Vijay Sharma, founder and chief executive of Paytm
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A few years after launching his ecommerce venture Paytm, Vijay Sharma came to a realisation about the future of India’s internet economy. It came during a trip to China in 2012, when he spent timing observing China’s many avid smartphone users.

“I learnt that the smartphone, which in the ‘western’ world is assumed to just be a smaller screen, is actually the dominant screen …for consumers in this ‘eastern’ world,” he says. “In other words, people don’t care about a small screen. They actually prefer to have a smaller screen.”

Even more so than in China, Indians will come online via smartphones. At present the country has about 350m internet users. Only about a sixth have fixed-line connections, according to analysts Convergence Catalyst in Bangalore. The rest already rely on mobile devices for web access, a trend that is only set to deepen. Most projections suggest India’s online population will race above 500m in the next couple of years, almost all using smartphones. This will leave India trailing only China in the league tables of most populous online nations. Connection speeds will improve dramatically as well, given that today perhaps only 40m Indians have smartphones that make full use of 3G data connections.

The prospect of such rapid growth has prompted a boom in ecommerce investment over the past year. The likes of online retailers Flipkart and Snapdeal have pulled in hundreds of millions of dollars in venture funding, and begun spending heavily to win customers. Mr Sharma’s Paytm, which offers both digital payments services as well as online shopping, won in the region of $700m in financial backing from China’s Alibaba, the world’s largest ecommerce group.

During a trip to New Delhi in October, Facebook founder Mark Zuckerberg talked about the challenge of reaching what is often called “the next billion” internet consumers — meaning those who live in poorer regions such as South Asia and Africa — who will come online over the next five to 10 years. Yet many in India now believe the country’s fast-growing mobile commerce sector can also become a laboratory for successful business models and that these can, in time, be expanded to other emerging markets.

Future mobile customers in these countries are likely to use the internet just as avidly as those in the US or China. But, unlike consumers in wealthier countries, they tend to be highly sensitive to cost, especially for data itself — a fact underlined by the number of Indians who buy smartphones only to leave them unconnected in order to avoid large bills.

“Of the installed smartphone base of 230m [in India], about 80m-90m do not have a data plan,” says Jayanth Kolla of Convergence Catalyst. “This means a third of smartphone users have no data connection at all.” Instead they rely on occasional WiFi connections, or what is known as “side loading”, in which videos or music are loaded on to the phone via data cards, a service often provided at local neighbourhood electronics shops or mobile stores.

Companies including Facebook and Google are already building versions of their services that are more suited for slower connection speeds. In India, for instance, Google’s YouTube allows videos to be downloaded and watched later, which lets users make use of WiFi in offices or public spaces so they do not use up precious data allowances.

Earlier this year Twitter bought an Indian company called ZipDial, which specialised in marketing campaigns using text messages and so-called “missed calls”, in which customers dial a telephone number and then hang up before anyone answers to save the cost of a connection. Companies can then call or text back with offers or information. The US group hopes that ZipDial’s expertise will help it to develop products for users with poor internet connections, or perhaps even for those who are yet to come online, but who often use text messages.

India’s mobile users have long suffered with basic phones and unreliable connections, but this does not mean they lack sophistication. Quite the opposite, argues Hugo Barra, the head of innovation at Xiaomi, a China-based smartphone manufacturer.

Xiaomi set up shop in India last year following a period of rapid growth in mainland China. Its devices were often compared to Apple’s, even though they sold at a fraction of the cost. Since then, India has become Xiaomi’s second-largest market by sales, pushing the company to experiment with special services suitable for Indian customers.

“Indian consumers are certainly very value conscious,” Mr Barra says. “But they are also on average very spec focused, about the type of processor, the type of memory. They do shop around. They like to be well educated.”

The preponderance of technology workers in cities like Bangalore and Hyderabad also helps to create a culture in which consumers are keen to engage with internet companies, Mr Barra argues: “We are going to be beta testing a lot of things in India, some of which may be relevant in the rest of the world.”

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