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Future of e-commerce in India

By the time you’re done reading this pen pushing act, someone somewhere would have completed several online transactions. A few clicks, and they’d be all set to receive their cherished treasure within a day or two. All it takes to reach the end of this article and to make an online purchase is a few minutes. One even spares oneself of the effort of leaving the comforts of one’s room, getting out of the house, negotiating the traffic of the city, reaching the nearest shopping area, scouting for the product and then finally, buying that item.

FUTURE OF E-COMMERCE IN INDIA

e-Commerce in India has come a long way. Find out what’s in store for the future

By the time you’re done reading this pen pushing act, someone somewhere would have completed several online transactions. A few clicks, and they’d be all set to receive their cherished treasure within a day or two.

All it takes to reach the end of this article and to make an online purchase is a few minutes. One even spares oneself of the effort of leaving the comforts of one’s room, getting out of the house, negotiating the traffic of the city, reaching the nearest shopping area, scouting for the product and then finally, buying that item.

 

With online shopping, you save priceless time, energy and money. And if you’re still not convinced about the impact of e-commerce in India, Google ‘future of ecommerce in India’. We did, and within 0.17 seconds, reality was staring us in the face. Google bombarded us with 6,490,000 results.

 

Chances are you’ve probably already bought a cartload of wares from online stores. Chances are equally bright that you’ve also convinced one of the many emperors of the orthodox around us to buy goods online, just like you do. And even if you’ve shyed away from buying online till now, you’re not late. The e-commerce story has just begun and you haven’t missed much.

The digital story

You may be surprised to learn that by the end of this year around 150 million Indians will have access to the internet (as per latest figures released by market research leader IMRB and the Internet and Mobile Association of India (IAMAI)). By the same time, the population of active users would have reached 111 million.

With such a staggering number of netizens in India, it shouldn’t surprise us that reliable estimates peg the current e-commerce market in India at Rs 50,000 crores and expect its worth to shoot up to Rs 120,000 crores by 2015. And this is when only a little over 10% of the online population uses the internet for purchases. The count is only going to increase. he prime factors fuelling the growth may be the convenience of shopping, teamed with better internet connectivity and an increasing number of people coming to terms with online shopping. Speaking about connectivity, industry insiders say that 3G and 4G technologies will prove to be the game-changers for e-commerce in India. In light of this fact, the industry assumption that close to 40 million online users will be part of the e-commerce story by 2015 seems plausible. And it’s probably on this premise that investors are optimistic about pumping money into this market.

 

While in 2010 ecommerce witnessed a funding of $110 million, within two years, the funding has gone beyond $800 million, say reliable sources. The trend amply proves that India has been one large untapped e-commerce market so far. The truth is that we’re witnessing an e-commerce boom testimony to this trend is the increasing count of emails and text messages we’re bombarded with daily by these e-tailers.

The industry speaks

To bring things into perspective we have the example of Kunal Bahl, co-founder of Snapdeal.com. Earlier this year, Kunal, in an interview to Knowledge@Wharton, had hoped to cross revenues of $200 million by 2014. But he has revised his outlook now. As per his latest reaction to the same publication, Kunal is looking forward to reaching $1 billion by 2015.

He has been quoted as saying, “We did not anticipate such a growth trajectory and hence we have upped the ante and should get there comfortably.” Well, Bahl is not the only e-tailer who has set such an aggressive target. Take the case of Sachin Bansal, co-founder and CEO of Flipkart.com. Reacting after completing its fourth round of funding, Bansal has been quoted by Reuters as saying, “We are excited to complete this round of funding, which would fuel our growth plans and help us achieve our stated

ambition of hitting $1 billion in gross merchandise value by 2015.” Bansal’s confidence is obvious, given the funding he is managing to get, which is a result of the ecommerce industry having strong fundamentals in India.

The story so far

The mood may seem upbeat now, but when e-commerce was born in India, it had faced some really tough times. In 1999, when K Vaitheeswaran founded Fabmart.com (now IndiaPlaza), India’s first e-commerce site, only a handful of the then 3 million internet users in India paid it any attention. Well, with slow and unreliable dial-up connections and text only browsing, internet users had all the reasons to hesitate from making online financial transactions. Also, as compared to today, very few Indians had credit cards, which then were the only option for online payments.

But now, over a 100 million surf the web and close to 30 million netizens are crazy for online deals and discounts. Interestingly, industry estimates say that this figure grows by 1.5 million every month.

