Future-gazing: E-Commerce in 2016

E-Commerce has become one of the undisputed mainstays of the Indian economy and the sector is poised to grow at a 41% CAGR over FY15-18E, according to a recent Goldman Sachs report. Our sense is that within a decade, India's consumption GDP will be $2.5 trillion, of which, 10% will be online and e-commerce will play a definitive role in addressing this $250 billion consumption gap. Therefore, starting 2016, the Indian e-commerce sector will need to recalibrate its focus on a long-term vision to ensure business scalability and profitability. Businesses will have to ensure bringing in innovative consumer-centric solutions to provide an enhanced experience for all stakeholders. In the process of laying the future roadmap to create the most impactful digital commerce ecosystem, there are four focus areas which will require special attention - digital payments, O2O and Omni channel, vernacular interfaces, and predictive analysis.

Digital Payments Creating Value Added Transaction Experience
From card on delivery to greater adoption of digital wallets, payment has become an active playground for e-commerce players to ensure value added transaction experiences. Focusing on improving customer experience, 2016 will see introduction of more efficient digital payments solutions. One impact of this will be on the financial supply chain and refunds mechanism. Banks are already assisting in building this through IMPS transactions that allow bulk refunds to be processed faster, even allowing under one hour refunds in certain cases. In 2016, faster cash transaction solutions will be developed for sellers and merchants as well. For instance, banks can collaborate with e-commerce logistics partners to strengthen financial supply chain. This will allow faster collection and entry of cash in the banking system as well as efficient technology integration for its early disbursal to marketplaces, and thereby the seller community. 

At the same time, forecasts that suggest the mobile wallet market in India are expected to reach US USD 6.6 billion by 2020 (India Mobile Wallet Market Forecast and Opportunities, 2020) indicate greater adoption of wallets as a simplified and secure digital payment option. With various payment solutions such as HCE (Host Card Emulation), NFC (Near Field Communication), BLE (Bluetooth Low Energy) and QR (Quick Response) code, digital wallets have already created value through single touch and secure payment solutions, cashback deals, among others. The future is in solutions like 'On the go Pin' which are not only compliant with RBI's two-factor authentication mandate, but also faster and safer than existing technologies like MPIN, by-passing the need for OTP in online and offline commerce. 

O2O and omni channel: Fostering integrated commerce experiences
Retailers and marketplaces are increasingly recognizing the need to reach on-the-move customers through multiple entry points - web, wap, app and in- store - as consumption patterns evolve. A robust omni-channel programme will help e-commerce players integrate in-store and online product discovery and delivery, creating value and loyalty in customers. A significant number of consumers in India still prefer the touch and feel aspect of offline commerce. Online to offline commerce is in a unique position to cater to diverse consumer demands and buying behaviours. Since technology is such an integral part of an intuitive O2O experience, marketplaces can start by focusing on data integration and pre-emptive analysis to deliver differentiated experiences at unique points of access.

In fact, a series of strategic engagements that go into building successful models of hyper-local delivery, Click and Collect commerce and service assistance will be designed on a strong foundation of simplified technology solutions. Examples of these engagements are already being seen in categories like Automobiles, Apparel and Real Estate. But with more brands accepting the need, we will see an increase in cases of omni-channel outreach.

Recognizing value in Vernacular: 
With the rapid growth of e-commerce businesses, the sector will have to start looking at the untapped segments of Indian population to increase market share. According to an IAMAI (Internet and Mobile Association of India) report, out of India's 259 million internet user base, 127 million internet users from the Tier 2 and 3 geographies are yet to come online due to the language barrier. Yet the consumption needs for this pool are as diverse and as strong as their English-speaking counterparts. This creates potential to open up the ecommerce industry to an untapped market - estimated to be more than 100 million internet users. The next growth area, we feel, will be in developing language-based interface solutions, back-end support and customer engagement teams to create an experience unique to vernacular audiences. Recognizing the potential,Snapdeal became the first e-commerce marketplace to launch a UI in 11 regional languages. This is only expected to drive trends in e-commerce, bringing the remotest areas in the country under financial inclusion through digital wallets. A cashless economy can very well be the future. 

