“Google For India”: How Does This Fit Into Google’s Big Picture?

For a country that accounts for approximately 1% of its revenues,   ^[1]  Alphabet’s (NASDAQ:GOOG) subsidiary Google recently announced a massive expansion plan for India. ^[2]  With a goal to bring all Indians online and make the Internet more relevant for their needs, the company announced a major expansion of its campus in India. It also identified  several measures to improve internet access in the country and to adapt its products to work better on slower Indian internet connections. Although currently India does not contribute significantly to Google’s revenues, it has a huge potential for growth in terms of number of users. The number of internet users in India will exceed those in the U.S. in December 2015, ^[3] but there are still a billion people in India who do not have internet access. With low internet penetration rates ^[4] and an economy growing at more than 7%, ^[5] India is a strong growth opportunity for Google.

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India Second Only To The U.S. In Total Number Of Mobile Search Queries

We estimate more than 40% of Google’s valuation to come from mobile search ads and, according to the company, after the advent of smartphones, India is second only to the U.S. in terms of number of mobile search queries. ^[2] Although digital ads account for only 14% of total ad spending in India, according to eMarketer  most marketers spend nearly 70% of their digital spends on Google. ^[6] Digital spending in India is expected to reach 25% of total ad spending by 2019 and this will put the country ahead of France, Brazil, Spain and Italy in terms of this metric.

Google sees a huge opportunity in bringing the 5 billion people of the world online who currently don’t have access to the internet, and India is home to 1 billion such people. With initiatives such as connecting women in rural India through a fleet of internet bikes, the company hopes to reach 300,000 villages in India in the next three years. Google is adapting its products to work on the 2G slow internet connection in India to enable web pages load faster on these connections, which should drive traffic for publishers and in turn higher revenues for the company. YouTube’s “offline” mode was launched in India and Google Maps is now allowing real time navigation and searches without a data connection. Several such initiatives by the company are aimed towards increasing internet penetration and traffic in the country, which should in turn increase mobile searches on Google leading to higher mobile ads and revenues. The company’s India subsidiary saw 35% growth in revenues in FY 2015. ^[6] Adapting Google’s products to mobile phones would be key to succeed in this strategy since an increase in internet penetration in India would be primarily via mobile phones. India is the third largest smartphone market in the world and is expected to have more than 300 million mobile internet users by 2017. ^[7]

While we don’t expect any immediate impact on Google’s top line with increased focus in emerging economies, we believe this to be an investment in future growth.

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1. Google Alphabet India reports 35% increase in yearly revenue, The Economic Times, December 14, 2015, Google SEC Filings [↩]
2. Google for India: Past, Present, and Future, Google India Blog, December 16, 2015 [↩] [↩]
3. India on course to overtake US next month in Internet user base, Livemint,  November 30, 2015 [↩]
4. Internet Users per 100 people, The World Bank [↩]
5. India: Economy, Asian Development Bank [↩]
6. Google Alphabet India reports 35% increase in yearly revenue, The Economic Times, December 14, 2015 [↩] [↩]
7. With 3^rd largest smartphone market in the world, India to reach 314 mobile internet users by 2017, YourStory, July 2015 [↩]