100% subscription-based music and OTT platforms have smaller, but much higher quality customer segments than hybrid platforms
Published on: May 2019
RedSeer research shows that 100% subscription-based models in online streaming space have been able to gain much lower traction than partially subscription peers. Yet the quality of their consumer base is significantly higher, in terms of their overall platform satisfaction and their churn rates.
The key challenge for the 100% subscription players is how to expand their customer base rapidly (will they try out a partial subscription model?), while the partially subscription models face the dilemma of how to fully monetize their large user base. It will surely be an interesting battle playing out between these two monetization models as they continue to grow rapidly in the future.
Bonus story- Which sectors have most recurring use cases and thus high potential for subscriptions adoption in future?
One of our most popular analyses from CY18 was a part of our much-awaited year end consumer internet report (Digital Bonanza). This analysis, showcased below, discusses the user base size vs usage frequency for various internet sectors.
Sectors with the highest usage frequencies like FoodTech and cabs have strong potential for rolling out subscription programs, and they have done so successfully in 2018 to drive loyalty amongst the convenience seekers in their user base. Content platforms are also very high in terms of usage, but with the limited realization of its subscription potential thus far. Some of the other potential subscription opportunities are health-tech, which also has significantly high usage frequency.
Readers will also note from the analyses above that there are other sectors that have been able to generate subscription revenue despite being much smaller in terms of usage frequency. e.g. edtech and e-tailing. With edtech being able to do so owing to its high utility/intensity of need which drives subscription paying capacity. While e-tailing has gained a significant share of convenience seekers (being the most mature internet sector in India) who transact much frequently than the sector average, thus driving up the value prop of subscriptions like Amazon Prime.
Home services consumers are switching to online platforms largely for non-price reasons
Published on: May 2019
Our research shows that hyperlocal services leaders like UrbanClap and HouseJoy have a large addressable opportunity in driving online adoption of very well-established and ingrained personal/home care needs.
As the below charts highlight, varied services in Beauty and Repairs have an incidence rate of 80-90% on a quarterly/half-yearly basis which is currently met by offline options – (1) local parlors/repair shops or (2) branded options (branded salons or appliance brand service centers).
The value customers attach to solutioning is evident from the relatively low importance of price among various decision-making criteria for using online channels – Service range, the skill of service professional and quality of products have a higher weight. As the industry matures further, customers seek (1) greater personalization in Beauty services, and (2) the trust of the brand (in case of appliances) and familiarity/speed of repair person services in repairs.
Given these findings, we believe the industry is well poised to dig much deeper into the beauty/repairs wallet share of existing customers. We also believe Online Hyperlocal services make one of the strongest cases (in Internet space) for differential pricing as several customer cohorts have a high willingness to pay for a premium service. Thus the industry seems one of the best placed to drive revenue and eventually profitability growth in the future.
Vernacular powers growth of the first wave digital economy players
Published on: May 2019
The larger digital economy players have been experimenting with vernacular for a significant amount of time, but the results have started to show more recently. Players in sectors which have much higher use cases and engagement than others for e.g. ride-hailing, payments, content, and music streaming have been the fast movers in the vernacular department, as the chart below indicates.
Even though many challenges need to be solved, this vernacular focus is enabling these players to unlock the opportunity present in India’s next 100+ Mn internet users. A topic that we cover extensively in our upcoming report on this theme (stay tuned!).
80% of Current 400 Mn Non-Internet Users are Likely to Join the Digital Revolution in the Next 5 Years
Published on: Apr 2019
Redseer estimates ~400 Mn adult users don’t use the internet, thereby have not been able to contribute to the ongoing digital revolution.
- The biggest factor for non-usage (in terms of the number of people affected) is Inclusion. People living in regions where infrastructure hasn’t developed enough for internet access or people who belong to the marginalized sections of the society. We estimate this to account for ~220-240 Mn (~60% of non-internet user base).
- The next set of non-users is hindered by the affordability factor. A cross-section of the population who lives in regions with infrastructure but do not have the income to purchase and maintain an internet supported device (smartphone).
- Finally, a small section of the population has kept themselves out of the online gamut due to low aspirations (don’t know the benefits or don’t perceive it to be beneficial).
We expect ~320 Mn out of the above ~400 Mn to adopt the internet over the next 5 years. While the largest share of the new user base would be driven by easing barrier related to inclusion (180mn out of 240 mn), the major impact in terms of internet activity would be seen with improving affordability and rising aspirations.
Redseer estimates that most of the people who do not perceive benefits from the internet currently will eventually come around as essential systems (like banking, insurance, passports, utilities, etc.) gain mass online adoption.
Simultaneously, the costs of devices will keep decreasing as more and more platform companies use their devices as a customer acquisition tool. Cross-subsidizing low priced devices by engaging customers through data/content. This phenomenon will pan out sufficiently in the next 5 years, so much so that the affordability of internet devices may not be a barrier anymore.
