Internet economy in India

Last year, there was a general apprehension in the market about a slowdown in the growth of Internet economy in India due to certain reasons including the dot com bubble burst. However, the closure of the majority of the dot coms did raise doubts about the viability of the Internet based businesses but the growth of Internet economy on the whole has begun to change the mindset of the people.

The Indian Internet market, during the year 2001, witnessed a steady growth in terms of subscribers. The number of active subscribers touched 1.5 million in March 2002 representing an increase of 30 percent over the 1.1 million figure in March 2001 (These figures excludes users of free ISPs as well as inactive accounts.) Nasscom estimates reveal that nearly 85 percent of PC owning households already subscribe to the net; the same is true of business establishments with Internet penetration reaching nearly 50 percent.

The total investments made by all ISPs is estimated to be around Rs.5,500 crore in 2001. The industry revenues are likely to be only a fifth of that - Rs.1,000 crore. The number of licensed ISPs during 2001 was 470 out of which only 130 were operational. But a shakeout has taken place in the market in the last one year with some players exiting the business completely, or selling out to large players.

Though most of the B2C dot coms have been unable to sustain operations but a few leading ones have continued to survive. They lowered costs and honed their value proposition besides introducing offline business models to survive the shakeout. The same holds true for the B2B models also.

The number of cable TV households is expected to increase to 70 million by 2004-05, up from 37.5 million in 2001-02, driven by increased content availability and affordable pricing from large, consolidated operators. About 10 percent of all cable TV households are expected to subscribe to the Internet, driven by lower prices of cable modems and lower access charges.

By 2005, the number of mobile phones would grow from 5.8 million in 2002 to 27 million. About 25 percent of all users would also subscribe to Internet access driven by new m-commerce applications especially in banking, online trading and ticketing. (source NASSCOM)

Similar opinion is echoed by IDC India which states that that it would be in the year 2004 and 2005, there would be a sharp increase in the number of locations (home, office, colleges) at which an average Internet user would start accessing the Internet. As shown in the figure below, the 'Internet Touch-point Ratio' (reflective of same Internet user accessing the Internet at more than one place) is forecasted to increase sharply in the year 2004 and 2005

This holds importance for business companies as it would be by this time that they have to put their Internet related strategies in place and should be able to reach out to their prospective clients at all points of access. Depending on how much importance does Internet hold in the overall strategy of an organization, above data could help in deciding the time frame for implementation of various Internet related technologies. Consequently, IDC India also expects online advertising to witness a sharp increase during years 2004 and 2005. In the Asia/Pacific region (ex. Japan), India is expected to be next only to China in terms of total number of Internet users by the close of 2005.

('000') Mar- 97 Mar- 98 Mar- 99 Mar- 00 Mar- 01 Mar- 02 Mar- 03 Mar- 04 Mar- 05
PC sales 580 800 1,030 1,405 1,882 1,703 2,318 3,619 6,907
Households 120 200 287 416 374 524 838 1,508
Business 680 830 1,118 1,466 1,329 1,794 2,781 4,589
PC population 1,570 2,120 2,810 3,760 5,070 6,409 8,272 11,274 16,554
Households 780 1,130 1,614 2,394 3,819
Business 4,290 5,279 6,658 8,880 12,736
Population(million) 961 977 993 1,010 1,027 1,089 1,156 1,226 1,301
PC penetration (per '000' population) 1.63 2.17 2.83 3.72 4.94 5.88 7.16 9.19 12.72
Internet penetration
Business (percent) 38 50 60 70 80
Household (percent) 80 85 90 92 95
Internet subscribers 25 150 350 650 1,130 1,699 2,792 4,775 7,739
Business 23 125 224 332 511 739 1,340 2,573 4,111
Business (percent) 92 83 64 51 45 43 48 54 53
Households 2 26 126 319 622 961 1,452 2,202 3,628
Households (percent) 8 17 36 49 55 57 52 46 47
User to subscriber ratio
Business 10 10 10 10 10
Household 2.5 2.5 2.5 2.5 2.5
Number of users 6,668 9,786 17,032 31,234 50,182
Business 5,114 7,385 13,401 25,728 41,113
Households 1,554 2,401 3,631 5,506 9,069

