Google and Facebook are fighting it out for digital dominance in India, seen as the last big market for Internet companies, with a fast-growing user base that's second only to China's
New Delhi: India has become the latest battleground in the fierce fight for digital dominance between Google Inc. and Facebook Inc.
India makes perfect sense because it is the only major market in the world where the number of Internet users is growing rapidly. According to venture capitalist Mary Meeker’s Internet Trends report, the number of Internet users in India grew 40% in 2015 to 277 million. It is the only country where the growth rate of Internet users in 2015 was higher than that in the previous year (33%). It is also the second largest country in the world in terms of Internet users, ahead of the US and behind China.
Globally, Google and Facebook have been spectacularly successful on every business count. In November 2015, Google was ranked first by comScore, a cross-platform measurement company, among the most visited multi-platform Web properties in the US with 247 million US unique visitors and a market share of 63.9% among the leading US search engine providers. With a market capitalization of $510 billion in May 2016, the Mountain View-based company is on top of the heap among global Internet firms—no mean feat, considering that its competitors are Apple Inc., Facebook and Amazon.com Inc.
Facebook’s numbers are equally intimidating: 1.09 billion daily active users on average for March 2016, of which 989 million are mobile daily active users for the same period. What’s telling is that approximately 84.2% of Facebook’s daily active users are outside the US and Canada. With a market capitalization of $340 billion, the social networking company is fast catching up with Google.
Approximately 82% of its advertising revenue of $5.2 billion in the first quarter of 2016 came from mobile advertising, up from 73% in the first quarter of 2015. Like it or not, Mark Zuckerberg has created an advertising juggernaut. The Meeker report says that between 2014 and 2015, Facebook’s ad revenue grew 59%, with much of this coming from mobile. Meanwhile, Google’s ad revenue was up 18% over the same time period. Together, Facebook and Google controlled 76% of Internet advertising growth in 2015.
And that’s the problem.
While search-based advertising has been the biggest money-spinner for Internet firms in the past two decades, the emphasis is gradually shifting to mobile. According to Meeker, mobile advertising is growing massively, year-on-year, with a 66% increase in 2015 (over 2014). Research firm eMarketer estimates that about half of Google’s 2015 net ad revenue of $67.39 billion came from mobile, and expects the proportion to reach 70% in 2017. The company has a 45.7% share of US mobile advertising now.
Facebook is estimated to expand its share of the US mobile advertising market over the next three years, reaching 20.3% by 2017 (from 19.2% now). This growth could well come at the expense of companies such as Google which have been dominating the online advertising space for the past 15 years. Facebook ended 2015 with a net ad revenue of $17.1 billion, of which 19.4% came from mobile advertising.
Look at this through the lens of Facebook and it becomes clear why India is so important in its scheme of things: Facebook’s business is booming in the US and rest of the world (excluding India). Latest numbers show that in India there are 148 million monthly active people (MAP), 140 million mobile MAP, 73 million daily active people (DAP) and 68 million mobile DAP.
But in India, only 332 million, or a quarter of the population, have Internet access. Broadband accounts for just 40% of that figure (137 million), as of December 2015, according to the Telecom Regulatory Authority of India (TRAI), with the number of people using significant data even lower. For the social network to continue with its astronomical growth, it needs to get those people online. The same applies to Google, too.
No country except China has held the kind of potential that India does. The caveat—Facebook is blocked in China and Google bowed out of that country in 2010. In India, state control of the Internet is nowhere near China’s levels, making this a more attractive, albeit slower, market for the global digital giants.
By 2014, Facebook already had around 100 million users in India, and the company judged its potential market to be several hundred million more.
Says Nikhil Prasad Ojha, partner with Bain and Co.: “When you look around the world, this is the last big market, and many of the conditions are in place: large population with (basic) mobile access, rapidly growing economic activity at local levels, and a predisposition to finding small-scale but effective use cases. The cost of entry and expansion is not, on global parameters, particularly high. All of this is a bet for the future as current local (Indian) revenues are well behind others on a per-capita basis."
But India is not an easy market to penetrate. First, India is all mobile (wireline is just 25 million). Mobile data bumps into a price barrier, especially below the top 10% or so of the pyramid of users.
As you go down the pyramid, the average revenue per user (ARPU) decreases, but the demand for video/multimedia increases. Added to all this is the regulatory and activist challenges to pricing deals such as zero rating or differential pricing, aimed at selective, lower-cost offerings, which also derailed Facebook’s Free Basics or internet.org.
Since India is a largely mobile market, it gives Facebook a unique opportunity to beat Google on mobile, since social discovery is more intuitive to mobile-first users than search is. According to Nikhil Pahwa, founder of Medianama, a mobile and digital news portal: “From a product perspective, it is an opportunity for both companies to try out products that work in low-speed or high-cost bandwidth environments."
So what do Facebook and Google offer the Indian Internet user?
Says Kirthiga Reddy, who was Facebook India managing director till recently and the company’s first employee when it launched the India office in 2010: “Facebook offers personalized marketing at scale, which is the ability to reach the right set of people at the right time with the right message."
