Hype Cycle for Emerging Technologies in Digital Marketing

Businesses today have been extensively integrated with digitization, promising convergence of people and businesses, while disrupting existing business models. A new age of digital marketing has arrived where extensive campaigns are pushing new products through platforms such as websites, e-mails, apps and social networks. With over seven billion people and businesses, and a millions of technologies bringing a new world together, digital marketing plays a major role in empowering businesses with the much-needed edge to thrive with the competition.

Digital Business Development Path

 Rapid change is fueling digital marketing. Within the last decade we have seen technology giants driving businesses such as Facebook and Twitter. Mobile marketing and advertising marketers have begun focusing on consistent and contextual without being interruptive.  Change is the one thing that is constant, with changes being made faster than ever before. However, impact due to the change is highly dependent on it’s temporal context. For example, wearable technology like Google glass has gained a lot of news coverage when in fact, Steve Mann had already developed a similar device, ‘EyeTap digital Eye Glass’ in 1999. This is a prime example showcasing the importance of analyzing the visibility of a product with time for organizations to capitalize its technological and business resources to make the best marketing sense.

Hype Cycle

 The Hype Cycle is a branded graphical tool developed and used by IT research and advisory firm Gartner for representing the maturity, adoption and social application of specific technologies (See Figure 1). The hype cycle map how technologies move through different phases of hype and indicate whether certain technologies and products are good for the company in short term and long term. Marketers need to understand how and when to derive value from a product and also when to dispose of it when new things come along.

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Fig 1: Five Phases of the Hype Cycle (source: Gartner)

What’s new in 2014?

Marketing Talent Communities: Marketplaces have come up that support organizations and marketers to find and hire qualified freelance talent on-demand. A lot of time is saved in the process of recruitment of a variety of qualified writers, designers, strategists, data-analysts etc. Bloomberg Institute is one such example which financial employers approach to hire talented college students through a normalized screening test called the Bloomberg Aptitude Test.

Marketing Technology Integrators: The scope of digital marketing has expanded broadly. Digital marketers can’t claim to address the digital marketing needs solely through offering new Web Content and Experience Management or Portal platforms. As a marketer, the time and attention required to solving technological solutions takes time away from their focus on target customer. Thus, marketing organizations are hiring services and products that design and implement software and increasingly integration-oriented implementation data solutions.

Transactional Ads: This is an example trying to connect marketing with productivity and conversion. Online ad units that are activated by gestures, present a secure transaction or coupon. This reduces the time consumption of the viewer by enabling a person to request information or to buy the advertised product without leaving the webpage on which the ad appears. If old companies can figure out a way to associate more with transactions, they can boost their chance of surviving in the online market. [3]

Quantified self: It is a movement to incorporate technology into data acquisition aspects of a person’s daily life in terms of inputs, states and performance. Applications or services on mobiles and wearable technology that provide self-tracking analytics contribute to self-knowledge through self-tracking with technology. Biometrics have been identified that people never knew existed making data collection cheaper and more convenient than ever before. Recently, companies like Google and Zomato have begun to use location data of a user’s phone to recommend suggestions to buy things based on the proximity to various shopping outlets.

Social co-browsing: Collaboratively sharing of the web space with one or more parties from a social network, regardless of the physical locations of the partners. In real-time, multi-user experience isn’t just slapped on top of an application, it’s directly built into the core experience. Companies would have to redesign their user experience to support social co-browsing so as to provide a natural extension of for users to communicate and interact to enrich their real-time, collaborative experience. [4]

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Future Implications

Most of the technologies at the peak of their hype cycles today, will plateau in terms of productivity within the next two years. The window to gain competitive advantage in this fast-paced environment is limited. Thus companies must adapt themselves for speed, agility and rapid customer response.

Content marketing can be very resource intensive. Organization should use marketing talent communities and agencies as an escape valve for demand as a way to scale elastically as demand comes online.  The in-source and outsourced roles must be carefully mixed together in order to optimize productivity. Organizations should appoint strong leadership to ensure the success of their elaborate content marketing strategy.

