CONFIDENTIAL

Internet Penetration in India

Zinnov LLC
July, 2006

This report is solely for the use of Zinnov client and Zinnov personnel. No
part of it may be circulated, quoted, or reproduced for distribution outside
the client organization without prior written approval from Zinnov LLC.
AGENDA
Focus of Discussion

• Internet Penetration in India and E-Commerce

• Zinnov Research Overview

1
Internet penetration was low but has seen significant growth

Discussion
Discussion
Internet Users
•• India
India is
is now
now in
in the
the 4th
4th place
place in
in terms
terms
of
of Internet
Internet users
users
50.6
•• Percentage
Percentage penetration
penetration is is still
still low
low but
but
has increased significantly
has increased significantly from 0.1% from 0.1%
in
in 1998
1998 to to 4.5%
4.5% inin 2005
2005
39.2
•• The
The growing
growing popularity
popularity of of cybercafés
cybercafés
has
has been playing a big role in
been playing a big role in fuelling
fuelling
Millions

Internet
Internet development
development in in India
India
•• Low
Low cost cost of of broadband
broadband has has alsoalso
22.5 helped increase Internet
helped increase Internet usage usage
•• E-commerce
E-commerce and and high
high demand
demand for for .in
.in
16.5
domain registrations are also
domain registrations are also factors factors
for
for the
the increase
increase in in online
online users.
users. The The
5.5
7 ".in" domain registrations
".in" domain registrations surpassed surpassed
2.8 150,000.
150,000.
1.4
•• The
The Internet
Internet population
population is is expected
expected
to grow to 100 million by
to grow to 100 million by 2007 2007
1998 1999 2000 2001 2002 2003 2004 2005
•• No.
No. of of ISPs
ISPs grew
grew from
from 11 in in 1995
1995 to to
189 in 2003
189 in 2003

Source: Internet World Stats, Web Search, Industry Associations

2
Low cost of broadband has triggered growth in broadband subscriber
base

Total Broadband subscribers

Discussion
Discussion

288.4
•• Broadband
Broadband policy
policy and
and other
other initiatives
initiatives
by
by the
the ITIT and and Telecom
Telecom Ministry
Ministry
encourage
encourage increased
increased adoption.
adoption.
•• A
A monthly
monthly broadband
broadband subscription
subscription
costs
costs asas little
little as
as 199199 rupees
rupees (US(US
‘000s

$4.50).
$4.50).
145.6 •• A
A second
second factor
factor isis the
the IT
IT Telecom
Telecom
Ministry
Ministry initiative
initiative toto make
make computers
computers
available
available for
for purchase
purchase under
under 10,000
10,000
78.3 rupees
rupees (US
(US $226).
$226).
•• Today
Today broadband
broadband usage usage inin India
India is
is
45
28
growing
growing atat 20%
20% per per month
month
20

2001 2002 2003 2004 2005 2006

Source: Industry News and Reports, Zinnov Analysis

3
E-commerce is considered as the next big thing that will drive internet
usage growth…

E-commerce Revenues
600
Discussion
Discussion

500 •• From
From aa business
business perspective
perspective itit offers
offers
unlimited
unlimited shelf
shelf space,
space, itit isn't
isn't bound
bound by by
3% operational timings and geographical
operational timings and geographical
10
400
GR boundaries
boundaries and and anan opportunity
opportunity to to
CA
cater
cater to
to country
country wide
wide city
city markets
markets (for
(for
Million Dollars

consumers
consumers and suppliers alike) at aa
and suppliers alike) at
300
comparative
comparative miniscule
miniscule cost
cost
500 •• From
From a consumers perspective
a consumers perspective itit
200 allows
allows greater
greater access
access (hence
(hence the the high
high
response
response rate rate by
by tier
tier 22 cities)
cities) to
to
257 markets and an opportunity
markets and an opportunity to make to make
100 informed
informed decisions
decisions on
on purchases.
purchases.
124

0
2004-05 2005-06 2006-07
Years

Source: Internet & Online Association of India, Industry News, Zinnov Analysis
4
…driven by growing number of credit cards, good online shopping places,
ticketing websites and the way banking is done today

