Zinnov, a leading market expansion and globalization advisory firm, today released a first-of-its-kind study to evaluate the e-commerce industry in India, titled ‘Indian e-commerce industry: riding on high tides’ which covers market conditions and sentiments that drove e-commerce industry in India over the years and predictions on the trends moving forward. The study pegged that the E-commerce industry is largely dependent on growing adoption of smartphones, increased internet users and favored demographic population. It also revealed that 83% of the current e-commerce users in India forecast increase in online shopping. Today in India there are 120 million unique internet users, which is expected to reach over 350 million by 2015. Over 100 million mobile users will have access to 3G/ 4G connectivity. Over 200 million people will be active on social media from the current 51 million. All these factors will lead to explosive growth of the E- commerce industry in India, in the coming years.

1. Indian E-commerce
…Riding High Tides
This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part
of it may be quoted, circulated or reproduced for distribution outside the client Zinnov Management Consulting
organization without prior written approval from Zinnov

2. E-commerce activities in India are rapidly growing
1
Huge existing
opportunity
Estimated revenues of USD 125-160 bn by
2025
6
2
Wide range of marketing
E-tailing to outpace e-
channels used; mobile yet
travel
to be leveraged
Mass-media advertising being Expected CAGR of e-
deployed for brand building; social E-Commerce tailing 4x that of online
media effective in driving traffic India Trends travel
5 3
Managed logistics to Consolidation
prevail unavoidable
E-commerce specific logistic services 4
Focus on profitability VCs getting cautious of
emerging investing; expect consolidation
driving new business
models
Scale to drive profitability; companies entering
multi-category retailing and launching self-owned
brands

3. Huge existing
E-commerce presents an unparalleled USD 125-260 bn opportunity (1/2)
opportunity
Explosive Growth in
Number of people below E-commerce • ~450 Mn smartphone
users to by 2015
the age of 35 to reach
• ~100 Mn 3G users by
828 Mn by 2015 2015
Favored Growing Smart
Demographics Phone Adoption
Growing Internet
Huge Retail Industry
User Base
USD
125-260 Bn • ~376 Mn unique
• ~USD 900 Bn worth
retail sector by 2014 internet users by 2015
• Indian e-commerce revenue
• Current contribution of projected to reach USD 125-260 • Current users: 120 Mn
online sales: only 0.47% Bn for the year 2024-25
• Current revenue: USD 10 Bn
“An e-commerce firm can become India’s largest retailer by 2015”
Vishal Mehta, CEO, Infibeam
Source: Avendus Report; Morgan Stanley Research; Pricewaterhouse Coopers; Comscore
3

4. Huge existing
Consumer preferences echo high growth prospects for opportunity (2/2)
e-commerce
Consumer Perception of E-Commerce (based on survey1)
Frequency of Online Expected Number of Online Using Mobile Phone for
Purchases During Last Year Transactions in the Future Shopping
Multiple Currently
Once in 6 Substantial Do not
times a using
months or less increase want to use
month 25%
22% 29% 32%
23.5%
No
Increase
Once a Some Not aware,
Once in 3 17% Would be
month increase but willing
months using in the
27.5% 54% to try
27% future
7%
36%
• Over 83% of the
• Over 77% of the
respondents forecast an • Over 68% respondents
respondents shopped online
increase in online currently using or willing
at least once in 3 months
purchases to use mobile for online
• Over 50% have shopped at
• Only 3.3% respondents do transactions
least once in the last month
not intend to shop online
Source: Zinnov Primary Survey
4
Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behavior towards e-commerce; the survey was conducted during June-July, 2012

