Google eyeing to capitalize on high internet population in India

Google Inc. predicts India will add 200 million Internet users in the next two years, but capitalizing on that huge emerging audience will be challenging in a country where television and newspapers suck up advertising dollars and the government is throwing up regulatory hurdles.

In an interview, Google’s country head in India, Rajan Anandan, said the Web giant expects India to reach at least 300 million Internet users by 2014, up from about 100 million now, as telecom carriers invest in high-speed wireless infrastructure and smartphones become cheaper.

Even without those technology advancements, India is already the third-largest Internet market by users, behind China and the U.S., and with only 8% of its population of 1.2 billion online, there’s plenty of runway for growth.

“Despite a lot of the infrastructure challenges we have as a country, 100 million Indians are online, they’re spending a huge amount of time online and they’re doing a varied set of things online,” says Mr. Anandan, a former Microsoft executive who took over Google’s India operations in March.

Making money off that growing audience, though, is proving difficult thus far for Google and other Internet companies. Indian online ad spending is only about $200 million per year – a small slice of the $80 billion global digital advertising industry. E-commerce like airline and movie ticket sales online generate about $5 billion in revenue compared to about $80 billion in China.

Google doesn’t say how much it earns in India, but analysts estimate it has about half of the online ad market. That’s a pittance for a company with $29.3 billion in revenue last year, but Mr. Anandan says the Mountain View, Calif., company is betting the money will start flowing more quickly. He points to the proclivity of Indian Web users to research products and services online – 65% of car buyers, he says, turn to the Internet as their first source of research. Such activity, he says, can have “a huge impact on advertising as well as commerce.”

Big marketers like auto makers and cellphone companies pour billions of dollars into TV and newspaper ads targeting affluent, urban consumers, but they barely pitch their products in online ads, even though 90% of people in that market segment are Internet users, Mr. Anandan says. He’s trying to change that mentality.

“You should actually have a digital first strategy. That’s not to say you shouldn’t do significant TV advertising,” he says, “but for many industries digital today can not only reach the audience that’s most valuable to them but also target them in a very interesting way.”

Mr. Anandan said Google also wants to expand the market of advertisers significantly by drawing in small businesses – travel agencies, small universities, restaurants – that until now haven’t even set up Web sites, much less started hawking their products online.

Google’s search service has more than 63 million Indian users per month and accounts for the lion’s share of its revenue, according to ViziSense, a company that tracks Indian Web metrics. But Google is aggressively building up other properties in India. YouTube has over 23 million Indian users and its offerings of Bollywood movie content have proved especially popular.

The new Google Plus social network has found a huge following in India, with over 3 million users, among the most of any country in the world, and the service will likely be integrated over time with Google’s Orkut site, which has 11.1 million users, the company says. But Google still trails Facebook, which had 42.7 million Indian users in July, according to ViziSense.

Mr. Anandan believes the next 200 million Indian Web users will largely access the Internet on the high-speed wireless networks that carriers are in the process of rolling out nationwide. But his bullish predictions depend on handset makers bringing out discounted smartphones that the masses can afford.

The sweet spot, he says, is a Web-enabled phone less than about $80. Today, good smartphones cost at least $140. Google has been working closely with manufacturers to bring out low-cost phones in India that use its Android operating system.

Mr. Anandan said the Internet sector can only flourish if the government fosters that growth. The company has expressed concerns lately about new Indian Web censorship rules, saying they outlaw too many categories of content and could potentially expose Internet companies to liability for content posted by third parties. The government has promised to review the rules but Mr. Anandan said no officials have sent word of any coming revisions.

Google also ran into trouble when it was rolling out its Street View feature, which offers a ground-level panoramic view of physical locations. Police in the southern city of Bangalore expressed security concerns about the service and stopped Google’s camera-mounted cars as they were gathering photos. Google is now seeking necessary permits and approvals from the government.

For online growth to continue at a rapid clip, Mr. Anandan said, “there needs to be a policy framework and a set of policies that are conducive to the growth of the Internet.”