This article originally appeared on Tech in Asia. Omri Henkin is the Managing Director of India and Southeast Asia at ironSource.
India is fast becoming a mobile player to contend with. In addition to the government’s promises to improve online infrastructure and increase internet connectivity, the growing smartphone user base and more affordable data packages from disruptive players like Reliance Jio are positioning India as a mobile market leader.
Naturally, companies — both foreign and local — are quick to follow the market boom, recognizing the incredible potential that India’s growing mobile subscribers can offer. This past year, for example, we’ve seen companies spending heavily on app install advertising in India.
But with the influx of international advertisers pouring into Indian markets, comes concerns from Ola, Flipkart, and other major Indian companies, who have called on the government to enact protectionist measures against their foreign competitors. They claim that “US companies are burning cash in a price war.”
Beyond the increase in mobile subscribers, both international and local advertisers are grappling for access to the rising Indian middle class because of their increased purchasing power. Indeed, looking at the app advertising landscape in India, we see that the battle between local and foreign advertisers for the attention of Indian consumers is only intensifying.
The broader app ecosystem
Looking generally across app categories, our research found that domestic players are the biggest ad spenders in India, representing a large group of companies responsible for 48 percent of the total spend. The US, a group which is only made up of a few large players, is a close second (39 percent), followed by China (5.8 percent). This is consistent with global trends that show local Indian advertisers increasing their mobile ad spend by 13.3 percent in 2016, while the US increased their ad spend by a much lighter 2.8 percent.
If we look purely at the number of advertisers, we see that the shopping category is dominated by local players. It’s interesting to note, however, that local app advertisers spend less on average than their international counterparts. In that sense, international players like Amazon, OLX, and AliExpress dominate the shopping category in terms of spend, but not in mass.
It’s large budgets from advertisers like these which even out the picture between domestic and foreign players, and that heavy spend seems to be paying off. Amazon is steadily increasing its market share, demonstrating just how effective mobile advertising in general — app install advertising in particular — can be.
In contrast to last year, in which ecommerce firms like Flipkart, Snapdeal, and Jabong were all among the top 10 television and print advertisers, data by AdEx India shows that the same local players are spending significantly less on advertising in 2016. Instead, they are focusing on profitable growth; AdEx attributed this to a “change in strategy” and “scarce funding.” In fact, foreign player Amazon is the top ecommerce advertiser by far this year.
Although AdEx India’s data strictly covers television and print advertising, their findings are consonant with our own data. We can, therefore, assume that budget cuts are consistent across the board, affecting mobile and in-app ad spending as well.
The slowdown is most probably why foreign players such as Amazon, OLX, and AliExpress are out-spending Flipkart and Snapdeal. In fact, in June, Amazon announced it would be investing an additional US$3 billion in India, a portion of which will likely be allocated to in-app ad spend.
In the entertainment app category, domestic advertisers make up a massive majority (87.5 percent) of entertainment’s total in-app ad spend. This is likely due to the strength of time-honored cultural institutions in India, such as Bollywood and Cricket, which foreign advertisers, unfamiliar with Indian culture, would have a tougher time replicating.
It’s reasonable to assume that the average Indian user would be less interested in foreign-produced entertainment content. This is one potential reason why local advertisers are so strong in India.
Still, foreign advertisers are pushing hard. Netflix, for example, recently partnered with an Indian movie production house to help produce original content for the region. Sacred Games will be the first of many Hindi-English series on Netflix. In order to succeed in India, foreign advertisers will need to follow Netflix’s lead, investing in local content and adapting their creatives to Indian culture. Only companies well-versed in the country’s cultural nuances will find success in the entertainment category.
Travel and transportation
In the US and Europe, consumers stick to Airbnb, Expedia, Booking.com, and Kayak to book hotels and plan trips. This isn’t the case in India, where the travel category is so heavily dominated by local advertisers that western companies barely even have a presence. Rather, OYO Rooms, Yatra, RedBus, Goibibo, MakeMyTrip, and ClearTrip — all based in India — are the country’s major travel app advertisers.
In comparison to other categories, the average spend of these local travel advertisers is quite high, mostly because there is such intense competition. Just a few months ago, MakeMyTrip, which is India’s oldest travel site, bought Ibibo Group, which includes Goibibo and RedBus. The combined company commands 20 percent of the travel market in India, leaving OYO Rooms, ClearTrip, Yatra, and others to duke out the rest.
Since the travel category is already seeing such consolidation, we can assume that foreign advertisers will only have more difficulty entering the Indian market going forward.
In terms of transportation apps, foreign advertiser Uber is the biggest transportation spender in India. Its local rival Ola is also a significant spender but doesn’t spend quite as much on app advertising. Bloomberg points out that, “Ola can’t afford a similar strategy,” likely because Uber has raised US$10 billion, while Ola has raised US$1.2 billion. Since it entered the country, Uber has expanded to 28 cities in India, making it Uber’s largest market outside of the US.
As of today, we’re seeing very small budgets from gaming advertisers in India. The majority of ad spend is driven by local players, but foreign gaming advertisers still make up a sizeable chunk. This is a reflection of foreign gaming players recognizing the exploding potential of India’s mobile gaming market, and their initial attempts to edge themselves in.
In comparison to other BRIC countries, India’s mobile gaming market has grown by 132 percent since 2015. This is massive growth, but should still be taken with a grain of salt. In terms of in-app spending, mobile gaming in India has a ways to go — just 18 percent of Indian gamers pay for gaming content, compared to 27 percent in Russia, 30 percent in China, and 35 percent in Brazil.
Nevertheless, as the purchasing power of Indians increase, we can expect Indian gamers to spend more on mobile games. Savvy foreign advertisers recognize the potential and are ready for the boom.
There is still fierce competition in the mobile app advertising market in India. With Indian companies like Ola and Flipkart hoping to edge out their international competitors and reclaim the Indian market for themselves, we see foreign advertisers finding it slightly more difficult to enter the arena. But the growing opportunities in India, with its massive smartphone penetration and improving 4G services, is too good for foreign advertisers to go down without a fight. It will be interesting to see if local advertisers can successfully persuade the government to adopt a more protectionist policy, or if foreign advertisers will overtake the market.