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Bhaskar ChakravortiRavi Shankar Chaturvedi
August 13, 2015
As founder of the nation of Facebookistan, Mark Zuckerberg has his hands full
with over a billion worldwide users. But as you may have heard, he has an even
bigger dream to hook up the 4.5 billion people around the world who lack
internet access. The one-year-old Facebook-led initiative, called Internet.org,
is designed to offer free access to a select set of websites like a lite
version of Facebook, Wikipedia, and others, along with a limited number of
content services on mobile phones. Facebook and the consumer make a deal: the
consumer gets free access to a limited form of the internet and it s a good bet
that as more people get this access, Facebook itself will be one of the biggest
beneficiaries.
It s an arrangement that raises questions, especially from activists
campaigning for net neutrality. Businesses like Facebook are filling an
internet access gap in emerging markets that others, including the public
sector, may simply never be able to address. Plus, the company has an interest
in giving more people access; a Mobile Africa 2015 study of five of Africa s
major markets found that Facebook is, on average, the most popular phone
activity, more popular than sending SMS or listening to the radio.
We believe there s an even more fundamental issue at play here: What does a
digitally fair world entail? Is it better for a society to be more digitally
inclusive, even with the help of corporations (while also pursuing their
business interests), or should a guarantee of absolute principles of net
neutrality come first regardless of whether it deters such private
initiative?
India is a prime example. Only 19.2% of its population has internet access (at
home or over a wireless device); other estimates, such as that from the World
Bank, suggest that the number may be even lower, 15.1% in 2013. According to a
McKinsey & Company study India s biggest barriers to internet adoption are
primarily in the areas of internet access capabilities and awareness of the
internet itself. While the government of Prime Minister Narendra Modi has
announced its intentions to help close the gap, including the recent launch of
a widely publicized Digital India campaign, the country s vastness, large
population, and poor infrastructure mean that it will take time to see real
improvements.
The private sector has shown a willingness to step into the breach. Despite
having 200 million internet users at the end of 2014, India is not even among
the top 10 e-commerce markets in the world, according to a recent eMarketer
report. Meanwhile, China s e-commerce market is 80 times as large. Given this
context, it comes as little surprise that businesses like Facebook, Google,
and telecommunications companies have the motivation to improve internet
awareness and access. This helps them and other digital economy players expand
their markets where governments continue to fail. It s an investment for the
future. And they are willing to fight for it Facebook just launched a
campaign in India to defend its Internet.org initiative as a government panel
prepares a report on net neutrality.
In our Digital Planet study at Tufts, and in our related HBR article Where the
Digital Economy is Moving the Fastest, we ranked 50 countries on their digital
readiness and identified supply infrastructure, including telecommunications
bandwidth and subscriptions to services that offer internet access as critical
areas to improve. As part of this research, we examined how rates of digital
evolution compared to mobile internet usage. We use a measure that we call the
mobile internet gap. It is the difference between the total number of users
in a country with cellphone subscriptions and users whose cellphone
subscriptions also provide access to the internet.
W150728_CHAKRAVORTI_MOBILEINTERNET
The graphic above shows that a country such as India may in fact have great
potential for economic growth if the critical bottleneck of internet access
improves. It is among the countries with the lowest internet penetration rates;
it has one of the highest mobile internet gaps; and finally, it is one of the
faster-moving countries in terms of the pace of its digital evolution. To an
investor, this combination of factors would make India one of the most
attractive markets not just for Facebook, but for venture capital and private
equity investors as well.
In fact, as the next graphic indicates, a market such as India has been among
the top destinations for private equity investments in the space since 2011.
For this comparison, we used a scaled score of private equity investment funds
that were invested into digital ecosystems in that particular year.
W150728_CHAKRAVORTI_PRIVATEEQUITY
In recent years, there has been a rush to populate India s nascent internet
economy: Amazon committed $2 billion for growing its presence in India last
year and local online player Flipkart attracted $550 million in its latest
round of funding. Flipkart was ranked third among the world s most valuable
privately held startup companies, alongside stars such as Palantir Technologies
and Snapchat Inc., according to a WSJ/VentureSource analysis. In the meantime,
Uber is aggressively taking on the domestic competitor Ola Cab, and Ola Cab s
Japanese backer, SoftBank, has pledged to invest up to $10 billion in Indian
internet businesses over the next decade. So government efforts are already
lagging the profit-driven motives of the private sector.
In other emerging markets, China is still one of the best places to look to get
a sense of the economic impact of easing internet access bottlenecks. Its still
sizable mobile internet gap notwithstanding, China, according to a Morgan
Stanley Report , accounted for 35% of global ecommerce in 2013 at $314 billion
versus that of the United States at $255 billion. In the first half of 2014,
26% of all online purchases in China were made on a mobile phone. One can only
expect this number to grow as China further narrows its mobile internet gap.
In Latin America, Brazil displays the very same combination of factors as India
its large population size and low mobile internet penetration rates have been
attracting interest from companies such as Xiaomi, the Chinese handset maker,
which is eyeing Brazil for its first smartphone launch outside Asia, and
investors in online marketplaces eager to get a slice of the largest market in
the world for beauty products, behind the U.S. and China.
If lagging digital economies are going to ever catch up, there s a need for
greater public-private collaboration around internet access. And until the
public sector has a plan and the budget for spurring access, spurning ideas
from the private sector could further slow the pace of development. This means
accepting a tradeoff in the role of private business, but even a limited form
of access through initiatives like Internet.org is a better alternative to no
access, especially given the size of the excluded population worldwide and how
much is foregone by those on the wrong side of the digital divide. A digitally
fair world may in fact take on many different shapes and deliver services
through some unexpected actors.
Bhaskar Chakravorti is the Senior Associate Dean of International Business &
Finance at The Fletcher School at Tufts University and founding Executive
Director of Fletcher s Institute for Business in the Global Context. He is the
author of The Slow Pace of Fast Change.
Ravi Shankar Chaturvedi is Research Fellow at Fletcher s Institute for Business
in the Global Context at Tufts University.