Common view of digital-savvy customers should be kept in focus to ensure tight coordination of marketing activities in sync with the changing customer needs and reactions. Emerging architectures of digital marketing hubs should be carefully reviewed periodically to best utilize resources for most productive outcome.

With increase in social-marketing hype, the social marketing objects should be tied to the corporate vision of the companies. Analysis of how each social marketing activity will support that goal and provide a high return of investment. Gain from adapting to emergent technologies can lead to savings on media from improved efficiency or lift in sales from improved effectiveness of a company’s budget.

B2B management investments should be made into multi-channel, taking advantage of accessible areas in data mining, segmentation and behavioral analytics. Useful analytic results should be incorporated to the marketing strategy to further boost performance.

Criticism about Hype Cycle

Several disadvantages of Hype Cycle have been brought to light. Firstly, it is very difficult to objectively estimate the current location of a technology in its hype cycle. Secondly, terms such as ‘disillusionment’ and ‘enlightenment’ are misleading for people as they give a wrong idea about how exactly and to what extent a technology can be used for an organization. Also, there is no mention of how a technology transitions between phases and what all factors influence the shift. Lastly, several technologies are heavily correlated in terms of advancement through the different phases. The hype cycle does explain the cause-effect relationships between technologies and their impact on acceleration of technology progress and generation of excessive hype for a product.

References:

http://www.gartner.com/newsroom/id/2819918

http://www.theregister.co.uk/2013/03/02/steve_mann_on_google_glass/

http://techcrunch.com/2010/03/07/the-rise-of-transactional-advertising/

https://goinstant.com/blog/collaborative-customer-interfaces-and-social-cobrowsing

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Exploring the meteoric rise of Alipay

The birth and rise of Alipay

Launched in 2004, Alipay is Alibaba’s third- party online payment platform in China. Alipay is to Alibaba just as PayPal is to ebay i.e. a payment portal, which processes the online payments not only for Alibaba but also for other e-tailers. While Paypal has mostly focussed on the Western market, Alipay prime focus is its birth country – China. This is justified considering its fast-growing third-party online payment market. However, unlike ebay or Amazon, Alipay enjoys favourable market penetration in China.

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300M+ registered users

 12.5B transactions

 3x: value of transactions compared to Paypal and Square

With over 300 million registered users trading with over 460,000 Chinese businesses to drive 12.5BN transactions, Alipay has the largest (about 50%) market share in China both in terms of number of users and volume of transactions online. Not only in the domestic market, Alipay has tied up with 300 worldwide merchants to trade in 12 foreign currencies. The domestic and international volumes drive over $520BN transaction revenues and are greater than the volume of transactions at ebay and Amazon put together.

Drivers of growth

The journey to becoming China’s leading and world’s 3rd online payment provider has been a steady one. The meteoric growth of Alipay rests on (3) key factors-

  1. Alibaba Advantage: Alibaba’s performance has been the growth engine for Alipay.

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At the right place at the right time.

The e-commerce market in China has boomed over the past decade. Its revenue growth (2009-2012) has topped 70% compounded annually. Driven by social media and advent of mobile/smartphones, the market is expected to continue to rise and outperform the US e-commerce market for another half a decade. Alibaba has capitalised on the growing China market through Taobao and Tmall.

The following charts show Alibaba’s market share in 2013 in various segments –

Pic 42. Differentiated offerings

 Unlike its competitors, Alipay provides two key services that satiate both the buyer and the seller. These two value additions have significantly differentiated Alipay from its competitors and  helped in building trust, thereby strengthening the network effect.

Consumer Protection. In light of the volume of consumer complaints in the e-tailing business, Alipay ensures buyer protection through its escrow service. It collects payment from the buyer but releases it to the seller only if the buyer confirms her satisaction with the delivered product.

*78% respondents were concerned about the authenticity of items sold online.

The following flow diagram illustrates the model –

Pic 5

No Fee Is The Key. Alipay is the preferred payment platform for a host of domestic and international sellers. This is primarily due to its competitive and simple fee structure. It does not charge any fee on Taobao and charges a nominal fee of 0.5% – 1.5% to Chinese sellers on Tmall. PayPal, on the other hand, charges anywhere between 2.9% to 3.9% in addition to $0.3 per transaction and cross-border transaction fees.

