development, surge in internet and Evolution of E-Commerce inE-Commerce smartphone users. IndiaMarket in India E-Commerce in India The first wave of e-commerce in India (from 1995 to 2000) was marked by B2B directories E-commerce in India is steadily mushrooming being emulated by the classified services ofThe rapid growth of internet and mobile on account of favorable developments in the the online matrimonial and recruitmenttelephony in the developed and developing supporting ecosystem and other humane services.countries has been responsible for the aspects inter alia the hectic pace of urban life, The entry of low-cost carriers in Indian in 2005transition in the modes of transaction over rising fuel prices and parking space constraints promulgated the second wave in e-the past decade. The growth of internet and at retail localities. Retailing in the cyberspace commerce as consumers started adopting themobile telephony has reciprocally been has gained acceptance among a section of internet for selection of travel destination andinstrumental in the development of new Indian e-urban population. reservation with regard to the same. Thebusiness models, namely e-commerce. The “online emptor” space is magnifying in a success of the online travel segment helpedGlobal spending in online B2C1 transactions is multitude of activities such as purchase of increase the Indian consumer’s acceptance ofestimated to be about US$1.2 trillion (2012) travel, movie, accommodation reservations, the online media for other retailand the spending in online B2B transactions is reading material, matrimonial services, requirements, leading to the development ofestimated at about US$12 trillion (2012)2. The electronic goods, fashion accessories, and the online retail fora.global e-commerce market has grown rapidly. even grocery. The growth of online retail was partiallyHowever, the growth rate has not been 4 The B2C/C2C e-commerce market has grown driven by the metamorphosis in urbanhomogeneous across jurisdictions, attributed at about 50% CARG5 over the past 3 years to consumer lifestyle and need for convenience.to different market dynamics such as capture a market dimension of approximately Online retail in India developed further withdevelopment of supporting infrastructure, US$9.86 billion in 2011 and the B2B e- the launch of multiple online retail websites.regulatory framework and cultural ethos of commerce market is estimated to be These new businesses were driven bypeople. The USA, UK, Japan and South Korea approximately US$48.8 million in 2011. 6 entrepreneurs who looked to differentiateare the major e-commerce markets with a themselves by enhancing customercumulative market share of more than 50% experience and establishing a strong market(2011)3. presence, collaterally.Emerging markets such as Brazil, China, Furthermore, logistics infrastructure, internetRussia, Mexico and India are expected to penetration, charge card penetration, mobilewitness high growth in the e-commerce sector telephony and mobile wallets, have all helpedsubject to a precipitated economic 4 the second wave of e-commerce Business to Consumer / Consumer to Consumer 5 entrepreneurs in India to develop a successful1 B2C - Business to Consumer Compounded Annual Growth Rate business2 BuddeComm Research 6 “Digital Commerce,” IAMAI reports, March 2011,3 Forrester Research p.4;
Characteristics of the E- of competition and reduction of commission The online classifieds market grew at a CAGRCommerce Market in India structure for travel reservation agents. of 33% (2008-11) and is currently valued at Facilitation of accommodation reservation in approximately US$ 292 million. Owing to theThe B2C e-commerce sector in India can be India is the close target space after travel concentration of keen online advertisers insplit into two broad categories: travel and reservation, given the high commission urban locations, online classifieds are mainly anon-travel. Online travel is the largest B2C e- margins (approximately 25-30%), though the phenomenon of the top 30 to 50 cities incommerce segment in India, accounting for unorganized nature of the small to medium India.approximately 81% of the e-commerce market sized accommodation facilities poses arevenues in 2011. The online non-travel challenges.market is further segmented into e-tailing,digital downloads, financial services and Drivers of E-Commerce in India Analyzing the non-travel, e-tailing market inclassifieds 7 The non travel segment of the e- The discretionary spending in India is India, contributed to approximately US$572commerce market is expected to drive the million that accounted for ~ 6% of the e- expected to rise from 52% in 2005 to 61%next wave of growth, backed by the flurry of commerce sector revenues in 2011. Within e- in 2015 and 70% in 2025. The annualB2C e-commerce platforms targeting all the tailing, consumer electronics emerges as the disposable income per household isniches in the market today. most traded product category online expected to increase at a CAGR of 5.1% accounting for about 50% of all online from 2005 to 2025The fragmented nature of the travel industry transactions.has motivated the growth of the online travel Around 40% of the internet users in Indiamarket in the country. The online travel In bullion driven economies like India Cash-on- are users in the age bracket of 25-34market has grown rapidly at a CAGR of 52% Delivery (COD) payments have helped Indian years, who spend a significant time on thefrom approximately US$1.5 billion in 2007 to consumers overcome their inertia of online internet and also are the workingapproximately US$8 billion in 20118. The OTA purchase. COD has expanded the customer9 population. market penetration has also increased from base of e-commerce companies beyond2.2% in 2005 to 28% in 2011.10 Online ticket The Indian consumer is price-sensitive and charge card users and has attractedreservation is the largest segment in the consumers like students who do not have discounts are a key incentives to purchaseonline travel market with about 90% share of charge cards but spend maximum time on the online.the US$8 