5. E-tailing to outpace
e-travel (1/2)
E-tailing to grow 4 times as fast as online travel
E-commerce Market segmentation
E-tailing growing tremendously; will account for
51% ~50% of the e-commerce by 2015
90% 87% 78%
49%
10% 13% 22% CAGR of E-Tailing = 4x CAGR of online travel
2010 2011E 2012E 2015E (2012E – 2015E)
E-Tailing Online Travel
Category of goods comfortable in Based on
purchasing online consumer survey1
Books 80% More people more comfortable with buying
Travel Tickets 65% books than travel tickets
Electronics 45%
Electronics and Local Deals comparable
Local Deals 43%
0% 20% 40% 60% 80% 100%
Source: Avendus Report; Morgan Stanley Research; Comscore; Zinnov Primary Survey
5
Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012

6. E-tailing to outpace
Major obstacles to e-retailing adoption have been e-travel (2/2)
addressed
Online • Online travel, unlike e-tailing
o required minimal infrastructure investment
Travel vs.
o had a commoditized service offering, helping it take a lead over the latter
E-tailing o zero lag time in order fulfillment built trust
Building Trust
• Trust built by extensive marketing
• Offering fraud-proof options, such as COD1
and easy returns
Discounts Strategic Products
• Product categories, such as
• Discounts driving Why books and electronics,
adoption E-tailing will which don’t require
• 25% - average product Catch Up? extensive touch and feel
discount offered2 driving growth
• Key investments in logistics/ supply chain
• Well supported by 3rd party companies for
pan-India coverage
Logistics
Infrastructure
Source: Sequoia Capital, Zinnov Primary Research
6
Note: 1Cash on Delivery; 2According to Sequoia Capital

7. Consolidation
VCs getting cautious after heavy investments last year – unavoidable
industry expects consolidation
“VCs are investing in e-commerce companies on the high
VC funding - Huge growth in Year 2011
risk-return probability and are betting on finding strategic
Total Investments (USD Million) partners at a later stage to acquire these companies”, —
Srividya C G, Partner, Valuation Services
VC funding has
witnessed a dip since
“Fear of missing the bus in a potentially huge market
November 2011, opportunity is causing a herd mentality among VCs. Around
902 compared with the 3-4 players will emerge winners over the next few years”,
first 8 months of the —Alok Mittal, MD of VC firm Canaan Partners
105 111 year which saw heavy
investments by VCs “Flipkart and Myntra expected to gain 50% market share by
2009 2010 2011
2014”, —India E-Retail Market, Companies Revenue
Analysis & Forecast to 2015, Bharat Book Bureau
Over 800% Recent Acquisitions
growth in VC Off-late, VCs Consolidation
funding from have become unavoidable
2009 to 2011; extra-cautious in the medium
market, then in while investing term;
its infancy, in the industry; acquisitions
witnessed have tightened already
emergence of money supply happening
many start-ups
Source: IAMAI, 2011 Report; Avendus; Press Articles
7

8. Focus on profitability
driving new business
Profitability remains elusive due to multiple hindrances models (1/4)
Expensive • High cost of customer acquisition (~INR 1,500 for online acquisition), and small
Customer basket size hinder profitability
Acquisition • Repeated purchases must to compensate acquisition spending
Capital • E-tailing involves heavy investments into supply-chain and warehouses
Intensive • Companies hold extensive inventory of up to 3 months in-order to get
Business discounts from their suppliers
Key
Challenges
High • In-house logistics require up-front investments while third-parties are
Shipment operationally expensive
Costs • Typically, delivery costs 5-10% of the product value, higher for COD shipments
Focus on • E-tailers burning cash to fuel growth; offering discounts deeper than their
Growth pockets and spending heavily on advertising and marketing
Source: News Articles; primary Interviews with senior stakeholders of companies
8

