Indian ConsumerTech Opportunities and Challenges

The burgeoning digital economy is profoundly altering how customers and businesses interact with one another. A new generation of digital-native, mobile-first businesses is emerging and scaling at an unprecedented pace, fuelled by a world-class, frictionless payments environment. Over the last ten years (2013-14 to 2023-24), the Indian startup ecosystem has grown by leaps and bounds. With rising wealth and discretionary spending, the Indian economy continues to rise steadily. In the last three years (since 2021), Indian startups have raised more than US$ 100 billion, and the ecosystem has given birth to more than 110 unicorns. The ConsumerTech area caters to eight primary customer needs and has been at the vanguard of this boom, accounting for one-third of capital raised, leading to the creation of 40+ unicorns. 

The ConsumerTech market in India has remained robust and is expected to be worth US$ 250 billion in 2022-23. The epidemic boosted digital penetration across many sectors by 12-24 months, driving e-commerce adoption and reaching 350-400 million online shoppers by 2025. It is anticipated that India's ConsumerTech ecosystem, which has grown to maturity with more than 4,000 deals and US$ 54 billion in fund flows in the last five years (since 2018), will experience sustained growth over the course of the next 10 years (till 2028-29) as key enablers in the areas of digital payments, physical infrastructure and logistics, and internet data connectivity are put in place. The next wave of development is projected to be led by beauty and personal care, food and drinks, FMCG, and furniture and decor, despite the relatively high penetration and maturity of consumer technology in categories like electronics, appliances, fashion, and apparel. Latest trends are starting to develop in the market, driving consumer tech companies to adjust to shifting consumer preferences. According to a Fitch Solutions firm, BMI, India's consumer industry would rise 2 spots to become the world's third largest by 2027, owing to a rapidly increasing proportion of middle- to high-income households.

The Indian ConsumerTech Landscape

Source: Boston Consulting Group and Matrix Partners India

Consumer technology, often known as consumer tech, refers to any type of technology designed for use by the general public, as opposed to technology designed for enterprises or government organisations. Consumer technology comes in a number of shapes and provides a wide range of technological capabilities, including most of them regularly observed objects that people might use on a daily basis. It is an umbrella term for any type of technology created with the general public’s use in mind. The Indian ConsumerTech market has seen significant value creation, with more than US$ 250 billion in valuation and 40+ unicorns as of December 2022. The consumer technology business in India is expected to expand to a US$ 200-250 billion opportunity by 2025.

• First Wave

Consumer Technology firms began as e-commerce players, transitioning to specific verticals as the internet evolved. Over the last decade (since 2012), India's Internet penetration has risen from 50 million Tier-1 centred affluent Indians to 825 million Indians across the country. This expansion was fuelled not only by low-cost internet connection but also by a surge of consumer-focused internet firms that drove consumers online. Indians use the internet to not just browse and shop, but also to invest and earn money, educate themselves, meet people, enjoy themselves, find doctors/trainers, order food, and process the majority of their daily payments.

• Second wave

The use of the Internet changed dramatically in a variety of sectors, including finance, education, media, health, and gaming. During this time, India's "netizens" benefited greatly from innovation as numerous areas of their lives began to be digitised. As Covid struck, consumer-focused internet businesses only proliferated as the severity of the demand multiplied.

• Current Scenario

With the expansion of the consumer tech industry, a new beginning of Indian consumer enterprises is going worldwide and dominating the various major markets outside India. First Cry, Go Mechanic, Lenskart, Emotix, Healthify Me, etc, are all good examples of the same. It is also expected that the next wave of innovation and value creation will occur on one hand through globalisation and on the other hand through increasing access to commerce for 1 billion Indians (e.g., via Social Commerce), increasing pools of supply through consumer enterprise-zation (the growth of the Creators Economy), enabling engaging entertainment (e.g., via new age gaming apps), and enabling access to affordable and convenient mobility solutions (e.g., via EV-driven mobility).

