India could be the largest Internet market - Google
The most dreaded word in investing is “It’s different this time”. The Indian Internet Industry seems to be echoing just that. After the eyeball (that went into tears) drama in 2000 the Indian internet market is singing a different tune this time. Thankfully this one is backed by revenues. The domestic broadband industry is expected to grow 15 times in the next four years to 20 million users in 2010 from a current level of 1.3 million users.
Google’s chief Eric Schmidt in a recent interview to the Times of India says that India and not China will be the world’s largest internet market in about 5 to 10 years.
India’s total online population currently stands at 37 million and is expected to grow to 100 million by 2007 Smaller cities and towns have shown a whopping 142% YoY growth and now account for 25% of all internet users. (Source: IAMAI).
Among the top 20 internet using nations India has the lowest percentage of internet users so the growth in internet usage could come from two counts.
1) Increase in broadband penetration would lengthen the time spent on the net
2) Increasing penetration of internet as a percentage of population.
The average Internet user between the age group of 20-40 years is the right target for an advertiser. He is educated, independent and posses a high disposable income. Over the next few years a lot of advertisement could move from the print to the TV, and the TV to the internet.
Over the past 7 years the Indian internet user base has grown at a CAGR of 60%+. The advertising market in the last 3 years has grown at a CAGR of 73%.
|
Advertising market |
2003-04 |
2004-05 |
2005-06 |
2006-07 |
|
Online Ad Market
(Rs. Crore) |
42 |
107 |
162 |
218 |
Source: www.iamai.com
|
Share of Online Ad Revenue Across Categories |
|
Categories |
2004-05 |
2005-06 |
|
Financial Services* |
27% |
24% |
|
Tech |
13% |
11% |
|
Travel |
14% |
12% |
|
Automobile |
9% |
11% |
|
Consumer Durables |
8% |
9% |
|
FMCG |
7% |
9% |
|
Online Personal
Services |
12% |
11% |
|
Entertainment |
4% |
7% |
|
Telecom |
2% |
6% |
|
Source: www.iamai.com
No wonder the Google chief says that India could be the leader of the internet industry in 5 to 10 years. Moreover Eric Schmidt had another forecast to make he said that the three biggest languages for the internet would be English, Chinese and Hindi. Microsoft is also aggressively implementing an India specific Internet strategy.
In December 2005. West bridge invested $7m in Times Internet (Revenues US $ 30 million), valuing the entity at US$240m.The market cap to sales of 8 times in a private equity placement speaks of the enormous potential this sector holds.
I cannot find any listed players except TV 18 and to some extent Educomp (through their portals mathsguru.com and mentoraide.com) to play this huge opportunity. Bharti Airtel,MTNL, VSNL and RCOVL shall be installing broadband connections but the proportion of internet revenues will be miniscule to their overall revenues. Sify and Rediff listed at the NASDAQ so those are out of contention but persons who are allowed to invest outside India should take a look at those companies when ever the market corrects. Over the past few months both these Indian Internet companies have been in demand at the NASDAQ.
Over the next few years we could have a flood of Internet IPO's. The Venture Capitalists would need a space to get out and so would the employess who would need to get their options monetized. Thus even if the promoters do not want these companies would have to come out with an IPO (for the VC and ESOP monetization) and that should be an opportunity. The only caveat is if these companies head directly for the NASDAQ!
This is a link to a very interesting report on the profile of internet users.
Edited by basant - 05/Nov/2006 at 5:56pm
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