 3. Banking on Financial & Investment Services

 Alipay added another feather to its cap in 2013 by introducing Yu’E Bao, its financial & investment services arm for retail customers. With a promise to pay returns greater than what Chinese banks pay, Alipay tied up Tian Hong Asset Management to launch the Yu’E Bao service.

This was a unique service as it was only once that Paypal attempted it in the US before shutting it down in 2011. Also, this service was direct competition to the traditional banks. While traditional banks provide about 3.3% returns on a savings account, Alipay’s returns are more than twice as much (about 7%). Simple maths has given a boost to the investment sentiment amongst the retail customers. This is evident in the sharp rise in the number of users of this service, which rose from 2.52MM in June 2013 to more than 100MM users in June 2014. The assets under management grew 5 times in the past year from $7Bn to $40Bn. The steep rise has been bolstered by a profit of $0.5Bn profit to its customers. Thus, there is clear monetary incentive for customers to leverage Alipay’s savings accounts.

Alipay has coupled high returns with convenience of usage. Customers can transfer amounts as low as 16 cents, and can withdraw money anytime without being penalized. Integration of messaging and alert services through mobile phones has been the icing on the cake. But are high returns and convenience enough to sustain internet finance, and by some extrapolation Alipay’s USPs?

 The Road Ahead

 In light of a majority share in the growing Chinese e-commerce market, Alipay is surely on the right track for a couple of reasons. Firstly, Alibaba’s brand name and trust will have a huge network effect in looping in more customers and sellers. Secondly, its unique escrow model and zero-domestic fee right from the beginning has given Alipay the first mover’s advantage in terms of protecting buyers and unlocking economies of scale to sellers. This effect is compounded by lack of differentiation and value added services from the competitors. Finally, launching forward looking internet financial services has added value to brand. Thus, with major threat in the foreseeable future, Alipay is set to become a one-stop shop for banking, wire servicing and investing, all done through mobile device. So much for amenities on the go!

Technology in India- Better Days Ahead?

The budget released by the Modi government this year had some clear-cut agendas, and was categorically termed as pro-business by most experts. But what does being pro-business mean, and what is it going to do for the population of India? Pro-business essentially implies that doing business in India has been made much simpler now. The policies guiding this would eventually be of benefit to the masses due to the creation of employment by new businesses. A related issue that the budget focused on is strengthening the MSME base of India. Several policies pertaining to increase in capital investment ceiling and easier exit options in case of bankruptcy have been introduced. It is evident that one of the government’s major goals is to boost entrepreneurship in the country.

 TECH TALK

The technology industry is arguably the fastest growing sector in India currently. Past trends show a consistent rise in its revenues.

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Estimates forecast a growth of anywhere from 8% to 9% in the sector this year. In spite of great potential however India has failed to catch up with the rest of the nations in the IT sector. The categorical reason for this has been the lack of provision of relevant policies and basic facilities by our government. However, now that the government has recognized the problem at hand and is taking certain measures to resolve the issues, we should ideally be able to attain our capacity as a country. A major influence of these policies will be on the smaller businesses, as is intended by the policymakers. As MSMEs contribute nearly 8% to our nation’s GDP, encouraging their growth is a logical step to take. This can only happen when these businesses have germane and competitive technology, which they often cannot afford. Therefore, it is in the interest of both the entrepreneurs and the government that suitable action is taken to make technology cheaper and more accessible. This has hence become a part of our Prime Minister’s vision, to convert our nation to ‘Digital India’.

DIGITAL INDIA

The Finance Minister recently revealed that nearly INR 200 crores has been allocated for technology development and broadband penetration for supporting MSMEs. The primary aim of this move might have been promotion of small businesses, but the benefit to the technology industry can’t be ignored. In addition, an allocation of INR 500 crores for Internet connectivity in villages and small towns has also been made. Once again, the benefit to the technological sector might be secondary, but it is undeniably there. The development of smart villages, greater connectivity, and better technology for MSMEs are all road stops towards the march to ‘Digital India’. While the journey promises to be one of digital evolution, there are also economic and social benefits involved. IT industries account for nearly 30% of the country’s GDP and 25% of the employed population. As it boosts and grows, employment levels are set to see higher figures also.

