Race for the next billion internet users: lessons from non-tech multinationals
Last month, Facebook announced $5.7 billion investment in Jio platforms — India’s new technology behemoth in the making. Google is reportedly mulling a 5% stake in Vodafone-Idea, India’s 2nd largest telecom company. Microsoft already has a partnership with Jio to bundle Office 365 and Azure for Small Medium Businesses (SMBs) along with Jio’s data plans. Amazon is reportedly considering a $2 billion stake in India’s telecom operator Airtel. What is driving this gold-rush?
The Allure of India
The opportunity is mouth-watering: India, with 700 million internet users, is a market ripe for growth. Indeed, Facebook in India has 400 million WhatsApp users (larger than US population) and 324 million Facebook users.
But, monetizing this opportunity is an entirely different ballgame. Amazon leads the pack with $1.5 billion FY19 India revenue. Microsoft follows with $1 billion. Google is at $550 million and Facebook at $120 million revenue from India. These figures are not even 1% of these companies’ global revenues.
India is a hard market to scale because each region in India requires a different expansion strategy. But there are companies which have learnt the art of conquering the mass-market in India. They have adopted (not unsurprisingly) an inorganic and localized approach to growth.
Success of non-tech multinationals in India
Non-tech multi-nationals like Unilever have mastered the art of expanding and dominating in emerging markets. As an example, Hindustan Unilever India’s $5.3 billion, contributes 10% to Unilever’s global revenue. By 2027, India will become Unilever’s largest market globally, surpassing the United States. Similarly Star TV India’s $1.6 billion revenue is 6.4% of parent Disney’s revenue from the media networks segment. In fact, Start TV’s hotstar OTT platform has 7x more subscribers than Netflix and Amazon combined have in India. On the broadcast side, Star TV has adopted both inorganic (acquiring several local channels) and localized strategies (broadcasting channels in 8 India languages).
Clearly, these non-tech multinationals have mastered the art of growing in disparate markets like India.
Lessons in global domination from non-tech MNCs
As Big Tech strays from core technology and starts entering traditional non-tech businesses like retail, transport and food delivery, they need a change in organizational structure and strategy in order to get the same level of success they have been able to get in their home countries. In fact, they need to adopt the same techniques used by traditional non-tech MNCs in expanding overseas. The strategies and organizational structures required for global expansion are summarized below. You can read more about them in my articles Organizational Designs for Transnational Innovations and Four Step process for choosing an overseas expansion strategy.
As you can see from the table, non-tech MNCs have given their India units complete autonomy in product development and customization for local market. This is in stark contrast to tech MNCs which require decision making in the home country outside India. This means that the decisions taken are often against local market growth: these could be pricing, GTM or product decisions.
Some products like Office may not require product customization for India, but products like Uber, Netflix, Facebook, Google and Azure require customization to suit the local market. In fact, the Microsoft-Jio partnership has forced Microsoft to speed up supporting ML based services for 13 Indian languages. Even if product customization is not needed, pricing and go-to-market customization is much needed, which takes us to our next topic.
Unlocking SMB revenue in India: The race for the telecom land-grab
There are 64 million SMBs in India which contribute to 38% of India’s GDP. These are ripe customers for Google and Facebook advertising that can target local audiences. Yet, the biggest problem is not the tech, it is the distribution: how do you reach these customers? How do you educate them of the benefits? How do you increase adoption from SMB segment? Unlike other countries, the digital literacy of India’s SMBs is not great. Language is also a barrier.
Reproduced below is the product-GTM framework explained in my GTM article.
As you can see, when dealing with low value accounts (like SMBs) and a product like digital advertising that requires high touch onboarding (due to lack of awareness/digital literacy), resellers are the only viable channel.
For years, telecom and TV companies in India have mastered the art of last-mile distribution, reaching 700 million customers deep in India’s hinterland.
Building distribution takes time, and if you are in a hurry, it is best to partner with someone who owns the path to customers. This explains the Jio-Facebook partnership. Jio is planning to rope in kirana (neighbourhood) stores under its e-commerce plan wherein shopkeepers can use Jio network to report inventory and place orders from Reliance Retail wholesale centers. In-turn, customers can place orders from the nearest kirana stores using Facebook-owned WhatsApp messenger which is wide-spread in India. So both end-customer and SMB distribution problems are solved. It’s a win-win.
After years of struggling to increase Average Revenue per user (ARPU) in India, Facebook may have unlocked the path to paying customers. And it recons $5.7billion is a small price to pay for this.
Conclusion and takeaways
Big Tech companies in India have taken a long time to realize that they cannot go alone when it comes to the market in India. The recent surge in partnerships have opened up the distribution channels for them. Non-Tech multinationals have always adopted a locally empowered model where the country office has full autonomy to develop, invest and distribute products. Tech companies should take a leaf out of the org structures and international expansion strategies adopted by these non-tech MNCs, especially since Tech is taking over traditional businesses like retail, transport and services.
ABOUT THE AUTHOR: I love taking a rigorous theoretical approach to strategy, with frameworks that can be applied to every business problem. Specializing in emerging markets strategy, I hold an MBA and MS in Strategic Management from Kelley School of Business. I work in Product Management at Adobe India. The views expressed in the blog are my own.