9. Focus on profitability
driving new business
Scale is imperative for operational profitability models (2/4)
Cost split of a typical SKU1 with ASP2 of INR 1,200
Effect of Effect of
Indicates
Increasing Increasing decrease in
Scale Average Loss Scale cost with
Warehousing and Per Transaction increasing
scale
Shipping Net Loss
INR 150 INR 90
Indicates no
effect of
Packaging increasing
INR 25 scale
COGS3
Payment INR 780
Gateway/COD
INR 35 Total
expense = • Average loss of INR 90 on a typical SKU with
INR 1,290 average selling price of INR 1,200
Discount or
Voucher • On increasing scale, companies can become
INR 300 profitable by reducing the cost of warehousing,
shipping, and packaging, per shipment
Selling Cost of Free Inventory and Gross
Discount Packaging COD cost Warehousing Manpower
Price Item Shipping Write-offs Margin
Books 100% 60% 30% 1% 10% 8% 1% 4% 10% -24%
Mobile 100% 88% 10% 1% 2% 2% 1% 4% 5% -13%
Apparel 100% 65% 15% 1% 10% 4% 1% 2% 10% -8%
Source: Sequoia Capital; News Articles
9
Note: 1 Stock Keeping Unit, 2 Average Selling Point, 3 Cost of Goods Sold

10. Focus on profitability
driving new business
Focus on increasing profitable growth models (3/4)
Money Supply Evolving
Tightened by Business
VCs Models
Growth no more
USD 829 Mn acceptable at the
Turbulence in invested in e- cost of profits Modifications in
Eurozone effecting commerce from operational
economic climate Jan to Oct 2011 Companies cutting strategies and
all across the costs and moving tweaking of
world to performance business models
Only USD 97 Mn in
the between Nov- driven advertising on a rise
Dec 2011
Global Increased Focus
Economic on Profitable
Climate Sours Growth
“It has now become imperative that companies look at metrics they have till now ignored so they at least start chalking
out a road to profitability”—Prashanth Prakash, Accel Partners
Source: News articles; primary Interviews with senior stakeholders of companies
10

11. Focus on profitability
Companies innovating their business models to attain driving new business
models (4/4)
profitable growth
Customer acquisition cost too high to make single purchase profitable
Multi-category • FirstCry diversified from babycare to beauty care products with Good Life
Retailing • Fashion&You diversified portfolio from women apparel to Home décor,
Electronics, Kids’ and Men’s clothing
E-tailers venturing into lucrative space of selling self-owned brands
• Myntra plans to sell its own brand of products by 2013
Self-owned Brands
• Launched by founders of exclusively.in, SherSingh retails products under its own
label
Deals-only websites enter pure-play retailing
From Deals to E- • SnapDeal started selling products after moving into pure-play retailing
tailing "We have seen that after expanding our offerings, the frequency of purchase has
gone up significantly.”— Sandeep Komaravelly, VP Marketing, Snapdeal
E-tailers acting as digital storefronts for suppliers who stock and ship
Offloading • Aaram Shop tied with local retailers to fulfill customer orders; revenues from ads
Shipment to • Drop shipping: Under the model, e-tailers forward customer orders to their
Suppliers suppliers for a margin and offload shipment to them, thus saving logistics &
warehousing costs
In addition to bulk buying and bypassing intermediaries, companies actively buy
off-season products for availing deep discounts
Opportunity Buying
• “We actively buy off-season goods, typically available at 30-50% discount
compared with fresh stock” – Senior Manager Operations, Leading Indian E-tailer
Source: News articles; Zinnov Analysis
11

12. Managed logistics to
prevail (1/3)
Upfront investment in in-house logistics is hard to justify
In-house Third-party
Parameter
Key Parameters
Logistics Managed Logistics
In-house logistics require heavy upfront
Capital Expenditure
investment
Logistic networks of third-parties reach
Last mile Access
the farthest corners of the country
Expertise in Experience and expertise of specialist
Operations third-parties is hard to copy
Agility to Respond to Easy to modify logistic strategy and
Dynamic Market switch partner with third-party logistics
Operational Risk & Financial & management resources
Requirement of needed to run in-house teams; additional
Management operational risk assumed
Managed services are generally costlier;
Delivery Cost
may change with industry growth
Source: Primary Interviews with senior stakeholders of companies
12