The number of credit cards in Indian has

shot up from 6.5 mn in 2002 to 9 mn in
2003. Consultancy firm McKinsey recently Discussion
Discussion
reckoned that Indians will be using 35
million cards by 2010
•• Internet
Internet &
& Mobile
Mobile Association
Association of
of India
India
findings
findings show
show thethe most
most popular
popular online
online
activities
activities undertaken by Internet users
undertaken by Internet users
in
in India
India inin 2005
2005 (as (as aa % % ofof
respondents):
respondents):
IRCTC which is a railway
ticket booking website
–– E-mail
E-mail and
and IM:
IM: 98%
98%
issues out 196,000 tickets –– Job
Job search:
search: 51%
51%
generating $6.3 mn as –– Banking:
Banking: 32%32%
revenues every month –– Bill
Bill payment:
payment: 18%18%
–– Stock
Stock trading:
trading: 15%
15%
–– Matrimonial
Matrimonial search: 15%
search: 15%

Online shoppers like 'Home delivery' about

online shopping, and 'Time saving', also e-commerce activities
'24x7‘ thing, they also like the 'Ease of use' within India has exceeded
and product comparisons features USD 125 million during
2004-05.

Source: Zinnov Analysis, Industry News, Internet & Online Association of India, Web Search
5
E-Commerce is benefiting by a pull from customers and push from
investors
Customer Pull
‰ Home delivery of goods have
made e-commerce a favorite
with e-citizens especially e-
tickets and gifts
‰ Time saving- ticket booking,
online selections save time
‰ Ease of use -Ordering from the
comfort of home/office.
‰ No geographical limits- sitting
in India you can order goods
from US/Europe
‰ Best offer- easy EMIs (equated
monthly installments) and
payment on delivery
Source: Zinnov Analysis, Industry News, Web Search
Business Push
‰ Insistence by large businesses
that all their clients/vendors link to
e-commerce
‰ Defensive reaction to competitors
-Herd mentality followed by the
companies
‰ Reduction in transaction cost and
better product quality – There is
an overall maturity in the delivery
cycle (payment sites, fraud
detection and delivery) which has
further enhanced the growth.
6
E-Commerce in India has seen a lot of action in the Employment, Travel,
Matrimonial and e-learning arena recently

Naukri.com TravelGuru.com Yatra.in

The Company is an online Travelguru is a travel website, Yatra provides travel-related

recruitment and placement offering travel related packages information, pricing, availability
website. across India and the world and reservations etc. rentals
• The company has nearly 15,000 across 5000 large cities and
• It provides as a one stop shop for
companies to which it plays host, for small rural areas throughout
most travel related needs
it Human resources needs (eg. India
• It have received funding from
Oracle, AMD,Lehman Brothers etc.) • It has received venture capital
Sequoia Capital India, a VC
• They have US$ 10 million funding formed by merger of West Bridge funding worth US$ 5 million form
form KPCB, Sherpalo Partners and Sequoia capital Reliance capital, Norwest VC,
TV18

Makemytrip.com Shaadi.com 24x7learning.com

MakeMyTrip provides Shaadi.com is dedicated to It is an specializes in helping

comprehensive services for the providing with the ultimate life organizations successfully
leisure and small-business partner search experience implement their learning
traveler, backed by real-time initiatives
• The website has got funding from
booking ability • which raised $10 million from
VC called WestBridge worth
• It has received funding from US$8 million venture fund Angel Investors and
Softbank worth US$ 10 million and KITVEN
owns 50% of shareholding