 THE FUTURE OF TECH

The evolution of technology is a necessary one for the growth of the economy of a country. It is interweaved with social benefits, growth of MSMEs and of well-established businesses also. While the budget does suggest major allocations for development of technology, both directly and indirectly, it remains to be seen how effective these measures would be. An indirect benefit to the industry comes from measures taken to boost the Manufacturing and Banking sectors. Due to these accounting for nearly 40% of the market for IT services, companies can expect more business in the coming years.

 One of the trends in the software industry has been its consistent and definitive orientation towards services rather than product development and research. So far, digital innovation has been a monopoly of the western world by and large. However, with the advent of better policies and greater financial support from the government, this may change soon. Initiatives like a district level incubator network and funding for startups will ensure greater innovation and hence software product research and development is one area where greater penetration can be expected. Influx of outsourced projects from global firms should also see an upward shift as the IT industry grows. Apart from this, companies should also focus on providing low cost software solutions to budding businesses as part of the services sector since the demand for these is on the rise. As part of the new plan, the government will also be reaching out to the industry for leveraging technology for better governance.

 Until now, both MSMEs and big businesses have suffered from a lack of Internet connectivity in India in the past and the growth of the industry as a whole seemed to be stagnating in the last few years, with India being ranked at 121 among 157 countries in terms of Internet penetration this year. This was in contrast to 114 in the previous year. The Modi government however has identified the problem and created the required policies. All that remains now is proper execution.

Open Source: A paradigm shift for the IT Industry

Open Source is the biggest disruptor the software industry has ever seen and it will eventually result in cheaper software and new business models…

-Gartner

Gartner’s predictions now suggest that in coming years, OSS’s impact on application software will cross $19 billion, with a five-year CAGR of 44%. With the Open Source Initiative (OSI) organization and thousands of developers worldwide backing OSS, its impact on the $170 billion IT industry needs a closer look.

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Major players in the open source space

Open Source Software (OSS) is collaboratively developed computer software with its source code made public. Over the past decade, OSS has seen rapid growth in the industry owing to the price, reliability and flexibility benefits it offers. The growth of Open Source Software (OSS) has altered the fundamental nature of the industry in a true sense as an increasing number of business models are switching to OSS. It has given rise to major implications for the IT industry while also carving out niche segments in the industry such as Open Source Consulting etc.

THE GROWTH STORY

So why has OSS grown exponentially? What factors have driven software giants to using as well as publishing open source?

The biggest factor that propelled OSS onto the main stage was the cost advantage, but, contrary to popular belief, it is not the only benefit that organizations derive from OSS:

Security – Linus’s Law (named after Linus Torvalds, Linux creator and OSS pioneer) states, “Given enough eyeballs, all bugs are shallow”. OSS offers enhanced security by leveraging the strength of its developer base to quickly identify and fix bugs.

Quality – OSS offers immensely better quality of code. Imagine thousands of developers constantly striving to innovate and contribute to an OSS versus a handful of developers shipping out a licensed software package.

Trial & Support – OSS also offers great trial and support options. As the code is free, organizations can try it out at will, and with hundreds of communities and online forums of open source developers, support is never far away for the users.

Flexibility – Other benefits come in the form of amazing customizability, freedom and flexibility the code offers. Organizations typically tweak the code with minimal effort to best match their requirements, a relatively well-known example being that of Goobuntu, a ‘long term support’ version of Ubuntu developed and used in-house by Google.

Hybrid Business Models

In addition to pure open source companies, the growth of OSS has been fueled by proprietary software companies pursuing a ‘hybrid’ business model. There have been numerous instances of software giants open sourcing some of their products: Adobe open sourced its Flex tool while Yahoo did so with the Flickr API. This has lent credibility to the OSS bandwagon and prompted firms and venture capitalists to invest in open source. In September 2013, IBM announced a gigantic $1 billion investment in the Linux platform.