Innovation will ride on simplification and predictability:
A worthwhile commerce experience is dependent on ease of discovery, purchase and delivery. Placing the customer at the centre of innovations will allow for blending various aspects of user experiences across multiple platforms, channels and apps - a string of pearls impact. This is both a reflection of, and an impetus to, the way e-commerce engagements will develop as the sector matures. One aspect of this is the experience of a customer when he engages with a brand or platform. The intuitiveness of an interface is the first stage at which impactful interactions can happen with customers. The spate of innovations like more efficient product discovery, greater integration of social platforms to mimic peer-influenced purchase decisions, replication of offline browsing experiences are all steps in the direction to make a great first impact. Now, an important focus area for e-commerce marketplaces will be real-time addressing of consumer pain-points which predominantly rest on lack of trust and inconvenience. On the technology front, this can be delivered through solutions like pre-emptive and stringent product quality checks that will enable better addressing of fraud. 

Deploying Big Data insights and Predictive Analysis have been key factors in how e-commerce players have strengthened customer engagements. In fact product recommendations to customers and business solutions for sellers have relied on recognizing insightful patterns in consumer preferences. Yet the scope of data analysis is grossly under-tapped, especially in context of process management. E-commerce businesses in 2016 will engage more strongly with the Data Analytics to manage their back-end solutions. If we observe the ecosystem today, logistics partners and marketplaces have begun driving better process by more efficient tracking of products; predicting demand surges, especially on high online-traffic days and also smartly managing bottlenecks in assembling and delivery.

Online commerce is set to reach greater heights because of the significant investments that are going into strengthening its supporting ecosystem. Businesses that will work towards transforming various elements of the value chain will enable the establishment of a sustainable e-commerce sector. Hence, factors like digital payments, O2O commerce and pre-emptive and simplified technology innovations will drive value for customers and sellers alike. As the sector evolves, focused executions to transact and engage in vernacular, will help shift a further chunk of retail transactions online. Digital commerce is poised to create further disruption in the Indian market landscape, and these developments will eventually play a critical role in strengthening the economic growth of the country.

2016 will be the year of mobile eCommerce in India, predicts Anthony Hearne, Sea and India Regional Director of the world’s largest online content discovery platform

 E-Commerce has boomed in India over the past couple of years primarily due to the rise in mobile Internet access and improvements across payment and delivery infrastructures. India is also seeing tier-II and tier-III cities showing strong momentum for eCommerce with an increased demand and appetite. According to a recent study by e Marketer, Asia Pacific leads the world in terms of the number of retail companies moving to eCommerce. In India itself, there were an estimated 82.3 million digital buyers in 2015, making it the No. 3 market for eCommerce in the world. 

Another study by Deloitte earlier this year pegged the value of the eCommerce market in India at $16 billion for 2015 - that's a staggering 300% increase from $4 billion in 2010. It is expected that eCommerce in India will grow from today's' $16 billion to a $50-$70 billion market by 2020. 

So what led to the growth and will 2016 continue to hold the momentum? Whatever the answers might be, there is no doubt that eCommerce is going to drive the growth of India's economy. Anthony Hearne, Regional Director, Sea and India, Outbrain discusses five digital marketing trends that he predicts every eCommerce marketer should watch out for in 2016. 

1. 2016 will be the year of mobile eCommerce in India. No REALLY this is the year! 

A surge in the number of smartphones and Internet users is boosting eCommerce, and the rise in content marketing is directly linked to this trend. A recent study conducted by us at Out-brain shows that Indians are consuming 41% of their content through smartphones, 76% of which is consumed on Android phones. 

Thanks to Android-based platforms, even low-income segments are able to afford a smartphone, which acts as the Internet device of choice. Brands are increasingly using content marketing to engage with their audiences on mobile, and convert readers into buyers. As part of this trend, m Commerce will swiftly take over eCommerce with many predicting that by the end of this year more than 50% of total online orders will already come from mobiles instead of desktops. Myntra, a leading Indian fashion retailer, has declared that they will be shifting their marketing efforts from desktop to mobile-only by the end of this year. Another leading Indian eCommerce player, Snapdeal, has experienced a 90% growth in 2015 with 65% of its orders delivered through mobile. 

