India’s low online buyer base – big concern but huge potential

India’s internet base nearly doubled this year and will continue to rise in the coming years too. Not just in urban cities, but even in rural areas.

In spite of that, only 10% of the internet users shop online. This snail pace growth has become a major cause of concern for ecommerce players.

Internet penetration growing, but slowly

The estimates for online shopper base by 2016 were much higher. But small and big players are disappointed that the growth is slower than what industry watchers had predicted.

Experts feel that this miscalculation and exaggeration of ecommerce market size has resulted in failure and huge losses. One such example is the recentdevaluation of Flipkart and FY15 loss figures of top marketplaces.

Manish Chopra, CEO of Little who had ambitious plans for its app-only marketplace stated, “I honestly believe the market is not as large just yet. Seven to eight months back the entire scale of what we believed to be the 4G rollout was very different. There is no 4G rollout, right? Fundamentally the whole game of 40 million (transacting users) is right now at half of what it should have been. I don’t think that Internet penetration, good quality broadband, is scaling much beyond these big cities yet. That’s my current constraining factor.”

Patchy internet connection is the main culprit

Agreed, that at present internet is available to a large number of urban and rural Indian customers. However, quality of the connection matters for browsing and completing online transactions. Etailers are trying every trick in the book to encourage digital payment. But bad internet connection often leads to transaction failure, which is hurting ecommerce businesses.

“If you look at the scenario, More and more people are taking to online payments and doing most of the transactions. There were concerns of security and privacy, this has been mitigated to great extent The uptake is slow because the internet connectivity is really patchy. It is a pain point. Once you reach the gateway, the transaction fails. Many people are not trying to transact online. What do you do when you reach the gateway and the transaction fails”,asserted Nilotpal Chakravarti, Associate VP – Internet and Mobile Association of India (IAMAI).

This spells potential

The only way is up for Indian ecommerce. If only 10% online shoppers can disrupt traditional retail industry, then etailers feel that the online industry is only going to get better from here on.

Radhika Agarwal, co-founder of Shopclues said, “There are 300 million smartphones of which 50 million are transacting online. We expect 40 per cent of smartphone users will transact online e-commerce in 12 or 18 months. The growth is slower than expected, but it is very much there. Indian consumption habits are changing and people are adopting e-commerce like fishes to water.”

Pessimists might want to focus on the current slow growth but optimists believe that this only means huge potential is waiting ahead. Indian government’s Digital India initiative coupled with ecommerce leaders’ aim to build a healthy Internet ecosystem will ensure that the Indian ecommerce industry continues to grow.

“It (lower number of transacting users) is an opportunity, not a concern. The concern is the business model of startups. Raising capital and making losses is not the right business model,” affirmed V Balakrishnan, Chairman – Exfinity Venture Partners.