MAJOR ISSUES

OSS has been able to penetrate almost all sectors of the software industry, ranging from ERP to Server OS and has made inroads into the public consumer segment as well (as depicted by the graph). While OSS continues to grow unbounded, it becomes critical to address the problems associated with OSS. The biggest gray area for OSS is legal uncertainty. There are unaddressed issues with the interpretation of open source licenses (such as GPLv2) which use an array of loosely defined terms such as ‘derivative work’.

Open Source Software Usage Adaption (%age)

Open Source Software Usage Adaption (%age)

Another problem lies in the management of OSS on a large scale. Many companies build their core business models on top of an open source code or platform. This necessitates the formulation of a sound usage policy, failure of which could hugely devalue the product. This was the case with Cisco’s $500million acquisition of Linksys where the Free Software Foundation successfully claimed release of open source based elements of Linksys. Other trivial issues include limited user-friendliness and lack of ‘formal’ technical support. The growth of OSS is sustainable only if these issues are eliminated, otherwise, the software industry will soon be entangled in a web of lawsuits, plagiarism and uncertainty.

WHERE IS THE FUTURE?

Three distinct schools of thought from the software world have sparked the Open Source vs. Free Software vs. Closed Source debate for paving the growth of the industry. While advocates for Closed Source bank upon benefits such as saving intellectual property and minimizing competition, they restrain innovation and reusability for the industry. On the other hand, Free Software offers unmatched cost benefits and a ‘morally right thing to do’ argument, while suffering from loopholes such as poor quality and low accountability. In such a business environment, open source attempts to pave a middle way promising highly flexible, reliable code at minimal cost. But with the open source issues remaining unaddressed, the promise might not always be realized which means that the three-fold software debate continues to heat up.

 ———

Abhinav is a PGP 1 student at IIM Ahmedabad and a member of the Consult Club. He holds a Dual Degree in Computer Science from IIT Roorkee and has worked at Adobe for 10 months before coming to IIM Ahmedabad. He will be interning with the Boston Consulting Group. He is passionate about reading, traveling and playing volleyball.

Tablet computer: The new blue-eyed boy of India’s IT industry?

After a spectacular surge in the mobile phone segment, the Indian information technology (IT) sector is witnessing a new trend – the rise of the Tablet Computer. Tablet computers or simply, Tablets, are touch-screen operated mobile computing devices without a physical keyboard.

tablets_header_624x258

Tablet sales have recorded a robust growth ever since the introduction of the iPad in India, and if industry estimates are anything to go by, this is just the beginning. The Manufacturers Association of IT (MAIT) has estimated the segment to grow at a compounded annual growth rate of 40% from 2011 to 2015. In a country like India, where the penetration of the computer with internet in urban households is just 8 percent and as low as 1 percent in rural areas, this is nothing less than phenomenal.

The growth story

MAIT expects sales to grow from 0.95 million units in 2011-12 to 7.3 million units by 2015-16 [Exhibit 1]. A report by CyberMedia Research predicts an even stronger sales growth rate of 100% for the year 2013. While numbers may vary, there is a definite upward trend in the market. Global sales forecasts reveal a similar story, however the Indian market is expected to grow at a faster pace, occupying a bigger share of world Tablet sales by 2015 [Exhibit 1].

 

Exhibit 1: Growth Projections of Tablet sales and their share in global sales

Exhibit 1: Growth Projections of Tablet sales and their share in global sales

Usage Patterns

Due to their form, portability and weight, Tablets are primarily meant for internet consumption on the go. However, consumers now use Tablets for a variety of purposes ranging from the traditional uses like checking their e-mail and reading books to online social networking, accessing multimedia and gaming [Exhibit 2]. Due to the growing number of applications and other support features in the Tablet ecosystem, they have tremendous potential even in corporate houses, the industry and government offices. Various industries such as healthcare, public services and especially education, have already adopted the Tablet.