13. Managed logistics to
prevail (2/3)
E-tailing headed towards outsourcing model?
Telecom Industry BFSI Industry E-commerce Industry
(2004 to Present) (2010 to Present) (2011 to Present)
Telecom companies
Key functions
outsource
including ATM E-commerce logistics
infrastructure
installation and – a prime candidate
installation and
management, and IT for outsourcing
management, and
solutions outsourced
IT solutions
Is e-commerce headed
towards managed
Logistics?
Source: News articles; Zinnov Analysis
13

14. Managed logistics to
prevail (3/3)
Managed logistic services to prevail
Specialist e-commerce logistic companies,
such as Delhivery, Chhotu, and Holisol,
In-house emerging
logistics teams
catering only to
a few metros1
Emergence of
Poor Access E-commerce
Through Specific Logistic
In-house Teams
Services
Tier-2
onwards cities
accessible
almost
exclusively by Existing logistic providers, such as DTDC, are
third parties2 creating separate arms for catering to e-
commerce business
Note: 1Only exception is Flipkart which has in-house teams in about 27 cities; 2Most companies use India Post for accessing customers unreachable through private logistic players, such as
DTDC, Gati and Blue Dart | Source: Primary interviews with senior stakeholders of companies; Zinnov Analysis 14

15. Wide range of marketing
Mobile offers much higher potential than currently channels used; mobile yet
to be leveraged (1/3)
leveraged
Based on
consumer survey1
High Willingness
Limited Penetration
Over 68% of Only 6% of the
respondents respondents
willing to shop using their
online through mobile often
mobile to shop online
Small screen
(48.7% respondents)
• Reduces visibility and usability
Deterrents to
Slow internet
(41% respondents)
• Low 3G penetration of 4%
Mobile
E-commerce
Unavailability of
• Most retailers don’t have mobile
apps/mobile websites
(31% respondents) apps or mobile friendly websites
Source: E-commerce consumer survey conducted by Zinnov
15
Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012

16. Wide range of marketing
Social media is effective in directing web-traffic to channels used; mobile yet
to be leveraged (2/3)
e-tailers
Industry Trends Consumer Insights (Based on
Survey)
• Heavy advertisement through social • 50% respondents of survey purchased/ visited
media by e-tailers such as Myntra, an e-commerce site through social media
Valyoo Technologies and Jabong • 44% respondents of survey influenced by
Social Media friends and colleagues
• Ads targeted towards traffic
generation as opposed to brand
building
• Specialized teams to monitor Snapdeal’s
customer reviews for any negative Facebook Page
posts
Consumer
• Players approach the authors and • 70%+ respondents influenced by consumer
Reviews try to address their issues reviews to a large extent
• Customer reviews most influential while
• Negative SEO techniques used to purchasing electronics
suppress unfavorable reviews
Source: Primary Interviews with senior stakeholders of companies; E-commerce consumer survey conducted by Zinnov
16
Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012

17. Wide range of marketing
channels used; mobile yet
Focus on mass-media for brand building to be leveraged (3/3)
Industry Trends Consumer Insights (Based on
Survey)
• Leading e-tailers, such as Myntra,
Jabong and Flipkart, using TVCs, print • 71% of the respondents cited ‘Reputation and
Trust’ as a major factor in decision making
media and out-of-home promotion
Mass Media • Stakeholders believe mass media to
• 63% respondents directly explored e-
commerce sites to research about an online
Advertising be most effective for brand building purchase; driven completely by brand recall
• Ads focused on building trust;
highlight easy return policy, money Flipkart
back guarantee and COD TVC
Myntra
• Most companies deploy SEO and Outdoor Ad
SEM techniques for traffic
Online generation
• 47% of the respondents initiate their first visit
Marketing • However, online customer to e-commerce sites using search engines
acquisition remains costly, with each • 52% respondents use search engines while
costing ~INR 1,500 researching about online purchases
Source: Primary Interviews with senior stakeholders of companies; E-commerce consumer survey conducted by Zinnov
17
Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012

18. Thank You
@zinnov
info@zinnov.vom www.zinnov.com
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organization without prior written approval from Zinnov