Source: Boston Consulting Group and Matrix Partners India

The Enablers in the consumer tech industry

• Digital Payments

Digital payments have become increasingly essential in India in recent years, as the country has seen a tremendous increase in smartphone and internet connection adoption. With investments of US$ 22 billion in 2021, the country leads in digital payments transactions (ranked 1st), internet user base (ranked 2nd), number of online consumers (ranked 3rd), and global investments in digital shopping (ranked 2nd). Digital payment mechanisms including mobile wallets, UPI, and card payments have seen a sharp rise in use because of greater adoption of smartphones and the internet. Indian households in the year 2022-23 had a per capita income that was almost 30% higher than it was in 2014–15. The robust digital payment system in India is at a growth inflexion point as the country made a significant shift to a cashless economy on the foundation of economical internet connection, high smartphone penetration, and an easier onboarding procedure. India has demonstrated its agility in accelerating the adoption of innovative technologies by driving the digitalisation of cash transactions, enhancing customer experience, offering safe and secure transaction platforms, simplifying processes, raising awareness, and, most importantly, advancements in technology. It is estimated that by 2025, the volume and value of digital transactions in India will reach 186 billion and Rs. 238 trillion (US$ 2,861.82 billion), respectively. Unified Payments Interface (UPI) is likely to continue to dominate with a significant majority of transactions. India's consumer digital economy is predicted to be worth US$ 1 trillion by 2030, mainly due to growing digitization and increased investment. 

Source: Boston Consulting Group and Matrix Partners India

• Physical Infrastructure

The integration of physical and digital infrastructure will be a defining element of India's future development. The digital journey began with Aadhaar as a channel for service delivery at the doorstep, while UPI reinforced the digital payment infrastructure. With additional projects like Co-WIN, e-RUPI, TReDS, Account Aggregators (AA), ONDC, etc., are at various phases of implementation. The tele density has reached 93%, over a billion individuals have a digital ID document, more than 80% have bank accounts, and over 600 crore digital payment transactions are carried out per month as of 2022. The enormous effort made by the Government of India to develop suitable infrastructure is also assisting in the establishment of market growth within the sector. Government-e-marketplace (GeM) has grown by more than 160% year-on-year to reach Rs. 1 lakh crore (US$ 12.02 billion) in yearly procurement by 2022. The opening of the Open Network for Digital Commerce (ONDC), a private non-profit organisation created by the Department for Promotion of Industry and Internal Trade of the Government of India, will encourage open e-commerce, and hasten the development of the sector.

Source: Boston Consulting Group and Matrix Partners India

• Internet Penetration

Online activities like e-commerce and digital payments are expanding quickly as a result of rising smartphone usage and internet penetration. The pandemic has expedited the emergence of the new-age digital consumer, placing India among the world's fastest-expanding digital economies. Internet penetration has increased by 1.5-fold in the last five years (since 2018-19), with over 850 million subscribers in 2022-23. In 2022, the market was expected to have 250-300 million online shoppers and 90-100 million digital natives. The pandemic increased e-commerce adoption, bringing 30-40 million buyers online in 2020-21.

Source: Boston Consulting Group and Matrix Partners India

Megatrends that will revolutionise the Consumer Tech Industry

Verticalization and personalization are now the prevailing trends, replacing horizontal e-commerce, and direct-to-consumer and internet-first businesses are now replacing long-form supply chain distribution channels. Additional growing trends in the industry include a surge in the use of digital payments, customer enterprise-ization, and globalisation.

• E-commerce 2.0

The first phase of the e-commerce revolution was characterised by trends such as rapid shipping and easy payment methods. However, as the emphasis moves to price-conscious consumers from India's smaller cities and villages who purchase inexpensive unbranded products, e-commerce 2.0 is all set to further democratise online retailing.

Commerce 2.0 can be divided into two categories: Social Commerce and Digital Brands, with enablers facilitating the efficient execution of these opportunities. With social commerce, new-age firms can sell through alternative channels such as live videos, social media, and so on. This mostly serves the low to middle-income sector through trust-based selling of unstructured product categories. The D2C ecosystem, in which businesses sell directly to consumers without the involvement of intermediaries, is part of the second phase of the e-commerce revolution. Finally, the introduction of digital enablers has enabled brands to ensure a seamless end-to-end consumer buying experience. From product discovery to last-mile delivery, and checkout processes to customer data, digital enablers use cutting-edge technology to assist online retailers in reaching a substantial number of consumers. To remain competitive in their respective areas, participants in e-commerce 2.0 are innovating and creating skills such as ecosystem collaborations, scalable service models, content-led commerce, and others.

