The Net Paradox

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The Net Paradox



The segmentation of the internet market will subsequently undergo consolidation due to the very nature of the market structure and dynamics.

A peek into why the industry would continue to be driven through parallel cycles of fragmentation and consolidation. Sheer numbers and market opportunities will be the driving forces behind a highly fragmented market while dropping margins will be responsible for consolidating the industry.

Fragmentation

• Low entry barrier: Unlike the high license fees of the basic telecom providers, any player will be required to consider the license fee ‘burden’ only after a period of five years. The burden–Rs1. Add to this the perceived rewards in terms of take over by bigger players, ecommerce opportunities and other perceived opportunities. All these will ensure that the market continues to grow in the coming months.

• Demand: In a country like India with population in billions, the government–center and state–initiatives to take internet to the people will ensure that the players try to meet the pent-up demand and continue the ISP explosion.

• Convergence: Internet is fast becoming a place for different business segments to merge. Wipro, the IT hardware and software major, is in and so is Satyam, a software major, and others are in the pipeline, Max Pharma in Pharmaceuticals, IRCON in construction, BSES in electricity utilities, J&K State Industrial Developmental Corp in state development and TCI a logistic and courier company. All this apart from the scores of upstarts keen to perform their bit in the ISP market. Add to this the low entry barrier and exploding demand and you will see new players coming up in this segment.

• Service differentiation: Unlike any other business, the internet gives the unique opportunity of providing and differentiating its services depending upon the business model. Be it branding, free access, content or language, others are forming the differentiation and will continue to pull players to serve the multitude needs of the industry.

• Low level of legal bottlenecks: In a country like India where bureaucracy, red tape and high amount of rules and regulations are dirty words for the industry folks, here is one industry where this is negligible and will pull in many players. 

Consolidation



Though the industry is now in the growth stage and consolidation will take some time, yet industry people agree that sooner or later consolidation will occur in the Indian market. A few reasons could be:

• Bargaining power: Since the internet is an eyeball game and people with higher subscribers will be in a better position to bargain with advertisers, bandwidth providers (where there are more of them) and content providers, it would again make commercial sense to pool in resources and eyeballs.

• Price competition: This is already visible in the Indian segment and in the coming months it is only going to get more fierce. In order to safeguard margins on the access revenue, one would witness a lot of consolidation.

• Increased marketing cost: With ISP clustering and mushrooming all over the place, marketing and other visibility costs are bound to go up. The only way out for the medium and smaller ISPs would be to join hands and take advantage of pooled resources.