What is E-Commerce
The term e-commerce is generally used in the sense of denoting a
method of conducting business through electronic means rather
than through conventional physical means. Such electronic means
include ‘click & buy’ methods using computers as well as
‘m-commerce’ which make use of various mobile devices or smart
Some of the common business models which are
facilitated by E-Commerce
Business to business
When a business wants to conduct a commercial activity with
another business firm online it is termed as b2b e-commerce. It has
enabled various businesses to build new relationships with other
businesses for efficiently managing their several business functions.
B2B e-commerce could comprise of various models, which may
include distribution services, procurement services, digital / online
market place etc.
Business to consumer
This is the most common form of e-commerce in which a variety of
goods ranging from electronic goods, apparels, footwear, stationery,
gifts, home appliances and services like travel booking, online
matrimonial, online classifieds, digital downloads and financial
services are available. This model reduces the cost of having
intermediaries and creates a direct relationship between business
Consumer to consumer
Traditionally consumers have had dealings with other consumers,
but only few of those activities were in a commercial sense. E-
commerce has made it possible to bring together strangers and
providing a platform for them to trade on. For example, portals such
as olx and quikr enables consumers to transact with other
Consumer to business
This is relatively new model of commerce and is a reverse of the
traditional commerce models; here consumers (i.e. individuals)
provide services/ goods to businesses and create value for the
business. This type of transaction can be seen in internet forums
where consumers provide product development ideas or in online
platforms where consumers provide product reviews which are then
used for advertisement purposes.
How the market
evolved in India
due to dot
First wave 1996-2000
Liberalization in 1991 attracted MNCs and brought about the growth of the IT
The introduction of internet in India in 1995 marked the beginning of the first
wave of e-Commerce in the country.
The IT industry and SMEs were the early adopters of internet.
This led to the emergence of B2B, job searches and matrimonial portals.
The first wave of e-Commerce in India was characterized by:
• low internet penetration
• a small online shopping user base
• slow internet speed
• low consumer acceptance of online shopping and
• inadequate logistics infrastructure
There was muted activity in the space in India between 2000 and
The IT downturn in 2000 led to the collapse of more than 1,000
e-commerce businesses in India.
Second wave 2005-2010
The entry of Low Cost Carriers (LCCs) in the Indian aviation sector in 2005
marked the beginning of the second wave of e-Commerce in India.
Travel emerged as the largest segment
The success of the online travel segment made consumers comfortable with
shopping through the medium, thus leading to the development of online
The growth of online retail was partly driven by changing urban consumer
lifestyle and the need for convenience of shopping at home
This segment developed in the second wave in 2007 with the launch of
multiple online retail websites
New businesses were driven by entrepreneurs who looked to differentiate
themselves by enhancing customer experience and establishing a strong
Starting in 2010, the group buying and daily deals models became a sought
after space for entrepreneurs in India, emulating the global trend.
In the second wave, social networking gained steam in the Indian online
Initially used for staying connected with friends
Social networking websites have now emerged as an anchor in any
company’s digital strategy.
Termed as social commerce, it is a key avenue for e-Commerce players to
reach out to target customers.
Cloud surrounding e-Commerce laws in India
• There are no specific e-Commerce laws in India.
• The sector is governed by the IT Act 2000, which regulates the legal obligations of
sellers and buyers of goods and services in cyberspace
• Apart from the IT Act 2000, e-Commerce laws in India need to comply with other
statutory laws in force in the country, e.g., the Indian Contract Act and Foreign
• E-commerce companies also need to comply with banking and financial laws,
where applicable Laws regulating e-Commerce in India are still evolving and lack
• This poses a challenge for potential entrants and existing players.
Low entry barriers leading to reduced
• The rapid growth of the e-Commerce sector is attracting new players.
• The initial investment required to start an online venture is as low as a
• The sector is also attracting the interest of VCs and entrepreneurs to secure
• This enables new companies to easily replicate the existing business models and,
thereby, increases competition in the sector.
• Furthermore, some operational aspects such as free shipping of products and
COD, which were differentiators earlier, have now become hygiene factors.
Rapidly changing business models
• Business models have been changing rapidly in the e-Commerce sector.
• This could be due to heightened competition and the inability of players to
sustain high costs.
• Some businesses, such as online DVD rentals, have gone into obsolescence
• Some companies in the online retail segment have shut shop due to their inability
to sustain price wars with their competitors.
• Group-buying companies, which started off by providing deals at high discounts,
have now begun selling products.
• Therefore, players in the e-Commerce space need to adapt to changing business
models and innovate constantly to sustain their businesses.
• India’s e-commerce market is mainly restricted to urban areas, with the bulk of
the business being restricted to cities.
• Internet usage in rural areas is limited.
• This could be due to several reasons including low internet speed and internet
• Rural areas account for 70% of the country’s population.
• The inadequacy of vernacular content on e-Commerce websites is another reason
for low penetration in rural areas
• E-commerce players offer huge discounts to lure people to shop online.
• Since, Indian consumer looks for the lowest price before making a purchase, the
cost of customer acquisition is high for these companies.
• Moreover, a large number of players offer the same products at the same prices,
switching cost is non-existent.
• Consequently, a customer’s lifetime value is low.
• This poses a challenge for players in their effort to develop sound strategies to
attract and generate repeat customers.
Key market factors to be evaluated before entering a new
To achieve their vision, ecommerce companies will need to understand
the intricate landscape of new markets in addition to their own internal
capabilities and limitations. The following factors must be considered:
• Market size: Before moving too aggressively into a new market, it is important
to consider how sizable the overall opportunity is.
• Ecommerce readiness: It is essential to fully understanding the payment and
logistical infrastructure, consumer behaviour, retail opportunity and technological
• Scope of growth: It is also important to look at the internet penetration,
demographics of the online buying population and understand which phase of
development each market is in.
• Barriers to entry: Players should understand the regulatory environment and
connect with solution providers, content distribution networks, and digital
• Competition: There is also a need to do an in-depth assessment of what
competitors are doing, their online strategy and the nature of each offering