The story of users who ‘Power’ India’s digital economy
Published on : Feb 2019
- Consumer internet power users are small in share but contribute massively to topline growth and bottom-line improvement of internet firms in India
- Players focused on effectively serving this segment can drive significant success
India is currently home to about 200 Mn annual users of internet platforms of some kind (products or services), which is about 40% of all internet accessing population in India (530 Mn). Our research shows that users tend to initiate their internet journey through E-tailing or payments platforms and as they evolve into a mature/power user, their dependence on internet platforms tends to increase explosively.
Readers can also easily gauge how the characteristics of different user segments vary from each other, for example a power user uses multiple internet platforms, does higher number of transactions, has low return/ cancellation rates and is more satisfied with the platform owing to the trust and dependence he has developed on the platforms over time. On the contrary, a dormant user is more likely to prefer offline channels for his daily needs, would use internet platforms only to a limited extent, would be skeptical about the products which reflects in the high returns, cancellation rates and his overall satisfaction with the internet platform.
Key metrics for ‘Power Users’ differ significantly from other user groups, making them exponentially more valuable for internet platforms
Thus, the power users, though minuscule in number contribute disproportionately to the topline and bottom-line of internet platforms- topline via a much higher number of transactions, and bottom-line via a high usage of low-cost prepaid modes, low returns and cancellation rates and high NPS which drives word of mouth and brings down CAC.
Thus, platforms seeking to win in the India’s internet economy need to be able to identify and target different user cohorts accurately and have a special focus on ensuring a high level of delight for the power users. Platforms that can do the above will end up taking a significantly large share of the market.
What do India’s consumer internet users want from online platforms?
- Key needs/pain areas of consumers differ significantly depending on their maturity and on the sector itself
- Typically, power users (most mature) are convenience seekers, and their pain areas are in experiential parameters like delivery and customer support
- For less mature users who are generally deal seekers and first-time users, challenges are around less discounts, product fraud, high refund times
- Challenge for companies is how to allocate their resources/offerings efficiently in order to provide differential service levels to these differing user segments
India’s “Large” consumer internet sectors are its oldest, having been around for 5-6 years at the minimum. In these sectors, a significant share of users has graduated to a mature usage behavior. Our research on these sectors validates these points, where experience-based challenges like delivery experience and customer support dominate the list of pain areas of the consumers.
Yet the more worrying finding from this research is around the high share of frauds experienced across e-tailing users, the high failed transaction % in wallets and the still high cancellation rates in mobility sector. These basic problems are across the user categories and we could argue these problems are holding back the next wave growth of the sectors in a big way. Companies that can focus and solve these problems can reap significant benefits from the next stage of internet economy growth in India. Super vertical/specialist platforms are definitely aiming to solve some of these problems but there is room for many more to solve these challenges and unlock high returns.
What do India’s consumer internet users want from online platforms?
Coming to “Medium” sectors, these are sectors that are generally <5 years old and are still building out their experience, powered by heavy fund raising in recent times. Even here, the same story as earlier plays out, with experience-based parameters like delivery and customer support dominating the pain areas of the mature segments while the less mature user segments continue to complain about less discounts, poor food quality etc. Showing how much further investment in both marketing and other hygiene factors is required in this space to continue with consumer growth.
Interestingly and similar to the cabs story the consumers of O2O category (ticketing+ home services) report challenges on issues like partner cancellations, which indicates the long way platforms have to go to ensure a strong value proposition for the partners on their platforms (RedSeer covered this story earlier this year). In contrast, challenges of high handling fees dominate for the ticketing sector.
Top concerns of consumer internet users- for “Medium” sectors
Finally coming to the “Small” sectors, we immediately notice two things-
- Many of the less mature internet users don’t even use these sectors, as they are typically adopted at a later stage of evolution
- Amongst the users, fundamental challenges remain yet to be solved for e.g. product quality in rentals, video quality in content platforms and delivery times in healthtech/ePharmacy platforms.
As India’s digital consumer ecosystem evolves and more consumers are willing to try these newer platforms, ensuring a superior experience for these first time users will be imperative in order to drive repeat usage and ultimately a mass adoption.
Top concerns of consumer internet users- for “Small” sectors
The sort-of-S-Curve of platform-partner relationships
Published on: Feb 2019
Having tracked the consumer internet sector very closely since 2013, we have seen how the platform-partner relationship has evolved across sectors. Our research shows that initial days for most platforms were period of torrid partner addition, with highly attractive incentives and digital business growth. Over time, this gives way to relationship challenges and conflicts, which often culminates in legal intervention. Readers would be aware of many examples of such conflicts being talked about in the media these days, especially for the sectors we have included in the ‘turbulent’ stage of the below chart.