2. Messaging apps are the next big thing 

Messaging apps are the next big thing and their potential impact on the content publishing ecosystem shouldn't be underestimated. In terms of sheer numbers, the world's 4 leading messaging apps now have as many monthly users as the top four social platforms. And they're growing much faster. 

Significantly for publishers, messaging apps are used for much more than messaging: users consume and share videos, photos, content and news. And increasingly, they're emerging as platforms for eCommerce. In China, Weixin, the local version of the WeChat app, enables 600 million people each month to book taxis, check-in for flights, play games, bank, make doctor's appointment, video conference call. Facebook's Messenger is following suit. 

Messaging apps provide enormous potential for publishers - and brands - to embed themselves in their customers' mobile lives. 

If you have not seen the content experience in Snapchat (yes, SnapChat does editorial content) do yourself a favour and have a look at the 'Discover' section. Publishing brands like CNN, Buzzfeed and Mashable have produced customer content experiences on the Snapchat platform that creates some great new opportunities for brands to connect with an audience. 

3. Tier-II & Tier-III cities will drive the highest growth for eCommerce in India 

For most e-tailers, 50% of their revenues is already coming from tier-II and tier-III cities. 

Various studies have pegged the size of the Indian middle class between 350-400 million people, out of which approximately 100 million people live in tier-II and -III cities like Lucknow, Jaipur, Ludhiana and Gurgaon. According to one of these studies, the highest demand for online retail comes from approximately 4,000-5,000 towns and cities in India, but there is no significant presence of physical retail in almost 95% of these locations due to high real estate costs, which limit organized retail from expanding. 

4. Steady growth in use of videos as a key content format 

Brands are investing more and more in video content, and it's not difficult to understand why. Video engages more of a human being's senses, and it can be a great vehicle for delivering a message and connecting with an individual in a short amount of time. As journalist-turned-Content Director for Visa, Kris Leboutillier puts it, "Nobody ever tells me they want a 1,000-word article." Also, video is highly shareable. 

There has been a phenomenal growth in the use of video content and this is set to continue in 2016, particularly across mobile platforms like YouTube, Facebook and Outbrain. Video allows greater engagement, enjoys lower bounce rates and is able to showcase products in multiple scenarios. 

A report from Q2 2014 by online video technology platform Ooyala stated that mobile video views had increased by 400% in the previous 2 years. Another study by Cisco has also predicted that online video will grab a 80% share of total internet traffic by 2019. 

5. Rise in Content Marketing 

Marketers cannot revert back to the historically popular tactics of push marketing. In fact, in 2016 brands will be spending a lot of time creating more relevant and inspiring content than ever before. 

Smart eCommerce and well executed Content Marketing complement each other and ensure that there is engagement between brand and consumer at multiple touch points throughout the purchase cycle. It is true that digital as a discipline still forms a relatively small part of overall marketing spend in India and that these are both (rapidly) evolving areas. But, as advertising becomes increasingly targeted and personalized, and brands strive to find better ways to connect with their target audience, Content Marketing will continue to evolve and become the key to their future strategies. 

Landmark Group launches e-commerce website in India

BENGALURU: Landmark Group, Dubai-based retail conglomerate, which owns Lifestyle and Max chains, has launched its India-specific e-commerce website landmarkshops.in. 

"With this we look forward to expanding the market of these brands (Lifestyle and Max) by making them accessible to customers across the country, including the cities where these brands have yet not established a physical presence", said Kabir Lumba, managing director of Lifestyle International Private Limited. 

Lifestyle is a Rs 5,000 crore retail apparel brand which is expected to become a Rs 8,500 crore company in the next three years. Max, on the other hand, is a Rs 1,800 crore and growing at the rate of 38% CAGR every year. 

This move is also expected to help the brand's omni-channel strategy in India, wherein a customer can shop online from offline stores and get the product delivered according to his preference and more. 

As per the company officials, LandmarkShops in UAE grew by 208% year on year in their second year and has already crossed 100% in the first half of the third year. "The Indian E-commerce market is both massive and hyper-competitive. We plan on growing rapidly, achieving profitability as soon as possible," said Savitar Jagtiani, Business Head - Ecommerce, Landmarkshops.com. 

