Monday, 10 February 2014

Internet and Digital Media- 2: Big Hurdles

This is the second part of the article Online And Digital Media

Part of the credit for this article goes to Team Blogadda, who had a superb programme on Social Media, including sessions with industry experts like Anagh Desai and Lakshmipathy Bhat. The interaction during the entire event of Blogadda Awards {WIN14}, especially with the mentioned experts, enabled me to connect the dots in my mind, and cement my ideas into a firm shape. A part of the credit also has to go to Mr Vivek Sapru, my Senior during my tenure at Amity University as a visiting faculty, my discussions with whom also helped me see some direction

As I noted in the conclusion  of my previous article, this medium has the potential to reach into the gut of existing business models, and rip them apart from within. The other alternative is that this medium has the potential to cause a steady with definite change in existing business models, and change the face of business as we know it today. However - and this is a significant however - there still exist major hurdles in the path, which is rocky and stony beyond the ordinary, a reflection of a reality that is not often quoted in any business analysis I have read till date. To place things in some perspective, and to avoid unfounded exuberance (thereby lending a sense of reality to the analysis), I have taken up the biggest hurdles first, taking up the potential later on in the series

The first and immediate hurdle is, quite simply, data costs. Any product, any service, any Brand on the net has to be accessed - and that can only be through a Data Connection. And any system is only as good as its slowest / weakest component. Surfing the internet and downloading data costs money - and as current things stand, a massive amount of money. It costs anywhere between 175 - 250 Rs per GB on most Service Providers. I myself have a 4GB connection that sets me back by 750 plus taxes - by no means a small amount. Two critical questions arise from this reality - first, what is the size of the Addressable Market Segment; and what is the kind of volume of data consumed by the most demanding application - say, Videos. This second leads to another question - is the current level of 3G / 3.5G coverage sufficient to support this? Furthermore, what are the actual realised speeds generated during surfing? 

Let us take the second question first. One of the major identified segments is Video Downloads of all types. Even here, the things are murky - video downloads are in the top-3 only on desktops; mobiles account for emails, social media and communication. This is further confirmed by the low data ARPUs. Let us take a look at the numbers - which just dont add up, any which way you look at it. A 22-28 minute HD video is about 275 - 375 MB of data; a full feature length video of 2 hours plus equals around 2GB - 3GB of data. I have downloaded Sarabhai vs Sarabhai episodes, Tu Tu Main Main, Dekh Bhai Dekh, Satyamev Jayate, Political Interviews as well as several films on my connection - Don-2, Samay, Aan, and LOC Kargil among others - like The Longest Day, A Bridge Too Far etc. 

Even if you look at streaming data, the picture is no better. I am operating a 12GB data limit connection; the most I was able to get out of it is around an hour  {or a little more} of video streaming on average per day on youtube {Not HQ}, NDTV watch and similar sites. The cost was a humongous 1599 plus taxes per month for data alone. Now this data consumption is massive, given that I only have a  few GB space to operate in - meaning, files of 2GB are out of the question - which is why I still have to download Lagaan, which is 2848MB in size, and Dec 16, which is also around 2800MB in size. I can theoretically download only a few episodes of a length of say, 25 minutes per month. That is frankly, peanuts - and by no stretch of imagination can be extrapolated into an addressable market segment. For it to be a viable market segment, it would have to have volume and mass. Does it? This is a question that can only be answered by looking at some hard data, which is the subject of the next article, so please bear with me. Moving onto other market segments also gets us nowhere as of now, for the issues listed below, as well as usage and penetration realities. 

There are other critical operations issues at hand - which I shall, for the moment, ignore - given that this is a nascent industry. For example, the difficult interface you have to negotiate in finding the exact right video, especially on a handset : I have tried this on Lumia 720 as well as Karbon A9, finally going back to my trusty laptop due to coverage issues - to be taken up later; as also the issue of mobile battery life when using a 3G connection. Then there is the entire question of paid revenues, which is a topic unto itself; namely, how do you monetise and build a paid model of data consumption as a Brand, given the online Credit Card and Debit Card usage is in a distinct minority of the 1.27 Billion Population.