 

Exhibit 2: Popular activities on Tablet computers

Exhibit 2: Popular activities on Tablet computers

Consequently, companies have also altered their value propositions to suit this plethora of needs.  Reliance tabs, for instance, is focusing on the youth. On the other hand, Micromax is trying to penetrate the education segment through its FunBook. HCL Infosystems is trying to build applications for verticals like healthcare, pharmaceuticals, banking and financial services. By strengthening their marketplace, HCL aims to carve a niche for its Tablet computer. Similarly, Lenovo is providing content in vernacular languages, in an attempt to provide a local flavour to their Tablets.

 

Growth drivers

A major part of this initial demand has been fuelled by Government purchases. Kapil Sibal, the minister of communications and IT said, “This is our answer to M.I.T.’s $100 computer,” during the announcement of the Aakash project in 2010. Government efforts to subsidize the Tablet and also provide relevant training to teachers have gone a long way in boosting initial sales figures. However, the government does not plan to stop there. According to Suneet Tuli, the chief executive of Datawind – the company that supplies Aakash Tablets, the government ultimately aims to see an Aakash 2 in the hands of each one of India’s 220 million students. If this is true, Tablet sales will ride on the back of government purchases for a long time [Exhibit 3].

 

Exhibit 3: Share of Government purchases in overall Tablet Sales

Exhibit 3: Share of Government purchases in overall Tablet Sales

Affordability is yet another lever that has pushed Tablet sales upwards. Gartner analysts have identified three distinct price segments – the iPad, the sub Rs 25,000 Tablet and the Rs 10,000-Rs 15,000 Tablet. In addition, the prices of the low cost segment are expected to follow that of smart-phones which are currently expecting a downward trend in price. This availability at different price points has partly occurred due to tremendous fragmentation in the market. There are currently over 70 different models of Tablets launched by more than 10 companies and the number is only increasing.

Another important factor responsible for the growth potential of Tablets is enterprise adoption. Take the case of Bharti Airtel, India’s largest mobile telephony services provider. After presenting its directors with the Tablets, it has shifted from leather pads and files to a strict ‘iPads only’ policy in the boardroom. Other companies are also expected to realise their potential in the office and follow suit. In addition, the ‘bring your own device’ concept which is getting popular in companies, will also lead to greater acceptance of Tablets in these enterprises.

Availability of applications and multimedia consumption are other key elements that drive the growth in this industry.

Challenges

Despite portability, good processing speeds and a variety of applications at their disposal, the user experience is marred due to poor internet connectivity. Unlike in the west, 3G connectivity in India, is not robust and the Tablet has limited utility without a good internet connection. Scarcity of public wi-fi networks in the country also adds to the problems with connectivity. Tablet-makers like Samsung and Reliance have realised this issue and are taking steps to make internet access readily available. Reliance, for example, bundled their Tablet with 3G to observe an immediate impact on sales.

In addition, lack of consumer awareness about the potential of Tablets, as well as the inability of the existing application range to reach all segments within the country may pose as potential hurdles to the sales trajectory. To thrive in the market, producers will have to find solutions to these issues while not compromising on the overall value-proposition of the offering.

To sum it up, the same features of mobility, affordability of devices and low tariffs that have made mobile phones ubiquitous within the country, are expected to give rise to tremendous growth in the Tablet computer market too. Trends indicate that Tablets are here to stay. However, despite strong drivers like government procurement, corporate adoption and affordability, companies will have to find means to overcome the challenges caused by poor connectivity and lack of awareness. Only then will they be able to sustain the promising growth potential of Tablets in the country.

References:

  1. India tablet computer sales to double in 2013: research. (2013, January 7). Hindustan Times.
  2. India unveils tablet education initiative. Will the US follow suit? (2012, November 14). The Economist Group.
  3. Jayanth Kolla. (2011, August 8). Key Drivers for Evolution of Tablets in India. Convergence Catalyst Blog.
  4. Joji Thomas Philip & Gulveen Aulakh. (2011, August 27). The Economic Times.
  5. Pamposh Raina, Ian Austen & Heather Timmons. (2012, December 29). An Idea Promised the Sky, but India Is Still Waiting. The New York Times.
  6. Tablet market in India to grow 40%, to cross 1.6 million units in 2012-13: Study. (2012, October 19). The Economic Times.
  7. Tablet PCs have good growth prospects: Gartner. (2012, February 20). Business Standard.

