[Editorial notes: Guest article contributed by Alok Mittal, MD Canaan Partners.]

Past few years have seen a sharp increase in consumer activity on the Internet – right from browsing and email, to purchasing goods and services online. As the industry looked at expansion of the Internet consumer base, there has always been a concern of whether such activities would transcend the top few cities in India. Until now.rural_india_internet

Smaller cities and towns are slowly but surely outpacing the larger metros in their online consumption. Naaptol.com records only about 17% of its orders from top 8 cities, and just about 25% 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 last December recorded close to half of traffic from outside the top metros. All this points to the rising demand in Tier II cities and beyond, but also to 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 globally where majority of Internet traffic now comes from mobile devices. Few businesses have recognized 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 that presents itself is in India overcoming the digital divide and using Internet as a vehicle to empower its citizen. The increasing drive towards information and transparency can be paired well with access mechanisms such as Internet, 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 realized.

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% 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%, the success rate in Tier III towns (not even getting to rural areas), these numbers can shrink to 75% 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 miniscule in smaller locations. Building efficient and scalable distribution mechanisms, and leveraging on existing infrastructure such as Indian Postal Services, might be the key to realizing 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-to-consumer communication, which has been the bedrock for the most viral networking services online. If Internet has to realize 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 grasp the future in truly making India a digital nation.

[Image credit: shutterstock]

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