Monday 27 April 2015

The curious case of India's e-commerce

 E-commerce has lately become a keenly watched sector in India, especially with a handful of home-grown successful ventures being valued at billions of dollars. While domestic players Flipkart and Snapdeal rule the market, the sector has also caught the fancy of global giants like the US’ Amazon and China’s Alibaba — all are competing hard for a bigger share of the cake.
The country’s e-commerce market was worth $2.3 billion in October last year and retail consultancy Technopak has estimated its value will increase more than 10 times to $32 billion by 2020. More, since the online market at present accounts for less than five per cent of India’s retail business, there still is a huge untapped space in e-commerce. The $15-billion valuation that Flipkart is eyeing in its next round of funding seems to reflect this potential, and aspirations of the existing and start-up e-commerce ventures.
Flipkart co-founders Sachin Bansal and Binny Bansal (not related to each other) today are role models for India’s aspiring entrepreneurs — mostly millennials — hoping to make it big in e-commerce.
But it was not the Bansals or the now-successful e-retail companies that ushered in India’s e-commerce boom. Way back in 2000, a handful of shopping sites like Rediff Shopping, Yahoo! Shopping, Indiatimes Shopping, Sify Shopping and HomeShop18 were doing roughly the same thing.
In fact, India’s e-commerce potential as we know it today was first spotted by the $18-billion (revenue) US firm eBay, which entered the country in 2004 — three years before Flipkart’s low-key start as an online bookseller — by acquiring local auction platform for about $55 million. It was eBay that brought the concept of online marketplace, where sellers and buyers engage directly.
However, neither eBay nor the hit shopping sites of the 2000s could get a first-mover advantage, despite their healthy parents, technology, favourable business model and brand equity — they were ahead of their time, say some experts. At the time eBay entered India, less than 10 million people in the country had access to the internet, and most of them were wary of shopping online, for want of clarity and trust.
All those shopping sites, as well as eBay, continue to operate in India but do not figure among top e-commerce players. All of these companies had lost the plot by the time e-commerce (as we know it today) took a shape here.
In an interview last year, eBay India Managing Director Latif Nathani had conceded his company not in the “valuation game” despite having the largest number of sellers on its marketplace. According to its filings with the registrar of companies (RoC), eBay India’s revenue stood at Rs 81 crore in 2012-13, about 60 per cent higher than the previous year.
By comparison, Flipkart was reported to have grown about 476 per cent in value of goods sold during the period. According to market estimates, eBay India sold goods worth Rs 1,000 crore in 2013, not much less than Flipkart’s Rs 1,180 crore that year. But their growth rates varied vastly.
Details of other shopping sites — Rediff Shopping, Yahoo! Shopping, Indiatimes Shopping, Sify Shopping and HomeShop18 were not available, as their parent companies did not give break-ups of their shopping portal business.
Things seem to have changed dramatically in the past few years — definitely a lot since eBay’s entry. Today, India has more than 94 million broadband users, and an internet-connected population of close to 300 million. Of them, about 39 million shop online, according to an April research report by consulting firm AT Kearney.
Milan Sheth, partner & technology sector leader (advisory services), EY, says there are several reasons why traditional e-commerce firms might have lost out. “These sites were positioned more as content providers or at best platforms for digital advertising. They never marketed themselves as e-tailers aggressively. Their product range was limited, because they did not collaborate with a wide range of suppliers and brands. Also, payment options were limited.”
PricewaterhouseCooper’s India technology sector leader, Sandeep Ladda, believes one of the key reasons for the failure of shopping sites from the pre-boom era was that they were “more focused on sellers than consumers”. Other challenges were limited ability to carry out product quality check and very limited product catalogue.
“There was no control on serviceability and product fulfilment cycle, and the focus was only on getting the user to transact. The actual inventory owners were responsible for shipping but did not have interactions with the user. With the user being directly involved with the website alone, there were increased communication gaps and information leakages. From a business perspective, most of these players were more of technology or internet media companies, with limited exposure to retail, and lacked defined organisational structures to operate intricate retail processes in-house,” adds Ladda.
According to EY’s Sheth, those like Rediff, Indiatimes and Sify did not evolve their business models with the internet-mobile revolution. “They did not make any investments in understanding the consumer behaviour and adapting their offerings to suit them. Their failure to build an ecosystem around online shopping in terms of suppliers, payment options, logistics, and to understand and target customers effectively, led these companies to losing out to new-age, dynamic, focused e-commerce companies like Flipkart.”
Another reason for the huge success of e-commerce companies in India is introduction of the ‘cash on delivery’ option, which helped e-commerce companies gain consumer trust.
When contacted by Business Standard, Rediff, Sify, Yahoo! and Indiatimes said they did not wish to comment.
HomeShop18 founder & CEO Sundeep Malhotra says “mobile and web are complementary and supporting channels to television” for HomeShop18. “The television business is profitable, and we are recording strong sequential growth of nearly 100 per cent on our mobile platform. The reach of TV in India continues to be 8-10 times that of internet. So, TV Home Shopping will ensure mass reach and high volume sales, while the web business will continue to attract the more discerning digital consumer,” adds Malhotra.
Ladda says, in the past decade or so, there have been several changes in consumer behaviour with respect to buying, especially in Tier-II and –III cities. “The convenience of sitting at home and comparing prices, features and products has brought new dynamics to the shopping experience.”
The increase in disposable income levels has led to bigger online order sizes, and changes in lifestyle. Shoppers prefer online channels to physical ones, for saving time and wider variety, says Ladda.
At the same time, growth has been driven further by a rapid proliferation of technology — increasing adoption of devices like smartphones and tablets, and access to the internet through broadband and 3G data connections. Another fillip is likely when 4G telephony becomes a reality. These enablers were not there when the original shopping sites had started their operations back in the 2000s.
The big difference now is that the competition is too intense and almost all players are capable of spending big. While the first-movers could not reap the benefits of early start, it might still not be too late, given that all of them are still operating.

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