Riding asia's digital tiger

September 2010 m a r k e t i n g & s a l e s p r a c t i c e Riding Asia’s digital tiger Vikash Daga, Nimal Manuel, and Laxman Narasimhan Asia is the world’s hottest area of Internet growth, but the dynamics on the ground vary widely by nation. Asia’s emerging markets Malaysia are poised for explosive digital Of the three markets we researched, growth. The region’s two largest Malaysia is the most advanced. economies—China and India— While the country has only around already boast some 500 million 15 million–plus Internet users, Internet users, and we forecast that’s close to 55 percent of the nearly 700 million more will be added total population, and mobile Internet by 2015 (Exhibit 1). Other emerging penetration is close to 30 per- Asian nations have the potential to cent of it. Given the Malaysian govern- grow at a similarly torrid pace. We ment’s push to expand high-speed estimate that within five years, this broadband, we forecast that billion-plus user market may gen- the country will have up to 25 million erate revenues of more than $80 bil- Internet users by 2015, or close lion in Internet commerce, access to 80 percent of the population. As fees, device sales, and so forth both fixed and wireless broad- (Exhibit 2). band grow, we project that more than 50 percent of all users To better understand the consumers, will choose to have both personal- growth prospects, and problems, computer and mobile-device options we surveyed more than 13,000 indi- for getting online. viduals across China, India, and Malaysia—countries at very different Malaysians consume 35 percent stages of their digital evolution.1 more digital media than Internet The key finding? While there were users in China and 150 percent more some notable differences in the than users in India, particularly on types of content consumers favor social-networking sites and instant and the devices they use, significant messaging. That may, for example, demand is waiting to be unlocked give handset manufacturers oppor- in all three nations. That could tunities to build social-network lead to growing markets for digital access into their devices. We also content and services and to new found that Malaysians like to opportunities around digital market- multitask across both digital and ing, including efforts to reach con- traditional media. For advertisers, sumers via Internet sales channels. that’s problematic, since viewers

Riding Asia’s digital tiger 2 are paying less attention to traditional 770 million people, or 55 percent media content—and thus advertising. of the population. More than 70 percent will use both PCs and China handheld devices. China leads the world in sheer numbers of Internet users—more China’s digital usage, which is than 420 million people, or close similar to that of the United States, to 30 percent of the population. Over skews toward instant messaging, 80 percent surf the Web from home, social networks, gaming, and stream- while 230 million use mobile devices. ing video. Increasingly, Internet We forecast that the number users in China are substituting digital Q4 2010 of Internet users will almost double media for traditional ones, with Asian digital over the next five years, hitting the potential for further cannibal- Exhibit 1 of 2 Over the Internet usage growth in China, India, andmore Asians will Projected next five years, nearly 700 million start using the Internet. Malaysia is dramatic, increasing to at least 1 billion users from 480 million. Penetration,1 millions of users China India Malaysia 740–770 385 530– 555 330–370 PC and mobile 200 115– phone 135 35 125 PC only 155 80 180– 15 200 85– 5 23–25 9–11 65 15 Mobile phone only 30 90 0 8 11 2 3 2009 2015 2009 2015 2009 2015 Penetration,2 % of total population Mobile phone 58 86 30 61 110 141 Internet 29 55 7 28 56 80 Mobile Internet 18 46 1 27 27 44 1 Figures for 2015 are projected. 2Penetration above 100% indicates some users have multiple connected devices.

3 ization as digital consumption grows. 350 million—28 percent of the This development has stark population—with more than half of implications for advertisers and those accessing the Web via how they allocate future marketing mobile phones. To capture this budgets. Consumers, meanwhile, opportunity, companies will also use the Internet in their purchas- need to roll out wired and wireless ing decisions. They are more broadband networks aggressively, influenced by recommendations from to make smartphones and network social-network contacts and access more affordable, and friends than by traditional marketing to develop new content types. messages or visits to company Web sites. Consumer demand clearly is robust. On average, Indians spend more India than four hours a day consuming on- With only 7 percent of the population line and offline content. On PCs, connected (81 million users), India often used in cyber cafés, Indians is Asia’s digital sleeper. Yet we spend much time e-mailing and believe that it’s poised to become a are heavy consumers of downloaded truly mobile-Internet society as videos and music, as well as DVD new users leapfrog PCs altogether. movies. While Indian consumers use We project that by 2015, the mobile phones predominantly for Q4 2010 number of Internet users will increase voice services, they also treat them Asian digital almost fivefold, to more than as offline personal-entertainment Exhibit 2 of 2 Internet opportunities in emerging Asia could reach Revenues from Internet access and the provision of approximately $80 billion by 2015. content and services could exceed $70 billion by 2015. Revenues,1 $ billion China India Malaysia 61 33 21 Content, services 8 14 28 5 Access 13 3 2 4 2 9 1 2 1 1 2 2009 2015 2009 2015 2009 2015 1 Figures for 2015 are projected.

Riding Asia’s digital tiger 4 devices, listening to radio stations or At the same time, companies in to downloaded music. There is consumer-facing sectors (for significant pent-up demand for more instance, automotive, packaged convenient and personalized consumer goods, and retailing) Internet access—a void the mobile will need to reconsider their marketing Web could fill. and advertising strategies in light of the shift away from traditional Embracing the opportunity media. At stake is a significant High hardware costs, inconsistent competitive advantage in a region network quality, and limited access that already boasts more than could check these optimistic growth half the world’s Internet users—and prospects. But the extent of such will only continue to grow. barriers varies by nation, and there’s 1 notable progress overcoming Field surveys were conducted across 50 cities and in-depth ethnographic profiles them. Construction of network developed to form a cross-device, longi- infrastructure is proceeding apace— tudinal view of how the region’s digital con- companies in India, for example, sumption is evolving. just spent nearly $25 billion on tele- communications spectrum. Mean- The authors wish to acknowledge while, hardware and access costs the contributions of Nal Gollagunta are declining in most markets. to this article. The biggest challenge is to make money while creating a variety Vikash Daga is a principal in of low-cost content. Three issues McKinsey’s Delhi office, where are especially important: Laxman Narasimhan is a director; Nimal Manuel is a principal in the Kuala Lumpur office. Innovators and entrepreneurs must develop content creation Copyright © 2010 McKinsey & Company. and delivery models priced low All rights reserved. We welcome your comments on this article. Please send them enough to compete against the to quarterly_comments@mckinsey.com. pirated options currently available. Content and Web services providers need to foster the growth of local and regional advertising markets to help defray the cost of content creation. E-commerce platforms, including transaction systems that make purchases more convenient and trusted, must be developed.

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