 

Likewise, Flipkart, India’s largest online store has so far raised $31 million within five years of existence. With over 5,000 employees, the e-commerce giant aims to hit $1 billion by 2015. Last year, former eBay executive, Ambareesh Murty used a seed fund of $5 million to launch Pepperfry. com. Earlier this year, Amazon stepped into the Indian market by launching Junglee.com, which is basically a product-comparison website. Other players such as Snapdeal and Myntra have also managed to tap investors to raise a sizeable fund.

Ground reality

In light of this, it’s easy to understand how from the consumer’s standpoint the current state of infrastructure is perfect for the evolution of eCommerce. Internet connections are getting cheaper, broadband penetration is increasing and people’s mentality towards shopping online is changing. But why this sudden boom from the business side? Quite simple: wannabe entrepreneurs have never had it so easy. To set up a website you require no more than $8 and essentially eCommerce is nothing but trading. You buy goods from one entity and sell to another. As for logistics you have existing courier services such as Aramex to tap into and for money transfers you have pre-established gateways such as CCAvenue and PayPal. If you’re lucky you don’t even have to invest your own money because venture capitalists are always on the prowl for the next big idea.

Challenging times?

Okay, it isn’t as simple as it sounds so let’s discuss a few of the challenges before the market players. The most crucial challenge is the payment mechanism. While online payment is the norm in developed countries, only 20% of purchases are done online in India. Reducing the count of cash on delivery orders is a major task for e-tailers as this model is basically contrary to the original idea of e-commerce. The industry thrives of others’ resources, and with cash on delivery an e-tailer has to block his resources. This is actually an obstacle for an industry that hopes to step up from a slow trot to a gallop.

Cash on delivery, if it continues for long, may turn into a handicap. Why, you ask? The expenses involved in physically collecting cash, rejections and longer turnaround time to receive money together make cash on delivery a less profitable model to sell goods online.

 

Typically, e-tailers spend an additional sum of Rs 35-65 for each sale involving cash on delivery. Indiaplaza. com, which sells books and electronic goods, was the pioneer in introducing the concept of cash on delivery. And now, the website finds it ‘painful’ to continue this way. In an interview to the Economic Times, K Vaitheeswaran, the founder of Indiaplaza. com said, “Cash on delivery is the most inconvenient payment option. It allows customers too much time to change their mind.” He adds, “Rejection rates are at about 45%, partly because there is no upfront cash commitment.” The next concern is the last mile delivery mechanism. Only 10% of the total PIN codes in India are covered by courier services. The enormity of the concern comes to the fore when you get to learn that close to 60% of online sales are happening in relatively smaller cities.

 

In addition to these issues, there are also regulatory and taxation barriers that restrict e-commerce from growing. The concept of mobile payment is also at a nascent stage. Add to these impediments the high costs involved in customer acquisition and the fact that most market players are in the investment mode. Hardly a few have turned profitable. Investors are largely in a wait-and-watch mode.

Although in the light of these facts, the impressive market statistics discussed above create a contrast, there are definitely a number of concerns for the industry, which majorly revolve around travel ticket bookings. When it comes to purchase of goods, the percentage is still relatively low. The reluctance of the Indian buyer is clearly visible with this. We as a nation wish to touch and feel a product before owning it. And that’s not possible electronically Interestingly to compensate for this, e-tailers are offering enticing deals and discounts. And the results are showing.

The road ahead

According to a report, titled, ‘E-commerce: A boon for the current economic downturn’ compiled by First Data Corporation, if the market trends are to believed, the domestic e-commerce market has the potential to grow between $125 billion and $260 billion by 2024-2025. The report even talks about the fact that urban dwellers are now confident enough to make online purchases of up to Rs 25,000 up from the Rs 2,000-5,000 purchases in the recent past.

With this, it yet again seems only natural that the industry should flourish. India is a young country with more than half the country’s population under the age of 25. The country is also getting richer and just in case the ‘black money’ stashed abroad, if at all, comes back, the surge in cash flow would consequentially push the economy to further thrive. Our income per capita has only grown and as per the International Monetary Fund estimates it will increase substantially over the next few years. This means, with more money to spend, the upwardly mobile crowd will lap up content in online stores. This doesn’t mean that the rural or semi-urban markets are not fertile for business. In fact around one-third of all products sold online are purchased from cities with a population of less than 3 million.

 

So, have you too noticed lately how people have gone beyond simply checking prices online to actually purchasing stuff? Look around, it’s a fact. The country we live in is full of convenience seekers who hate going out to shop and are always on the lookout for discounts and deals. E-shopping offers all this and much more. This, it seems, sums up the entire issue. Do we need to take it any further?