According to a PwC report, by 2020, online retail in India is expected to account for 3% of total retail. Further, orders per million are expected to more than double from five million in 2013 to 12 million by 2016.

Gorilla warfare: The impact of the shifting desi e-commerce landscape

There's a battle brewing in India among the four King Kongs of e-commerce, one that will hugely impact online retail in the country. Four unicorn companies--Flipkart, Snapdeal, Amazon and Paytm--are duking it out to become the regional leader in a field where the final outcome is far from certain. The King Kongs have armed themselves with billions in funds in this battle for survival. Too bad only one will live.

Flipkart, a Desi startup worth $15 billion, raised $700M in July but had been operating at a burn rate of $50 million per month. Even as investors are pouring hundreds of millions into Flipkart, the company is losing its market share. Stagnation indicates the founders may not be able to scale their company long-term. In fact, Flipkart's founders have cashed out millions of their shares and are investing in other startups. The captains are abandoning ship and employees are wondering why they aren't being given a life vest. In a dramatic move to win employee favor, Flipkart recently became the first company in India to sell a stake of its employee trust fund.

Flipkart in 2015 aimed to "double the gross merchandise value of the products sold on its platform to $8 billion," according to the Evening Standard.

Amazon, at the same time, promised to spend $2 billion in India, a number frequently mentioned whenever Flipkart's future is discussed. While both companies are equipped with sizable resources, Amazon has an unparalleled two-decade advantage on the Indian startups when it comes to building technology and staff. Though Flipkart is hiring high-priced executives from Google, Twitter and the like, this strategy is simply a Band-Aid applied on a far more chronic ailment.

A different story is unfolding at Snapdeal. The company announced a $206 million loss in the 2015 fiscal year, which led employees to show their disenchantment with their feet. The company most notably lost its CFO and CTO in 2015.

But, this isn't the full picture. While Snapdeal is burning funds rapidly, they, unlike Flipkart, are actually adding customers every month. It appears Snapdeal has learned how to scale without spending too much per customer. The best measure of a business model, after all, is not how much money the company spends, but how much it accomplishes with the money spent.

Finally we have Paytm, which differs from the other Indian startups in its relationship with that other e-commerce titan, Alibaba. The company's main play in e-retail is as a mobile payments platform, but Paytm's role is changing with the expansion of its online marketplace.

Snapdeal, Amazon and Paytm are in an advantageous position: their wealthy backers have less power to force change than, say, limited partners would. There are several ways this fight for regional control could play out, but I think one scenario is most likely.

Given Amazon's global dominance and Flipkart's golden valuation, the first two gorillas to shift position will be Snapdeal and Paytm. As it stands, both companies are competing on three fronts: with each other, with Amazon, and with Flipkart. Snapdeal's and Paytm's best strategy is to pool their money and knowledge. The financial backers of Snapdeal and Paytm have a close relationship. Snapdeal's largest investor is SoftBank, while Paytm's largest investor is Alibaba. SoftBank is the largest investor in Alibaba. Both companies want to win in India and this new, merged company--let's call it SnapPay--will help them better compete with Amazon.

The creation of SnapPay will render Flipkart the new underdog in the Indian e-commerce landscape. SnapPay and Amazon will logically seize on this opportunity, flanking Flipkart and squeezing the company out. Tiger Global Management, the current financiers of Flipkart, will face millions in losses every month until they finally acquiesce to market pressures and their limited partners' demands and sell the business. Flipkart will almost certainly go to Amazon, making the ultimate battle for dominance one between Amazon/Flipkart and SnapPay.

Since we're at least several months away from this final showdown, perhaps a better question to ask now is: What does the narrowing of the field mean for the Indian e-commerce landscape in general? In the U.S., many of the top e-retailers have been bought by Amazon, which most notably acquired Zappos in 2009.

Whether it's Amazon/Flipkart or SnapPay that comes out on top - I personally think it will be Amazon - the biggest winners will still be Indian consumers, who will be able to experience convenience, choice and transparency in price never before available in the country. The rise of e-commerce will allow India to leapfrog from "Kirana stores" to online retailers without the need for big box stores like Wal-Mart and Target.