Umang Bedi has been named Facebook India MD. He will take over from Reddy, who will be returning to the US to take up a new role at the firm’s Menlo Park headquarters.
Google’s grand plan, on the other hand, is three-pronged: Internet for every Indian, affordability of products and partnering with the government to further the latter’s mission for the digital transformation of India.
No wonder then that the top brass of both companies have been wooing the Indian government. Both Facebook’s Mark Zuckerberg and Google’s Sundar Pichai have visited India and met Prime Minister Narendra Modi to discuss their ambitions and plans.
Zuckerberg has met Modi twice and also hosted him at the Facebook headquarters in Silicon Valley last year.
Pichai met Modi during his visit last December, when he hosted the “Google for India" event, where he announced a swanky new Hyderabad campus, plans to hire more engineers in India and ramp up the existing Hyderabad campus. “Our goal is to bring all Indians online—regardless of income, region, age, gender, or language—and as they come online, we want to make the Internet more relevant and useful for their needs," said Pichai.
Pichai also reiterated several of Google’s plans for rural India: Android keyboards in 11 Indic languages, enabling women in rural areas to use the Internet via its “Internet Saathi" programme and bringing fast, high-quality Internet access to Indians through free Wi-Fi at railway stations. By the end of 2016, 100 stations will be operational, connecting over 10 million people who pass through every day.
In addition, Google is working with the government to roll out its ambitious Internet balloon programme, called Project Loon, which forms a large communication network using balloons in the earth’s stratosphere. This is specifically aimed at providing connectivity in rural areas.
Spearheading Google’s commitment to connecting rural India is Rajan Anandan, vice-president and managing director of Google South-East Asia and India, who believes Google’s journey in India is all about building products that connect more people, regardless of cost, connectivity, language, gender, or location. “We want to increase Internet usage among women in rural India from 12% to 30% plus. We aim to introduce women to the Internet and its benefits across 300,000 villages in India i.e. 50% villages in the country in the next three years," says Anandan.
Like Google, Facebook has also been investing to localize for India. The social network is already available in 11 Indian languages, according to its website. These include Hindi, Gujarati, Tamil, Malayalam, Kannada, Punjabi, Bengali and Marathi, among others. Facebook also has a translation application for improving existing translations into regional Indian languages or help the network translate to other languages. Both companies are also fuelling India’s start-up ecosystem, providing access to tools, services and support so that local start-ups can flourish.
Google is committed to bringing 20 million businesses online by 2017, besides training over two million Indian developers on Android development.
Facebook, too, has a ‘Boost Your Business’ programme catering to the villages in India to help entrepreneurs in improving their business prospects. “Boost your business programme ties in with Facebook’s larger mission of making sure that we are connecting people and businesses across the world," says head of economic growth initiatives for Facebook India, Ritesh Mehta.
It may be early days, yet, to declare who will win the battle for the Internet in India—especially since both the companies have to tackle the lack of Internet infrastructure in the country—but what is sure is that the war cry has been sounded and strategies have been honed as the companies look to take their access to large parts of India’s rural hinterland.
Pahwa, though, is sceptical about this.
“I don’t think Facebook and Google are battling for Internet supremacy in Indian villages: much of that is just for show, to appease or appeal to the government."
Facebook may just have a bit of an upper hand. Industry experts claim that in India, Facebook has captured the mobile space, creating lightweight feature phone apps such as Facebook Lite, Messenger and WhatsApp. Indeed, the top three apps in India, by downloads, are from Facebook (WhatsApp, Facebook and Messenger).
So, who will win?
“I think there’s room for both products in case of rural India, but Facebook is better positioned because it connects people, and has unique network effects. Google is more important for research, information and study," says Pahwa.
He cites the example of FreeBasics, which was primarily targeting college students in cities such as Mumbai, but in order to influence policy and make an emotional case for a business venture, Facebook put a farmer in its advertising.
Pahwa is blunt when he adds that Google’s Internet Saathi is a great educational initiative, but it won’t really move the needle. For both companies, their work around Indian languages has been very disappointing: Facebook has done very little, while Google hasn’t done anything substantive since its initial efforts around transliteration.
“We need much more support from both companies for the Indic language ecosystem as a whole, because they have the money to build markets. That said, they’ve done much more than what large Internet companies or even the Indian government has done. It’s shameful that Flipkart doesn’t even have Indic language apps," says a disappointed Pahwa.
Others say that in this high-stakes battle between Google and Facebook, it is India that will win. Because it would mean that both companies will have to invest in the market, build better products, and help bring more users online.
Needless to add, Google and Facebook are running businesses, not charities. Says senior tech writer, Prasanto K. Roy: “They want to ultimately make money from all markets, especially one as big as India. In fact, there has to be a business case for a project; else, it’s not sustainable. For instance, it would be worrying if Google’s WiFi-at-railway-stations project didn’t break even and make money in the long term, or contribute to Google’s overall business objectives because, then, it wouldn’t be sustainable."
And how does Anandan view rival Facebook?
Unfazed, he replies: “We have to get a billion Indians online, and that can’t be done by one company or only the government; so, it would be quite presumptuous to say we can do it alone. This isn’t about one or two companies but the entire ecosystem—more companies need to help digitize India."