State of Ecommerce Ventures in India – The Road Ahead

India’s e-commerce Market

15a5b43India is better known for its bustling bazaars and colourful open-air markets, but in just five years the e-commerce market in India has grown over 600%, from $2.5 billion USD in 2009 to an incredible $16 billion USD in 2013. This exciting trend will continue, with research from the Associated Chambers of Commerce and Industry of India (ASSOCHAM) projecting the e-commerce market in India to reach a value of $56 billion over the next decade.

India’s e-commerce market is still in its infancy – online retail is now only 1% of the country’s retail market. Travel is the most popular e-commerce sector, accounting for about 70% of online purchases. Consumer goods, particularly fashion and electronics, are a close second.

Figures show that India had 213 million internet users at the end of last year – a number that is likely to grow to 243 million by this June. This increase would make India a global leader in internet usage, second only to China’s 600 million internet users.

The downside to this of course is low Internet penetration (8%) and the credit card population which is less than 5%. Both these segments are not growing at a jaw dropping pace. Add to this the high cost of customer acquisition and free shipping.

One of the biggest pain points of e-commerce websites is customer acquisition. Before they can even worry about converting a visitor to a customer, they have to think about how they can get that visitor on the site. A few larger e-commerce sites are big enough brands to receive some direct traffic. For example, plenty of online shoppers navigate directly to Amazon.com when they’re thinking about making a purchase. But if you’re operating in a niche category, you’re likely not getting a lot of type-in traffic from people who know your brand and come directly to you to buy from you online.

With the growing consumer acceptance of e-commerce and a difficult business environment, brands and businesses are all greedily eyeing the e-commerce opportunity.  But if the percentage of total retail is closing in on double digits in some countries, the e-commerce model is still learning its way for the majority of us. Businesses are needing to figure out if and how to integrate e-commerce into their existing business strategy. Some startups have the opportunity to begin from the start as a ‘pure player’; but, this is not necessarily an easy route.

The main analysis in setting up an electronic commerce site must focus on three key pillars areas:

  • Set up the right fit with the brand image
  • Align with the company’s culture
  • Consider the fit/mix with the existing

Here are nine different e-commerce business models

  • The Single Brand: This is when a brand decides to create its own e-commerce site, à la Hermès or Louis Vuitton.
  • Marketplace:  An e-shopping Mall with multiple brands and categories.  Examples: Amazon, eBay, snapdeal, OLX.
  • Vertical marketplace: An eShopping mall on a specific segment.  Examples: Lenskart, cardekho(cars), Zappos (shoes), Diapers.com, OneStopPlus (plus size fashion).
  • Community marketplace:   Built around a lifestyle, a community marketplace involves identifying and galvanizing a shared mindset. Examples: Etsy, Craigslist, ModCloth (Indie/Retro/Vintage clothing), SkullCandy (earphones & headphones).
  • Flash Sell marketplace:  The concept is creating pent up demand to be bought at specific time slots, and sometimes in limited series.  The majority of flash sell concepts seem to be concentrated on fashion.  Examples: Ideeli, VentePrivee, Gilt Group, HauteLook.
  • Crossover:  A blend of Brick & Click stores.  Examples: Lavinia (wine), FarFetch (independent fashion labels), Cyrillus (fashion) and, of course, we can say the same for all major distribution chains with their own eCommerce site (à la Walmart, Carrefour, etc.).
  • Personalization: The online nature of sites allows for a greater ease of personalization. Examples: There are a number of variations on this theme. In the tech space, you can order a custom-built computer with DELL or Apple (where you can also order your name on the back of your ipod). In design or interior decoration, you have Made or MyFab. Or again ShirtsmyWay or DesignYourOwnDishes (coming soon).
  • Immaterial going Physical:  In other words, making an electronic version into something real.  Examples abound: Other than the likes of foto.com, shutterfly and snapfish that turn your digital photos into photo albums and personal calendars, you have Blurb to print your own book, Flipstory to convert YouTube videos into real flip books, or again TasteBook to create personalized recipe books.
  • Facebook or Social Commerce: Putting up an f-Commerce site is another option, still largely uncharted and unproven. Examples of note: Asos, 1-800-Flowers, Coca-Cola, girl Cosmetics. You also have some companies doing partial offers on Facebook, such as Victoria Secrets which have used their fan page to offer gift vouchers.

 The Road Ahead

The growth seen so far is skewed towards metros driving a major chunk of internet users and penetration. However, there shall now be growth from tier II and III cities due to the urbanised pockets of the population in these cities. Other demographics such as age, education and income also play a crucial role for tier II and III cities. These are the markets that shall be the catalyst of growth and hold immense potential for e-commerce marketers. The top eight metros account for 70-75 per cent of the current total internet penetration in India.

Going forward, these markets will need as much attention as the metros in media plans because that is where majority of India’s internet savvy population shall dwell. An exciting statistics is that as many as 68 million internet users are from rural India  and the e-commerce industry is waking up to the potential of the rural Indian who often has enough money but lacks access to goods.

Today, India’s e-commerce numbers tell only part of the story. Far more important is the bigger picture: the relationship between online activities and offline sales, as well as the powerful influence that the Internet has in shaping the brand preferences and buying decisions of Indian shoppers.

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