When we talk of Mobile Data, the first question that should be - but isnt - asked is, what is the kind of data coverage and actual delivered speeds that are prevalent? The answer to this is a very disturbing one - very disturbing indeed. Even in a city like Mumbai, I have experienced serious issues in coverage from not one, but 4 operators. What do you think it must be like in the other cities? The data connection @ 3.5G frequently falters even when the mobile is kept at a stationary location - to say nothing of coverage while on the move. The experience is somewhat along similar lines even in the other cities that I have had occasion to visit. Coming to speeds, I am yet to get the maximum advertised speed on the internet. Right now, speedtest tells me I am getting 3.22 mbps download speed and 1.20 upload speed; and this is among the fastest speeds I have experienced. The actual speeds range from 1.20 mbps and go upto 5.8 mbps, depending upon the Service Provider. Yet again, when you put the two (coverage and speed together) the numbers just dont add up - as movies take upwards of an hour, at times several hours to download - while serials and short videos take 30 minutes upto  an hour or more to download.  You cant keep stationary for that long during an average day... which means download at night - further limiting the market. Not only that, coverage also tends to falter... and with 2G, sites either wont load, or take one hell of a long time. 


The next question that should be asked is, just what is the penetration of 3G handsets in the market - not smartphones. Smartphones are frankly irrelevant to the data consumption market; the real question is, and will remain - what is the penetration of 3G handsets in India? And, from this sub-group, how many can afford a premium data plan - which is the only plan that can offer video downloads and high data consumption. There are around 143 Million users of internet on handsets - both GPRS and 3G, as well as Desktop and Laptop combined. 

That is the universe as on date - a figure on which we currently have zero demographic or income data. 23.8 Million users access the internet on their mobile as on date. As can be seen, yet again - the data does not add up. At a growth rate of 30% - we still have only 62 Million consumers of mobile data in 5 years - and this is GPRS and 3G combined, mind you. It will take a scorching growth rate of 60% five years in a row to reach a decent figure of 155 Million Users! The current growth rate, as per some expectations, is between 30-40%. Further, India, as a total added 40,000 Broadband users in May 2013. How many months will it take to add up to a significant number that can support the plethora of players in the market? Yet again, the numbers dont add up! 

Now assume that all these are 3G handsets. To try and balance (since 3G handsets penetration is likely to be 20-30% at the maximum level), let us assume a monthly billing of 200 Rupees. That gives a market size of 1254 Crores in 5 years time at a growth rate of 30%, and 1828 Crores at a growth rate of 40%. To put things in perspective, it has taken an expense of 67000 Crores into this market, and an expected growth rate of 30-40%. To make matters even more interesting, the data ARPU in June 2013 was 56 Rs. To round off, the total ARPU of Delhi circle was 182.33 on an average; and Mumbai was 192.82 on an average in Q3 2013, the latest period for which the numbers are available. The numbers just dont add up; not enough to justify the immediate euphoria. 

Are we then to assume that these are insurmountable hurdles? That this is just a bubble? How many Indians can actually afford a 500 - 1000 expense on data alone? How many Indians actually realise the value of a data connection? If they did, why is churn such a big issue in telecom? Why are people frequently switching providers, and even disconnecting them? Do you actually get seamless conectivity  on 3G? Does your battery play out the day? Why is wired Broadband slowing in terms of sales, in a market where supposedly there is loads of current opportunity? Where is the market? Who comprises the market? Where will the monetisation come from - any industry dependent only on advertising revenues cannot be sustainable; there has to be monetisation. 

But then how do you explain the scorching growth rate experienced in the market? How do you explain the applications that are being developed, and are increasingly in vogue? How do you explain the undeniable truth that internet and cloud based applications are adding value in countless homes and businesses across the length and breadth of India? How do you explain the pressure of the internet that is being experienced in markets as diverse as Consumer Durables to Handsets to Books? What about the various e-commerce sites, services and brands, some of whom might also be making money? Questions, too many questions... and too few answers. 

References : 

COAI Website

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