Month: February 2012

Hundreds of millions of dollars have flown into the sector over the past couple years at valuations that were very attractive to the entrepreneurs. The talk now is that the “mini-bubble” has burst. Consolidation is starting in the sector. Companies lucky enough to have raised substantial capital are the ones who will be the survivors and the new brands in the Indian space.

What has changed is that the increased competition has led to limited differentiation on product and price. Investing in service (logistics, payment collection) increases costs of operation. Marketing expenses continue. eCommerce is a business of scale. As such, most companies burn through cash quickly. Not many are profitable. Some are even operating at negative gross margins in efforts to get the customers.

As a result, if future rounds of funding are not forthcoming, it is rapid death for companies because it is not easy to scale back the burn. That seems to be happening in this sector. More than the consumers, it is the investors who will decide the winners.

Continued tomorrow.

Fourth, the deals and discounts. With eCommerce companies flush with funds and in a ‘customer grab’ mode, 2011 has been a buyer’s delight. From books to phones, everything seems to be available to less than what you would get to a nearby store. With free shipping thrown in. So, click and order.

Fifth, the cash on delivery option was a game-changer. With credit and debit cards usage still limited and a desire by consumers to pay in cash, the eCommerce companies have been increasingly open to collecting cash on delivery. This has also taken away the risks of ordering on the Internet. (On the flip side, one problem that eCommerce companies have to deal with is the rate of returns from customers who change their minds.)

Finally, a liberal flow of venture capital funds into the sector has helped create many companies who could invest in awareness creation via media on the benefits of eCommerce. This has also helped drive usage.

Put it all together, and the stage was set for a big boom in the eCommerce sector. The ecosystem has finally come together.

Continued tomorrow.

Before we get to a discussion on the present and future of eCommerce of India, we should look at the reasons as to why it is a sector that has the potential to be big in India.

First, the sector has grown because of the growth of the Internet in India. A decade ago, the user base was very thin. Now, with 100 million users on the Internet, there is critical mass. Also, in the interim, ticketing emerged as a big thing. Booking train tickets for many and flight tickets for some became their first introduction to the world of eCommerce. That is now extending to other sectors.

Second, in metros, there is the convenience. For many who are pressed for time, a few clicks is all it takes to order and have it delivered him. It saves a trip to the nearby mall where parking can be a challenge.

Third, in the smaller towns, there is the sheer variety available. Given the costs of retail stores and their limited expansion in India, the Internet stores are bridging the gap by making everything available to everyone across India. It is no surprise then that the majority of orders on eCommerce sites are now coming from non-metro locations.

Continued tomorrow.

From the first in a series of questions I asked a year ago:

Why are we surprised when Manmohan Singh messes up his press conference? Why did we expect anything better? When will we change our frame of reference that he is despicably dishonest? Raja may have looted the nation along with many other Ministers, but who let them get on with the looting? Who turned the proverbial blind eye to serve his High Command? Why did he do it?

Why did we expect anything better? Why do people continue to believe that he’s “honest”? Why did we not change our frame of reference and see that if we start with the assumption that he is not honest, all his action fits to a T?

Why does our country have to suffer the government we have? Why don’t we care more? Why are we dishonest as a collective? Why are we like this only?

This week’s links:

• The “Unhyped” New Areas in Internet and Mobile: by Vinod Khosla. “We are in a whole new world of platforms, a post-PC era, which I’d more aptly describe as the always/everywhere era, finally, and that means a whole new set of opportunities.”
• Winning Moves in 12 Industries: from strategy+business. “Every industry faces its own challenges in 2012’s turbulent, uncertain economic environment. These capabilities systems could pave the way for business growth and development in a dozen key sectors.”
• How Companies Learn Your Secrets: from NY Times Magazine. “Over the past two decades, the science of habit formation has become a major field of research in neurology and psychology departments at hundreds of major medical centers and universities, as well as inside extremely well financed corporate labs.”
• Power Listening: An excerpt from a new book. “Listening can well be the difference between profit and loss, between success and failure, between a long career and a short one. Listening is the only way to find out what you don’t know, and marks the path to making good decisions, arriving at the best ideas.”
• On India’s Self-Defeating Policies: by Arvind Panagariya. “Rather than promote inclusion through reforms, which would pave the way for rapid expansion of labour-intensive manufactures and, hence, well-paid jobs for the low-skilled, and through redistribution, which would directly transfer income from the rich to the poor, we seem to have set on a course to converting every policy into the instrument of advancing social goals.”