Clickthrough -the Online world of Advertising

In marketing, it is necessary to make consumers aware of a product, and to ensure they care about it, before they can ever make the decision to purchase it. This fundamental marketing principle has sometimes been forgotten in the 'clickthrough'- oriented world of Internet advertising. Online advertising needs to provide a relevant message to the right audience, in a manner that is not only noticeable, but also consistent with good user experience. A well-placed banner in a high-value area of a site might have more of an impact on consumers than a large unit in an area that gets little attention. But nevertheless, there is enough evidence to establish the power of online advertising.To quote Owen Thomas of Business 2.0, "New online ad formats are whirling, shaking, popping, and tilting all over the Web."The popular forms of online ads are:Banner - Standard rectangular ad found atop most web pages.Floating ad or Shoshkele - Animated object, like a car that races across your screen which are very high on attention grabbing parameter.Interstitial or Superstitial - Full-page ad, often with video or animation. Very useful indeed but web users complain that ads take over the screen.Large rectangle - Oversize ad placed in the center of the page.Pop-under - Ad opens in a window under the web page but majority of the readers close the page without even reading it.Pop-up Ad - It opens in a window on top of the web page.Skyscraper - Vertical banner.Superbanner - Twice as wide as a standard banner.Surround session - Users are served ads from one advertiser during their entire visit to a site. It's a costly affair.Text ad - No-frills, text-only ad that appears alongside search results.
Online Ad unit effectiveness Study - IABThe Interactive Advertising Bureau(IAB), the leading voice of the interactive advertising and marketing industry, in association with Dynamic Logic, an independent research company, conducted a study on the 'Ad unit effectiveness'. It confirms the online advertising's ability to foster brand attitudes among consumers. In addition, the data show that creative innovation, in this case the new, larger sized ad units, can extend online advertising's branding power.
The joint exercise has attempted to explore the branding impact of the standard banner, large rectangle, and vertical skyscraper banners units. The three ad units were tested across four different campaigns running on four different websites. The skyscraper sizes included 120X600 and 160X600 pixels, and large rectangle units included 240x400, 336x280, 360x300 and 300X250 pixels. Banners were all 468x60.
The study participants included:Publisher /AdvertiserCNET Networks, Inc./GenuityiWon/Vaniqa (Bristol-Myers Squibb)MSN/uBidSnowball/Coke
A total of 8,750 respondents were recruited from April 26, 2001 until June 11, 2001 for this study.

Schematic illustration of the study design The Dynamic Logic AdIndex™ methodology(used in this study) is based on a classic test versus control in market design enabling the testing of actual ads in a live environment.
The metrics included in the research are:Brand AwarenessBrand FavourabilityMessage AssociationPurchase IntentAd Recognition/Recall
Study Finding:The study confirms the branding effectiveness of banners. The 468X60 banner produced significant increases in certain brand metrics for all four campaigns.
The new unit sizes (skyscraper and large rectangle) were 3-6 times more effective than standard banners in increasing brand awareness and message association.

The campaigns were most effective in increasing brand awareness and message association (ability to link a message to a brand). Purchase intent and brand favourability were not generally increased by one ad exposure although there were significant increases in purchase intent in two campaigns.
While not the focus of the study, the study found that higher exposure levels (more than one) did significantly increase purchase intent and brand favourability in the aggregated data.
All three unit sizes were effective in increasing brand awareness in at least one campaign, with statistical significance. The skyscraper unit was most effective, followed by the large rectangle and then the standard banner.
The larger formats were effective in significantly increasing message association in multiple campaigns. The large rectangle was most effective, followed by the skyscraper.
So overall the IAB study found that the larger format sizes, which are naturally more visible and provide for more creative freedom, did prove to be significantly more effective than smaller, standard banners across all campaigns. These unitsmight develop even more of an edge in the future, since their size accommodates more interactivity and technological flexibility.
In the end, the results of the study should provide solid evidence for the branding power of the Internet and provide support for continued investment in extending creative innovation and development.
GlossaryBrand Awareness - Measures the level of familiarity respondents have with the brand (aided).Brand Favourability - Measures the extent to which respondents have a positive or favourable opinion of the brand.Purchase Intent - Measures the likelihood of respondents to purchase the brand in the future.Message Association - Measures the extent to which respondents can match the copy or messages in the creative to the brand.Statistical Significance - Measures the probability that the difference between the population proportions in the sample is representative of the entire population of web visitors targeted in the campaign. For this study, the minimum significance level to make projectable conclusions was 90%.Lift - The relative difference or percent change between the exposed and control (non-exposed) cells. It is a measure of progress relative to the baseline. The formula is (exposed % - control %) / control%.Difference - The absolute difference between the exposed and control (nonexposed) cells. It is calculated by subtracting the control from the exposed. In the report, this metric is referred to as the increase or decrease in the branding metrics.Indexed Mean Percentage - Method of computing Purchase Intent and Brand Favourability that gives weights to the 5 possible answers, with greater weights given to positive points on the scale.e.g. Very Likely - 100%Somewhat likely - 75%May or may not be likely - 50%Not very likely - 25%Not at all likely - 0%
Top Two Box - Method of computing Purchase Intent and Brand Favourability that includes those who respond via the top two answers (very and somewhat likely, or very and somewhat favourable).

