Overcoming the digital divide

Online businesses must build efficient distribution systems to cater to rising consumption in tier II cities

There is a significant increase in the consumer activity on the internet in the past few years - the share of goods and services purchased online is rising even as email and browsing continues to be the primary activity. As the internet consumer base is expanding, the concern whether this trend would transcend the top few cities in India is also mitigating. Smaller cities and towns are slowly outpacing the metro cities in their online consumption.

For instance, Naaptol.com records only about 17 per cent of its orders from top 8 cities but gets about 25 per cent of its orders from the top 20. The community-driven match-making model of Bharatmatrimony.com already penetrates deep into smaller towns of India. Google's Great Online Shopping Festival recorded close to half of traffic from outside the top metros in December last year. This not only reflects the rising demand in tier II cities and beyond, but also the challenges and opportunities that exist in serving the hinterlands.

The most visible element of this shift is perhaps in propagation of mobile device as the primary means of internet access for many Indians. India is one of the few countries where majority of internet traffic now comes from mobile devices. Few businesses have recognised and tapped well into the power of mobile medium. While many existing internet businesses will develop mobile extensions, there is an opportunity to create mobile-first and mobile-only experiences. Such experiences will leverage the location-awareness, context-awareness and user-awareness, which are inherent to mobile devices.

Another big opportunity lies in overcoming the digital divide and using internet as a vehicle to empower the citizens. The increasing drive towards information and transparency can be paired well with the access mechanisms to create an aware populace. Public institutions and private entrepreneurs should seize this moment to create impact and engagement. Financial rewards will follow, as they have in most cases, where high engagement platforms have been realised.

The real rewards of this shift will be reaped by those who apply market-based thinking. This calls for identifying unique needs of the new customer segments - not just "hand-me-downs" from their top city counterparts, but built on bottom-up insights. Some early signs of these are available in services such as bus ticketing, mobile entertainment, religious tourism and agricultural information services. However, we have only scratched the surface and 90 per cent of the iceberg remains under-explored.

Going to smaller towns also poses its own set of complexities. On the e-retailing front, for example, the logistics infrastructure available in smaller towns is far inferior to that in larger cities. While the delivery rates for consumer shipments in larger cities are typically in excess of 95 per cent, the success rate in tier III towns (not even getting to rural areas), these numbers can shrink to 75 per cent or less. The time taken to deliver goods also increases significantly, thereby increasing the post-purchase dissonance amongst customers. Similar challenges exist on payment front, where penetration of electronic payment mechanisms is minuscule in smaller locations. Building efficient and scalable distribution mechanisms, and leveraging on existing infrastructure such as Indian Postal Services, might be the key to realising the potential in smaller locations.

Another complexity in Indian heartlands comes from the linguistic variety. Multiple languages and dialects create not just translation issues with service providers, but also barriers to consumer-communication, which has been the bedrock for the most viral networking services online. If internet has to realise its potential for acting as an agent of national integration, vernacular platforms will need to be created and exploited.

In conclusion, the early signs of internet revolution are visible in India, and its spreading to all corners of the country. The opportunities that lie in front of us are far bigger than any we have seen in the past. Policy makers, businesses and entrepreneurs must proactively work towards making India a digital nation.

Alok Mittal
Managing Partner, Canaan Partners