billion pie. Online air travel internet compared to other age groups to use E-tailers in India are providing variousreservation is the most prominent segment the media to purchase books, music, software, value-added services such as freewith about 50% penetration. This segment of fashion accessories amongst other products in shipping, product returns, product andthe market faces threat due to an increasing the country. price comparison, user reviews and7 A short ad in a magazine (usually in small print) Group buying has seen a phenomenal rise in demonstration videos, etc.and appearing along with other ads of the same terms of the magnitude of consumers visiting All these factors are driving the change in thetype and availing the group/couponing deals. The preference from offline to online retail among8 ResearchonIndia, & MakeMyTrip limited market size of the ‘deals segment was the Indian population.9 OpenTravel Alliance estimated to be US$76.3 million in 201110 ResearchonIndia, & MakeMyTrip limited
Challenges in Online Retailing - Stocking: Online retailers stock Investments in E-Commerce products by buying them from theThe primary intention of a transaction even suppliers. This results in additional risk sector in Indiafor an e-commerce company is customer The requirement for funds, coupled with thesatisfaction which promulgates offline, which in the form of inventory risk, as well as a need for SKU management and growth potential in e-commerce has made thebrings a certain set of challenges.- warehousing. sector a favorite among venture capitalists - Logistics: Logistics cost in India is - The initial investment required to (VC). The e-commerce sector in India among the world’s highest due to the start an online venture is as low as a attracted an investment of approximately poor physical infrastructure in India, approximately US$10,000-20,000. This US$305 million in 37 deals from January 2011 which has forced online retailer to is making it easier for the entrepreneurs to secure funding to November 2011, which was 454% more develop their in-house logistics capacities easily. This has lead to a flurry of e- than the US$55 million raised from 12 deals in - COD: COD is a double edged sword – commerce players in the market with the sector in 2010. The investments in the e- Though COD assures sales, its little or no differentiation commerce sector accounted for more than implementation adds another layer in - Rapidly changing business models: 20% of the overall VC investments in India in the supply chain in the form of cash Due to heightened competition and 2011.11 Further, deal sizes in the second round handling. It increases the settlement inability to sustain high costs, business and subsequent rounds have more than period between the online retailers models in the e-commerce sector have been changing rapidly. Hence, doubled in 2011, compared to earlier years. and the courier companies to 2-3 weeks, which stretches the cash companies in the e-commerce space collection cycle of online retailer, as need to adapt to changing business well as additional reduction in models and innovate constantly to Future Outlook revenues in the order of 1-2%. sustain their business. The culmination of the e-commerce era in - Tax: Non-uniform and multiple tax - User Location: E-commerce market in India is only at its alpha stage now. The road rates across states in India, has an India is mainly restricted to urban with an inception of novelty has various impact on transfer of goods from one areas, with majority of business challenges to be addressed, and markets to be state to another. coming from urban areas. - Language: Lack of vernacular content tapped. E-commerce in India has hit only the - Touch-and-feel Factor: Most Indian consumers prefer to try/test/sample a on the e-commerce websites is tip of the iceberg. The expansion of internet product before purchasing it. The lack another reason for the low user-base, increased broadband penetration, of touch-and-feel in online shopping penetration in rural areas. introduction of 3G services, smart phone can lead to issues such as wrong - Customer Acquisition Cost: Cost of penetration and progress in consumer ethos product sizes (shoes, clothing, and customer acquisition is high due to have been the key facilitators of growth. India personal accessories) which forms a lack of differentiation and zero looks to widen its e-commerce space with mental barrier for consumers to shop switching cost. improved logistics and physical infrastructure, online. 11 Businessworld.com website
increasing vernacular content, and the massesattitude the market is expected to growmanifolds.About the Author Anirudh has worked as a management consultant, for about 5 years and has had the opportunity to work on several projects for Indian and International clients in the areas of Strategy Formulation, Validation & Implementation, Business Planning, Entry & Expansion Strategy, Feasibility studies & Location Advisory and Market Assessment. His work has entailed, advising several companies across sectors, such as, Telecom, Media & Entertainment, Mobile Value Added Services, Information Technology, Infrastructure & Financial Services, Real Estate, Manufacturing, etc. He has also been involved in a conceptualizing four entrepreneurial ventures; which have given him the exposure to fundraising, funding requirement, negotiations with investors, return appetite for various categories for investors and investments. His most recent venture was in the E-Commerce market in India, some firsthand experiences of which have beenAnirudh Chari highlighted in this article.DisclaimerAll views and opinions in this article are personaland/or have been gathered based on extensiveresearch in the sector and personal interest. Alldata points have been collected through secondaryresearch, informal industry contacts and I have notundertaken any additional work to establish thereliability of the sources or to evidenceindependence of the relevant source. Whereversufficient information was not available in thepublic domain, suitable assumptions were made toextrapolate values for the same.