This battle will provide the opportunity for tens of thousands of Indian workers to improve their skills and fuel the startup revolution in India.

Further, the government shouldn't feel the need to artificially protect Desi companies like Flipkart from failing. Doing so would eliminate the competitor advantage that is absolutely critical to innovation. These founders and employees have competed against the best in the world and will only go on to do bigger and better things.

End game for E-commerce bubble?

As per data furnished to Hong Kong Stock Exchange, it showed that E-retailer Snapdeal's loss rose from around Rs 270 crore in FY 2014 to nearly Rs 1,350 crore in FY 2015 as the company shelled out $25 million (over Rs.150 crore) a month as discounts and marketing expenses. Meanwhile Snapdeal's valuations  have risen from around $2 billion to $4.7 billion in a matter of one year.

 

 

Flipkart reported a loss of Rs 400 crore in FY 2014, according to filings with Registrar of Companies (RoC). The company's loss has quadrupled to nearly Rs.2000 crore in 2015, as per market reports. Meanwhile Flipkart's valuation has shot up to a mind-boggling $15 billion as it commands the largest market share of 44% in India.

 

Amazon India clocked a net loss of about Rs 320 crore for its first year of operation of 2013-14. However, its parent Amazon Inc has surprised the Wallstreet by posting a profit of US $ 79 million during Q3 of 2015. Amazon Inc’s cloud computing business is the single biggest reason for its surprise profits in Q3 of 2015, as e-commerce is still struggling with losses. 

 

Flipkart, Amazon and Snapdeal have been engaged in a fierce price war in a bid to attain a bigger slice of the Indian e-commerce market. Handsets from Micromax regularly get sold online at 20% below wholesale prices. “If I sell at 20% off, I would lose money,” said Vikas Jain one of Micromax’s founders.

 

As a result of heavy discounting of prices to build turnovers or Gross Merchandising Value (GMV), all the above three E-retailers are currently running in huge losses.These E-Commece retailers also spend extravagent amounts to expand their product range, build massive warehouses, hire thousands of people and splurge lavishly on advertising to attract customers and win market share.

 

E-commerce retailers are making operating losses as high as 30%. The only reason they are staying afloat is because of the multiple rounds of funding extended by private equity (PE) players.

 

E-Commerce companies in other verticals have similar stories. Pisces eServices, which operates Foodpanda, recorded a loss of Rs.36 crore on revenue of Rs.4.8 crore in FY 2014-15. It has recently fired 500 employees out of its total 1300 odd employees.

 

Fashion and lifestyle etailer, Jabong's loss for the first six months of 2015 jumped by over 46% to Rs 227 crore compared to Rs 155 crore loss a year ago period. This was primarily owing to heavy discounting to compete with rivals like Myntra.

 

"Offering lower prices will not be viable in the long term. Despite luring customers in the initial stages, lower prices won't be able to retain customers in the long run" as per a research report on retail industry by PwC India.

 

The mute point is whether any e-commerce company in India has built, or is in the process of building a business model that can generate profits? The question in everyone’s mind is how long these companies will bleed before they decide to change their business model.

 

The added risk to the E-Commerce players is that Bricks and mortar big daddies like Tatas and Reliance are preparing to disrupt the market.

 

It is high time that the Ecommerce firms recalibrate their strategies and ensure that profitabile growth is the new game. “One cannot say that today I will grow and tomorrow I will make money. Both growth and making money have to happen simultaneously” as aptly put by Ashish Shah, co-founder of online furniture firm Pepperfry.

 

Private equity players are wondering whether they are sitting on a ticking time-bomb of overvalued ecommerce companies which may show massive growth, but their equally massive losses have to be funded from capital infused by the PE players. Hence PE investors are seeking consolidation among the E-Commerce companies to reduce their losses and put them on a profitable path. E-Commerce companies need to compete based on service, technology, product range, cost-effective business models (Viz., moving from an inventory model to a marketplace one) etc rather than depend on unsustainable price-wars.