights specific to the Indian markets will succeed. Some of these may hold true for emerging markets across Asia, providing opportunities beyond India.
- Vernacular, Voice and Video will rule. Vernacular communication will play a pivotal role and both startups and tech companies will look for access to quality voice datasets to reach the majority of Indian citizens. Voice will be the universal form of communication across all income segments, but will especially enable the less literate to use more digital tools. Video will be the norm for sharing and consuming information – be it social platforms, health content, education, or gaming.
- AI will play a vital role in the democratization of digital products and services across income segments. Financial services, health, education, and logistics are likely to provide the most benefit to consumers from the use of AI.
- Traditional revenue models will be replaced. Ad revenue limits monetization, as buying more ‘things’ at a discount isn’t a key priority for the Next Billion. The best startups will find areas that offer intrinsic value to this new segment’s lives and generate revenues from there.
The Indian startup ecosystem is witnessing rapid change. New segments, new business models, and new technologies are being explored for 50 percent of India entering the digital economy. By backing players using deep consumer insights and leveraging technology to bring products to the Aspirers and the Next Billion, VCs who truly understand the opportunity areas have the chance to unearth this fortune at the near bottom of the pyramid, while increasing millions of Indians’ well-being.