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2015-08-18 10:32:29
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.
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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.
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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.