Investor, Sales and Marketing Pioneer, Author, Technology Champion, Philanthropist, Leadership Mentor
It’s raining discounts and offers
Festive season. Its online retail ads galore time in India. Front page on morning newspapers carries online discount sales and promotional ad campaigns. These days, news headlines usually starts only at page no 3. Newspapers have become virtually one of the competitive arenas for e-commerce players in India. The competition is already very intense on the web. Every effort is made to reach out and woo the consumers through every possible channel. Flipkart, Amazon, Snapdeal, Jabong, etc. are all fighting out a hard battle.
Just a couple of months ago:
On July 29, 2014, Indian eCommerce giant made an announcement of raising a capital of $1 billion in one of the largest funding rounds. Immediately the next day, Amazon India counter pace Flipkart by announcing a US $2 billion India-specific fund. Snapdeal too, was not sitting idle and by second week of October, news report emerges that Snapdeal is poised to raise $600 million to $650 million from Japanese investor SoftBank Corp. to take on arch rivals Flipkart and Amazon in the ongoing war for a bigger slice of the fastest growing Indian e-commerce sector.
The current e-commerce scene in India
As the e-commerce players coup capital, expanding the infrastructure, talent pool and build customer confidence in buying things online at competitive prices – Indian customers are benefiting heavily. On the other hand, intense completion is driving many small players out of business very soon. Already many e-commerce players like Istream, Dhingana, Letsbuy, Dhingana, etc. have pulled their shutter down due to paucity of funds. Not only that, there is already a voice in the industry that current e-commerce industry is not a very sustainable business model even for big players like Flipkart and Amazon India. Online retail czar, Kshore Biyani has big doubts over the logic of putting billions of dollars in e-commerce sector. As he said, “”These days, the media only looks at e-commerce. However, you must also ask if gross margins of any such company are positive or not. There is hope of survival for them when their gross margins are positive. I’m not saying it is sustainable or it is not sustainable”.
Praveen Sengar, Principal Research Analyst at Gartner also opines: Currently the focus of the major e-commerce players in India has been on rapid expansion rather than profitability. To capture the market, the likes of Flipkart et al have been playing off volumes against price but thisis not a sustainable business model. We will see profitability concerns coming up now. The current business model is not sustainable and e-commerce players will need to shift their focus on other factors like customer segmentation
The future promises and the challenges ahead
Indian e-commerce industry is projected to touch $43 billion in the next 5 years and $90 billion by 2021 from the current size of $13 billion. With the growing internet and mobile penetration – ecommerce retail is one of the fastest growing business segments in India. As more and more customers migrate from brick and mortar stores to online shopping – there are some obvious business challenges ahead.
Latif Nathani, Managing Director, eBay India nicely sums up the challenges:
“India now has more than 200 million Internet users, with 89 million users visiting online shopping sites. The challenge though is that the number of people actually shopping is a fraction of that, at 14-15 million. That is because in developed markets, infrastructure was quite developed by the time e-commerce came in. People had credit cards, the market had gone through TV shopping, catalogue shopping etc. In India, all that is new.
The main challenges facing the e-commerce industry are infrastructure and trust-related challenges. We are working on both. On the infrastructure side, we work with the government and industry bodies. On the trust side, we have done a lot by ourselves. Having been here for nine years and having understood the Indian consumer and the landscape, we have innovated in areas of logistics with a service called ‘Power ship’ and innovated in the area of trust with `Paisa Pay’ and `eBay Guarantee’ where we guarantee that whatever buyers buy, there is a 100 per cent guarantee up to 30 days for a full refund or replacement.”
The Indian e-commerce industry is still in a very nascent stage, and it’s a long way before the market reaches a maturity level. Until then it would be interesting to see how things turn up.