 

– Sahil Patwa

Sahil is a PGP 1 student at IIM Ahmedabad and a member of the Consult Club. As an Associate Consultant at Ernst & Young, he was involved in the launch of India’s first domestic debit-card system and other projects in the electronic payments space. He is passionate about technology, new business development and Web 2.0. Sahil holds a B.Tech in Mechanical Engineering from IIT Bombay. 

Broadband in India

People can’t sleep because they have insomnia. I can’t sleep because I have Internet connection – Member of Internet Users Anonymous

Although there may not be an official group called the Internet Users Anonymous, the day is not far when this would be a reality. Internet has revolutionized the way we think and perceive the world around us, and it is still rapidly evolving and converging to a point where all forms of communication will be through data, and hence through the Internet. However, this day seems quite distant in India where Internet speeds still lag considerably behind other countries.

History of Internet connections in India

Internet services in India were first rolled out in 1995 by VSNL. However for the next 10 years Internet in the country remained very slow till 2004, when the Government formulated its Broadband policy, which defined Broadband thus –

An always-on data connection that is able to support interactive services including Internet access and has the capability of the minimum download speed of 256 kilo bits per second (kbps) to an individual subscriber from the Point Of Presence (POP) of the service provider intending to provide Broadband service where multiple such individual Broadband connections are aggregated and the subscriber is able to access these interactive services including the Internet through this POP.  The interactive services will exclude any services for which a separate licence is specifically required, for example, real-time voice transmission, except to the extent that it is presently permitted under ISP licence with Internet Telephony.

Internet penetration gained acceleration 2005 onwards, starting off with only PCs as the Points of Presence, and later moving on to mobile devices.

Broadband and 3G penetration in India

Source: Telegeography Press Release

Following the auction of the 3G spectrum and subsequently the 4G spectrum, the scene was set for the Indian market to move beyond the existing wired-line technologies to a more competitive and challenging wireless broadband market. As of December 2011, India has around 121 million users, which is the world’s 3rd largest Internet user base. Around 60% of these users access Internet only through mobile devices.

So what’s the problem?

Even though the growth of Internet users might look good, they are actually short of what the Govt. expected in its Broadband Policy, especially the growth in the broadband sector of retail customers and small enterprises. Typically the demand for Internet bandwidth within a country is driven primarily software exporters, information technology enterprise solutions (ITES), banking, software service providers etc. most of which could be classified under the BPO sector. However, it’s the retail customers and small enterprises provide the biggest source of access users that lead to voluminous growth and Internet proliferation, thus leading to an e-lifestyle. This has remained low in India, thus leading to a low level of penetration of broadband. Despite the Indian economy maintaining a 7-9% p.a. growth which results in a reasonably large market for Internet Service Providers (ISPs), the retail segment has not blossomed to entail creative, competitive, and cumulative business, mostly due to very slow Internet connections. According to 2007 statistics, the average download speed in India was around 256 kbit/s which was the minimum speed set by TRAI, whereas the international average was 5.6 Mbit/s during the same period. This implies that prevailing applications are restricted to e-mail and Web browsing with limited multimedia content. The pricing structure of broadband in India is arguably one of the highest in the world, making it an elite or luxury item. Which brings us to the main question – Why is there a scarcity of bandwidth in India?

Country Normalized price per Mb/s per month

South Korea

1

Sweden

1.91

Germany

15.68

United Kingdom

33.26

Poland

39.21

Luxembourg

55.79

China

68.18

Thailand

89.29

Sri Lanka

120.29

Slovakia

151.41

India*

260.62

Myanmar*

769.85

Source: On the State and Guiding Principles of Broadband in India – Ashwin Gumaste, Prasad Gokhale, and Asheesh Dhar, IIT Bombay

Where is all the bandwidth?