Source: Websites, ET market estimates 7

Online Travel Booking is the killer e-commerce application in India

100% = US$ 75 million of funding by VCs

Drivers
Drivers

•• The
The Indian
Indian economy
economy have
have seen
seen aa
Others, 23% consistent
consistent growth
growth ofof 7-
7- 88 %% per
per annum
annum in in
recent years, which has resulted
recent years, which has resulted into into
¾
¾ Growing
Growing Middle
Middle Class
Class incomes
incomes
¾
¾ Consumer
Consumer spending
spending increase
increase in in
E learning, leisure items and services
leisure items and services like like
Travel , 37%
13% entertainment,
entertainment, Vacation
Vacation etc.
etc.
¾
¾ Indian
Indian consumers
consumers tend tend to
to spend
spend
10.4%
10.4% on vacation related activities
on vacation related activities
Matrimonial, ¾
¾ Growing army
Growing army ofof credit
credit card
card holders
holders
11% and
and internet
internet users
users are
are opting
opting to to book
book
Employment,
air tickets online
air tickets online
16%
¾
¾ Discounts
Discounts and and freebies
freebies byby online
online
ticket
ticket booking
booking sites
sites

* Data is for investment in the year 2005-06

Source:contentsutra.com; KPMG Consumer Market – India report 8
……Closely followed by online retailing websites

Shopping category Description Example

National and International Indiatimes.com, Ebay.in,

Books sites Amazon.com
Best price offers and Amazon.com, ebay,
Electronic Gadgets imported goods Indiatimes.com
Home delivery, status
Railway Tickets tracking from home www.indianrail.gov.in
Increasing popularity

Apparels Accessories Latest trends, wide choice Rediff.com, Indiatimes.com

One point shopping and Rediff.com, indiatimes.com,
Gifts delivery Phoolwalaa.com
Computers and Peripherals Shopping with education www.npithub.com, ebay.com
Airline Tickets Best buys, top-up offers Indiatimes, makemytrip, yatra
Wide collection, easy
Music & movies availability Indiatimes
Hotel Bookings Best buys, top-up offers Makemytrip, indiabudgethotel
Others Includes other utilities toys, jewelries, sporting godds etc.

Note: Ranking for online shopping only does not include job, matrimonial and other activity sites
Source: Zinnov Analysis, Industry News, IOAI, Web Search 9
E-governance and finance services along with insurance and health
services will be the next big thing in e-commerce

E-Governance
Taxes, duties etc.

Insurance Financial & Banking

Online premiums Online Trading,
Remittances to India

Future
of e-commerce

Health Sector
Online medical bill
settlement

Source: Zinnov Analysis, Industry News, Web Search

10
E-Commerce faces many challenges in India – Infrastructure and
traditional mind setup are two big ones

•India lags behind in speed and cost of internet when compared to other
major Asian countries.
Infrastructure • India also lags in internet penetration, where most of the people access
internet for long hours only from their offices
•Lack of credit card availability limits the potential customers

•Indian customers because of the traditional mind setup believe in touch and
feel factor and hence are not taking online shopping in a big way

Mindset and •Lack of a proper channel to settle the payment disputes is a major factor
Security •Indian Government still has problems with 'Digital signatures' and verification
processes over the Internet

Source: Zinnov Analysis, Industry News, Web Search

11
Globally experts feel that this Dotcom boom is not like the earlier bubble
era and India should not be any different
Bubble
Bubble Era
Era New
New Boom
Boom

Companies bankrupted Technologies that are

themselves building out their benefiting from profligate
Sunk costs '90s-era investment and
fiber-optic networks and
investment in technologies research.

Open source software and

Hardware and hosting services mean
Were very high
software Cost computer h/w and s/w will
soon cost less

You can start a

company today for a tiny
Initial investment High
fraction of what people
spent five years ago

Today companies are

Blowing all the first-
round funding on PR
Venture Capital
stunts and rooftop
parties
starting small and lean
and staying that way.
They're hitting break-
even sooner and don’t
depend on VC funding

12
AGENDA
Focus of Discussion

• Internet Penetration in India and E-Commerce

• Zinnov Research Overview

13
Zinnov – About us

Company Overview Market Research Knowledge Services

• We are a knowledge • Research services • Dedicated Knowledge

services and consulting ¾ Customized market studies
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Centers (DKCs):
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14
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15
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16
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17
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18
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19
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20
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21
Zinnov is proud to maintain 100% client references. Our clients include
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22
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