Hierarchy of Internet Usage - User Life Cycle (ULC)

study by eTechnology Group@IMRB on the 4 stages of the usage as a user graduates through the Internet and the time spent by him on major activities on the Internet at various stages of his life cycleThe Internet offers four basic services:· Communication or socializing service with peer group or core group (email) or with new groups of people (chat).· Information services· Entertainment services· Shopping or commerce servicesFrom our qualitative studies with customers, we find that there is a definite hierarchy of usage as users graduate through the Internet. The following figure depicts the usage hierarchy.
Benefit hierarchy of Internet
We discuss below the Internet usage behaviour as the individual progresses across the four stages.
Stage I - The Naïve User: As is evident from all the earlier arguments most of the individuals start off with communication. These include the peer group and new group. In the initial phase of usage i.e. in with in the first month of usage e-mail represents the single major activity that is undertaken.Chat is another major activity undertaken by the users in the first month of usage, as they spend nearly 20% of their time spent on Internet. It has a novelty effect as well.
Information search is devoted as much time as chat in the initial phase. In this phase, it has been widely observed that the users try to figure out ways to surf the Internet and access the information they are looking for.
Stage II - The Adolescent User: The realization dawns that wandering aimlessly in the Internet space yields very little. So, the user becomes more focused in his information search and keeps using search engines for routine information needs. The chat time falls further. The time spent on entertainment increases marginally. The Stage II users know how to get information on the web even though they may not exactly know where it resides. The usage of the search engines starts to go up at this point of time as 26% of the search engine users come from those who have been using Internet for 6 months - 1 year. Time spent on chatting reduces as he allocates that time to answering emails etc. that has started multiplying now. Stage III - The Mature User: The user now realizes better ways to navigate around the web. He visits a few dedicated sites of his personal or professional needs and for other information needs, which these sites are unable to provide he uses the search engines. The search engine usage at this point of time reaches its peak. 33% of the users of search engines belong to this category 1 to 2 years.
The e-mail usage once again picks up due to the networking effect as more and more of his peer group or core group take to the Internet as well as for younger users they start regular and less informal mode of e-mail communication with the chat friends. Hence, e-mail usage increases whereas that of chat usage keeps dipping. The entertainment needs of the individual are still taken care of by almost the same proportion of time he spends on the Internet.
It is in this phase, the users start spending a little more time on shopping on the Internet. However, they spend more time looking for information of the products on the Internet.
Once the user reaches the mature user stage, his behaviour shows little variations according to his demographic or psychographic profile. But the behaviour has more or less stabilized at this stage.
Stage IV - The Professional user: There is very little change from the mature user to a professional user. The significant change being the e-mail usage drops a bit and stabilizes. Similarly, search for information increases a bit and stabilizes. The e-commerce usage reaches its peak here. On an average, almost 1% of the total time spent on the Internet. In this stage, the search engine usage tapers off and shows that the user has more predictable behaviour and stabilized on the sites he looks for information.
The following graph summarizes the changes that happen as a user graduates through experience.
Time spent by major activities on the Internet at various stages of the User Life Cycle (ULC)
Source: I-cube series - eTechnology Group@IMRB
Some other interesting facts can be gleaned from the above graph. Absolute time spent on Chat increase only marginally (only 2% increase from stage III to IV). Against this, time spent on Information increases from 2% in stage II to 54% in stage IV and email from 8% in stage II to 30% in stage IV. Entertainment and ecommerce experience the most growth in stage IV (with growth of 40% and 190% respectively).
Thus, one can clearly discern a hierarchy in Internet usage behaviour among users as they graduate on the Internet. The cycle time as they graduate may compress in future but the fact remains that all users have to undertake this pilgrimage in their search through the Internet.