This is what I wrote a month ago as part of my Digital India 2012 Trends series:

Undoubtedly, the biggest story on the Internet in India is that of the dramatic rise of eCommerce. People are becoming comfortable buying all sorts of things over the Internet. Companies have also set up better logistics for distribution and collecting money on delivery. Consumers are willing to trust sites since they can choose to only pay on receipt of the goods.

For an India that is urbanisng and hasn’t had as much choice, especially in smaller towns, the Internet eCommerce sites are a godsend. More than FDI in retail, it is these sites which are the real disruptors for kirana stores. Daily deal sites and discount portals which offer branded goods at lower prices means that eCommerce also becomes a fun activity in the search for the best price.

The challenge for Indian eCommerce sites like Flipkart and Snapdeal will be the investments that they will have to do to fill in the missing elements of the Indian logistics value chain. Amazon can rely on UPS for delivery and the credit card companies for cash collection. Indian companies have to do all of this themselves for the most part to ensure tighter control on delivery, as also set up warehouses closer to the customers. Much of this should improve as third-parties start offering all of these specialised services.

For now, discounts and free shipping supreme, giving Indian consumers a veritable treat if they choose to buy online.

Continued next week.

 

Fortune India called the eCommerce entrepreneurs as the visionaries of 2011. It quotes some of the eCommerce entrepreneurs in its cover story in its latest issue:

K. Vaitheeswaran, IndiaPlaza.in: “The tipping point of e-commerce will be reached only when the offline retailers go online successfully.”

B. S. Nagesh, Shoppers Stop: “Retail is about the consumer, and he is engaging in online shopping. So there is no choice for us but to look at e-commerce.”

Sachin Bansal, Flipkart: “The real power of e-commerce will come from small- and mid-sized players from all cities being able to sell online.”

Continued tomorrow.

Yesterday’s Economic Times had a front page story entitled “India’s e-commerce industry braces for consolidation as stronger online retailers gobble up minnows”:

With the world’s largest online retailer, Amazon, preparing for entry into India and the market separating the strong from the weak, India’s best-known and stronger online retailers are taking the lead in the consolidation race.

…For the approximately 10 million Indian e-commerce consumers, there has been a growing choice of online stores that sell everything from books to travel experiences. But behind the scenes, e-commerce start-ups-around 40 active ones at last count-are battling price wars and high customer acquisition costs.

Leaders in the e-commerce space-ones that have raised money, have large teams and are aggressively pursuing growth-are spending $1-2 million (Rs 5-10 crore) a month, including on marketing, overheads and salaries.

Consolidation is also being hastened by the inability of smaller firms to raise money at the valuation levels they commanded even last year.

Continued tomorrow.

 

This is what Business World wrote in its recent cover story on the e-tailing wars in India:

Hundreds of such entrepreneurs are delighted at the sudden turn in the fortunes of India’s e-tailers in 2011. Easy availability of broadband, patchy rollout of 3G and growing aspirations of non-metro youth, coupled with economic uncertainty, are driving traffic for shopping and bargain hunting. While the industry grew to over Rs 4,000 crore in 2011, large players grew 100-150 per cent.

As 3G and broadband wireless come this year and smartphones and tablets population rises, Web-based businesses will hit a tipping point. New-age entrepreneurs are trying out everything from full-fledged e-tailing sites such as Flipkart by Binny and Sachin Bansal to specialist ones such as Firstcry for babycare products, founded by Supam Maheshwari and Amitava Saha. Or footwear-only Bestylish from Gurgaon-based Shailen Amin. After all, the race to the top of India’s e-tailing industry is still wide open.

Continued tomorrow.

Indians are buying online. And eCommerce sites are proliferating to meet this demand. Venture capital money is flowing in. Consumers are being papered with specials, offers and discounts. It is finally boom time for the second leg of the Internet in India (the first leg being advertising).

Fortune India and Business World both have cover stories on the Indian eCommerce companies. There are many other companies racing to build the ancilliary industries that are needed to facilitate cash collection and delivery. Many business models are emerging – from sticking everything to marketplaces. Even the traditional offline retailers are now accelerating plans to increase their online presence.

A similar explosion had happened in 2000. But that was very short-lived since the consumers were just not there. This time around, it is all in place – the consumers, the digital infra, the entrepreneurs, interesting models, and plenty of venture capital. So, what is happening and how will this space evolve in the coming months and years?

Continued tomorrow.