Digital play with Indian business models

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TAPONEEL MUKHERJEE | 12 Jul, 2020
The last decade has seen rapid digitisation. However, the last three months have seen the pace of digitisation accelerate rapidly. Even as the world adjusts to a new normal, the ability to leverage digitisation to improve, create and innovate business models will be vital in deciding the winners of the future. In India, in this context, the two issues that assume significant importance are business models that can monetise user bases using transactions and the ability of technological solutions to create disruptors and opportunities in previously unexplored corners.

The first issue is the monetisation of user bases. As India builds its digital infrastructure in terms of UPI, access to faster data speeds and greater digitisation of processes, monetisation and, more importantly, the creation of sustainable business models that deliver a return on investment that is higher than the cost of capital will be an area of considerable interventions from businesses of all hues. Going a step further, while ad-based business models are seeing the usual players wrestle it out, the transaction-based model utilising digital frameworks will be a vital focus area in the post-COVID era.

Partnerships between businesses that need to monetise user bases that have been created through significant investments and those businesses that have market-focused products but need access to a relevant user base will be a key driver going forward. The reason monetisation and business models that can help monetise assume great importance, in an Indian context, is the unique dynamic of the Indian market, that of a large macro market with still a relatively low revenue per capita. For instance, while India's net ad sales revenues grew at 15.4 per cent in 2019, the per capita ad spend in 2019 in India is at a little over $7 vis-ï¿½-vis $695 in the US in 2019.

The most significant learning from the data is that India will require businesses to innovate on the monetisation front to create weighty value over and above advertisement revenues. As stated earlier, the ability to marry user bases and a seamless product or service will be decisive to monetisation and ultimate investment returns and business success. The ability to cater to a rapidly growing large user base, and yet the ability to monetise using relatively lower revenues per user will be vital. The telecom industry has shown one use case for reference purposes.

The second issue of prime importance is for businesses to be aware of both opportunities in and threats to their business models from previously unexplored corners of the market. Necessarily, in addition to the traditional disruptor of businesses, the quick adoption of digital infrastructure will mean new challenges from unforeseen competitors. For instance, recent news from the US suggests that Walmart will partner with Tribeca to turn 160 store parking lots into drive-way theatres. This has significant ramifications not just for the movie theatre industry but for businesses per se.

For starters, before the Corona pandemic, big-box retail wasn't perceived as a threat to the movie theatre business. While one would not expect this move by Tribeca and Walmart to eliminate the utility of a movie theatre, the move shows a trend whereby the most unlikely of businesses can start making a dent into the revenue sources for industries. A rapid pace of digitisation and the search for new sources of revenues for businesses will mean disruptors will emerge from what are viewed as "non-traditional" corners.

However, for agile and rapidly evolving businesses, the above threat is also an opportunity. Technology and digitisation will create opportunities for businesses in areas that were earlier off-limits. In general, and in the Indian context, rapid digitisation means that the boundaries between entertainment, retail, cinema, sports and music will start getting blurred. Engaging consumers, creating relevant value propositions and enabling business models that have long-term value creation and revenue-generating capacity will assume prime importance.

As we look ahead and the world deals with a rapid pace of technological transformation, one that has been put on the fast track by the present-day needs, a focus on India-appropriate business models and flexible strategies will be central to business success in the future.