The scarcity of bandwidth in India can be attributed to multiple factors. One of the reasons could be the near-monopolistic policies which have been exhibited for the past decade at the landing points of submarine links. When it comes to bandwidth there is a near monopoly by Tata and Reliance. Attempts have been made to break this monopoly, with MTNL buying bandwidth from Tata and Reliance a few years back. How it came to be like this in the first place, even though BSNL was present is because the government thought that the submarine cables and the landing stations is a low profitability business. However, since then the Government and BSNL has built its own landing station in West Bengal. Indian enterprises use high orders of statistical multiplexing that cater to a large number of internal users with a minimum dedicated bandwidth, which combined with the monopolistic policies ensure that bandwidth remains either inaccessible or expensive, or both at the same time.

Another reason could be the usage-based pricing model which is currently deployed for retail customers in India, for broadband. It dissuades them from using Internet multimedia services extensively like voice over IP (VoIP), video sharing, streaming media, and social networking portals. Hence, retail users use less bandwidth-consuming services such as browsing, e-mail, and chat, because of which there is no demand for high speed Internet connections. This leads to next-generation Internet applications, content providers, and data centers that require more bandwidth becoming wary of putting up shop in India. This feedback loop creates the fallacy of local intranetworking, which explains the rise, penetration and success of cellular services for both voice and short message service (SMS) texting applications, significantly higher than other countries. In comparison, the flat-rate pricing has many advantages for both service providers and retail customers. Service providers save the overhead of deploying a system for tracking and billing usage. With a flat-pricing model, the ISP knows the amount of payments it will receive from its subscribers and can budget accordingly. For retail customers, this model provides convenience and a predictable fee. The flat rate pricing model has been an important factor in the growth of the Internet.

Growth of flat pricing model for broadband

Source: ICT Regulation  Website

To make matters worse, a unique provider-vendor business model has emerged, one that brings in the vendor to lease equipment to a provider, thereby sharing profits (between the vendor and the provider). This implies that the network is at the mercy of the vendor in terms of technology roadmaps, as long as the vendor can provide for the basic business needs of the provider. This also implies that the provider is more focused on its marketing and sales strategies than on the actual ownership of the network. In fact, most of the overhead is in sales and marketing, neither of which is directly responsible for good network planning.

Various telecommunication operators are deploying optical fibre-based national networks offering services like MPLS (Multi-protocol label-switched) core, IP-VPN and so on, but the benefit of this infrastructure isn’t reaching the end users because of poor “last mile” infrastructure (connecting the service providers to the end users) except in metropolitan areas. In select tier 1 cities, the incumbent provider has begun some basic deployment of fiber to the home (FTTH) and fiber-to-the-curb (FTTC). Although this is a good sign, at par with deployment in the developed world, the deployments are far too little to make a business impact. The key again is the absence of a comprehensive return on investment (ROI) model, due to the current broadband pricing strategy as a result of bandwidth choking.

What can be done about it?

We have seen that the growth of broadband in India has been severely impeded by factors such as prohibitive costs at the submarine links for service providers, a flawed pricing model, weak “last mile” infrastructure and a weak demand for high-speed Internet services. These should be tackled by unbundling the international cables, government stimulus for infrastructure development, and competition through regulation by employing a flat pricing model, thus fuelling the much needed rise in demand for broadband.

However, in the long run, the future of broadband in India is all about mobile. A rollout of fixed broadband will only be viable in high-density metros and not on a mass market and pan-India scale. As such, mobile broadband is the only feasible way forward and preferred by consumers due to the ease of getting a connection and the option of mobility. This probably explains the extremely prohibitive pricing displayed at the spectrum allocations of 3G and 4G. The entire world is moving towards an integrated device for all needs – phone, computer and entertainment, and hence mobile broadband will gain importance. Although India may be a few years behind schedule compared to the rest of the world, the situation is not going to be too different in India.

 

References –

On the State and Guiding Principles of Broadband in India – Ashwin Gumaste, Prasad Gokhale, and Asheesh Dhar, IIT Bombay

Broadband Policy 2004 – Govt. of India

3G Breaks India’s Bandwidth Bottleneck – A Telegeography press release, July 19th 2011

By – Achyuth Sanjay