• Creators’ economy

According to a global study in 2020, the average daily time spent consuming content, which includes phone, TV, and other kinds of digital media, is 6 hours and 59 minutes. The consumption of information online has been steadily increasing, particularly since the COVID-19 pandemic, when individuals turned to online platforms for both education and amusement. Whether it is a business or an individual, creators who use technology to reach out to the masses have benefited greatly from this development. Throughout the value chain of the creator's lifestyle, five primary business models emerge SaaS tools, vertical marketplaces, patronage networks, fan platforms, and creator support. These models have resulted in the establishment of new opportunities across segments, including creators in knowledge, passion, lifestyle, celebrities, health and fitness, gaming, patronage platforms, fan community, and education.

• Online gaming and entertainment

Along with an increase in online content consumption, the COVID-19 epidemic resulted in an increase in online gaming in India. The market is predicted to reach US$ 2 billion by 2023-24, owing to increased internet penetration, increased consumption of vernacular language material, and other factors. Emerging gaming trends include play-to-earn games, e-sports, casual gaming, and real money gaming, cloud gaming. Play-to-earn games will introduce a diverse spectrum of customers to the world of gaming while also giving viable earning opportunities, fuelling the growth of the gaming industry in India.

• Electric vehicles

Whether it is the business sector, the startup ecosystem, or the government, all players are working together to increase EV adoption in the country. By 2025, the electric two-wheeler (E2W) and three-wheeler (E3W) markets are expected to be worth US$ 1.8 billion and US$ 1.5 billion, respectively. Startups are emerging in the field of manufacturing, boosting made-in-India electric vehicle components. For instance, Bounce, a famous bike-sharing service, moved into manufacturing electric scooters in April 2022, at a low cost with the flexibility to swap batteries via the Bounce network.

• Others

Some of the other trends are India's per capita household spending is expected to outperform other developing Asian nations like Indonesia, the Philippines and Thailand at 7.8% year-on-year, according to a report in 2022-23. The new customers are mostly females aged 35 and above mostly from tier 2, 3, and 4 cities. This democratisation of online commerce is beneficial to the consumer tech ecosystem as it would expand the market depth. Furthermore, consumer tech has given rise to new commerce models such as live commerce, influencer-led commerce, group buying, and offline-online integrated plays. With 35-40% of users choosing marketplaces for queries in specific user categories including electronics, fashion, mobile, food & FMCG, and beauty & personal care, marketplaces are displacing search engines as the most popular new search sites. Consumers are demanding faster gratification with shorter delivery alternatives, resulting in the emergence of quick-commerce (Q-commerce), which has swiftly increased to 25-30% of the entire online grocery market. It is estimated to grow 10-15 times from US$ 0.3 billion (2022-23) to US$ 5 billion by 2025. A boost to both current and potential customers could come from innovative business models including assisted and conversational commerce, influencer commerce, live/video commerce, and group buying could provide an impetus to existing and new shoppers. Consumer preferences are shifting towards better living options, sustainability, and re-commerce. The rise of developing technologies such as generative AI could have numerous potential applications in e-commerce (for example, automating product descriptions, personalised marketing material, assortment planning, and so on); ONDC could provide an additional boost to e-commerce adoption.

Road Ahead

In the previous three years (2020 onwards), consumers' time spent online on social media and photo/video applications has increased by 1.8 times, making these channels significant for e-commerce with the advent of discovery-led shopping and social commerce. Consumer preferences are shifting towards better living options, sustainability, and re-commerce. The rise of developing technologies such as generative AI could have numerous potential applications in e-commerce (for example, automating product descriptions, personalised marketing material, assortment planning, and so on). ONDC could provide an additional boost to e-commerce adoption. India is a big market for IT companies, with a growing middle class and a favourable business environment. The emergence of digital payments, AI, and machine learning applications presents enormous prospects for industry growth.