Imagine you had to choose between using Facebook and buying a packet of corn chips?
Such a choice might seem hard to imagine in affluent San Francisco or Sydney, but in emerging markets like India, opportunity costs are on an entirely different scale.
The Wall Street Journal noted yesterday: “Nestlé SA, Coca-Cola Co. and others selling consumer products to India’s 1.2 billion people say that as their poorest customers start spending on smartphone data, they have fewer pennies left over for snacks, sodas and shampoo.”
The WSJ does caution that “the evidence for this trend is largely circumstantial…data consumption is accelerating rapidly, while at the same time sales growth at some of India’s largest consumer companies has slipped to a two-year low”. The macro trends appear to support the argument.
India’s smartphone user base is now over 220m, second only to China, and ahead of the US. Adoption has been driven by intense price competition among the 150 brands of Android-powered devices on the market, with entry-level options available for under $100.
While smartphones are getting cheaper, data is still relatively costly, and most consumers pay as they go, rather than opt for monthly plans. So for many, casual browsing on a smartphone is not affordable unless some other discretionary spending is forgone.
Data costs real money for consumers, for a reason. Billions have been sunk into building out 3G and 4G networks. And operators require a return to make the economics work. At some point, the consumer runs out of wallet, and even in high-growth markets, ARPU peaks and starts to decline.
Operators are looking at alternative revenue sources to increase ARPU, and brands are looking at new ways to engage consumers. It’s easy to see brands and operators forming partnerships where subscriber attention is exchanged for subsidized data, text and calls.
Rolling out these type of programs should be done in a sensitive way. Brands can’t bombard subscribers with hundreds of ads, degrading the user experience. Facebook’s Free Basics initiative faced criticism for perceived restrictions on sites that could be accessed, and violations of net neutrality principles.
Other factors like privacy, device storage and power consumption need to be factored in to ensure that the value exchange doesn’t create issues for both operator and consumer.
Sophisticated techniques like pre-positioning video using off-peak network, and using behavioral signals from the phone to learn when to best engage the consumer will drive adoption across operators and brands.
Operators must develop new revenue streams as ARPU declines. This will drive a wave of innovation in mobile plans and consumer engagement, resulting in a better deal for emerging market consumers.
Mark Adams is CEO of Incoming Media. We use high quality video and machine intelligence to enhance the value of mobile subscribers. Like this and follow me for regular updates on the business of mobile.