The Economic and Societal Value of Rich Interaction Applications in India
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WIK•Report THE ECONOMIC AND SOCIETAL VALUE OF RICH INTERACTION APPLICATIONS IN INDIA Bad Honnef, November 2017 Authors: Dr. René Arnold, Christian Hildebrandt, Peter Kroon, Serpil Taş 2 / November 2017 The Economic and Societal Value of Rich Interaction Applications in India TABLE OF CONTENTS Acknowledgement ..........................................................................................................................................4 Executive Summary ........................................................................................................................................5 1 Introduction ................................................................................................................................................6 1.1 Summary of the global study on RIAs .....................................................................................6 1.2 Brief literature review of economic impact studies ...........................................................9 1.3 Structure of the study ................................................................................................................ 10 2 Economic Impact of RIAs in India .................................................................................................. 11 2.1 Accelerating digitization in India ........................................................................................... 11 2.2 RIA functions create consumer surplus ............................................................................... 13 2.3 Impact of RIAs on GDP ............................................................................................................... 14 3 Local Value Creation by RIAs in India .......................................................................................... 17 3.1 Local value creation through increased inclusion ........................................................... 17 3.2 Local value creation through increased efficiency .......................................................... 20 3.3 Local value creation through increased innovation ....................................................... 22 4 What’s Next for RIAs in India? ......................................................................................................... 25 Annexures ........................................................................................................................................................ 26 Annex 1: Overview of key studies on the economic impact of telecommunications services, the internet and RIAs .............................................. 26 Annex 2: Methodology for the estimation of the global economic impact of RIAs ....................................................................................................... 27 Annex 3: Methodology for the estimation of consumer surplus created by RIAs in India ......................................................................................... 31 Annex 4: Alphabetical list of RIAs analyzed for this study ....................................................... 35 Annex 5: Alphabetical list of the countries used for the econometric analysis ............................................................................................................... 36 References ........................................................................................................................................................ 37 FIGURES Figure 1 1: Number of functions of RIAs ............................................................................................... 7 Figure 2 1: Development of GDP growth rate and internet users in India.............................11 Figure 2 2: Share of wired and wireless internet subscriptions in India .................................12 Figure 2 3: Growth of RIA usage (share of internet subscribers) in APAC and India (Index = 100 equals APAC average in Q1 2013) .........................................................12 Figure 2 4: Average impact of telecommunications, RIAs and the internet on global economic output from 2000 to 2015 ...............................................................15 Figure 2 5: Use of RIAs vs. other applications in India ...................................................................16 Figure 3 1: Three mechanisms of the internet’s socioeconomic impact ................................18 TABLES Table 2 1: Consumer surplus results overview ................................................................................13 Table 2 2: Selected OECD countries’ RIA consumer surplus estimates and average wages ...............................................................................................................14 Table 3 1: RIAs from India ........................................................................................................................22 Table 3 2: Hike Messenger innovation timeline ..............................................................................22 Acknowledgement We gratefully acknowledge the contribution of Broadband India Forum (BIF) and its members in facilitating this research. We humbly recognise the co-operation of TV Ramachandran, Sandhya Balasubrahmanyam and Garima Kapoor from BIF without whose constant support and diligence the report would not have been possible. We would also like to thank Rosenthal Research who helped us with conducting the consumer research in India. We are also grateful to all our colleagues at WIK for providing a stimulating environment that makes such research possible. All errors are our own. 4 / November 2017 The Economic and Societal Value of Rich Interaction Applications in India Executive Summary India is on the fast track to digitization. Internet penetration has been growing exponentially: according to the Telecom Regulatory Authority of India (TRAI), the number of people with access to the internet had reached 422.19 million at the end of March 2017. At the same time, India’s Gross Domestic Product (GDP) growth has outpaced the global average. However, subscription to an internet service alone does not result in any significant value for consumers. It is the applications that they can access and use frequently that creates or supports the added value for them and hence for the economy. Today, India is considered to be the third largest app economy after the US and China with about 6.5 billion app downloads in 2016. The present study is the first to focus directly on the value added for consumers in India by Rich Interaction Applications (RIAs), such as Google Hangouts, iMessage and WhatsApp, as well as India-based applications such as Hike Messenger, JioChat Messenger, Lookup, Flock and Nimbuzz, which have become increasingly popular means of personal and business interaction. First, our study establishes that these applications play a disproportionately important role in India when compared to other Asia-Pacific (APAC) countries. In fact, a consistently larger share of internet subscribers in India than in any other APAC country uses these applications. Our own representative survey of internet subscribers in India further confirms that RIA users typically utilize at least five out of six RIA functions. The six core functions of RIAs analyzed in our survey are (1) ordinary calling, (2) video calling, (3) texting, (4) sending pictures, (5) sending videos, and (6) group chats. To understand the value added in detail, our study estimates the consumer surplus stemming from using these functions instead of traditional alternatives. The results of our consumer surplus survey and analysis show that RIA usage saves on average 803.9 minutes per week. Based on the average annual income in India (INR94,130), this translates into an annual consumer surplus of US$98 billion in 2017. Thus, each user of RIAs in India receives on average US$249 of consumer surplus annually. Applied to the entire population—not just RIA users—this results in US$74 per capita. Hike, an India-born ‘unicorn’, is part of this success story. The firm behind the popular RIA is providing many local jobs and is pushing innovation by engaging in local start-up financing. They have recently announced their acquisition of Creo, another innovative start-up founded by former Hike employees. Flock (focused on collaboration) and Lookup (an app giving small and medium-sized enterprises (SMEs) visibility for local consumers featuring various RIA functions) are further examples of the thriving and extremely innovative digital economy in India. Furthermore, our study highlights significant social benefits created by RIA usage. Both specialized and general purpose RIAs can play an important role in education and knowledge transfer when direct face- to-face interaction is not possible. RIAs can bridge the digital divide by offering new options to individuals who otherwise have limited access to telecommunications services and little knowledge about more complex computers. Indeed, if used well, RIAs could be a critical tool to drive the Digital India Programme. All of the benefits stemming from RIA usage are a result of the high levels of competitive innovation that has driven product and feature development and expansion among RIAs. The popularity and extensive use of RIAs in India indicate that consumers, who recognize the value that these services add to their lives, are the ultimate beneficiaries. In order to protect and sustain this consumer value, innovation and in particular innovation in the internet economy must remain a