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What is e-commerce

Internet, E-Commerce, Daily Deals, and Click-n-Mortar are all terms that are present in our daily vocabularies today. But, try mentioning these words to your great grandparents and they will probably give you a quizzical look, as it means nothing to them. The world as we know it today has changed and evolved from the world we knew ten years ago.

WHAT IS E-COMMERCE

Find out what e-commerce is really about and everything else you need to know about the current state of this realm in India

Internet, E-Commerce, Daily Deals, and Click-n-Mortar are all terms that are present in our daily vocabularies today. But, try mentioning these words to your great grandparents and they will probably give you a quizzical look, as it means nothing to them. The world as we know it today has changed and evolved from the world we knew ten years ago.

Now, someone sitting in Australia buys “cool things” from a daily deal site in New Zealand which sources its products from China that are made by people from the Philippines and gets it delivered to her doorstep without her having to step out of her fuzzy slippers. If you think this was possible before ‘e-commerce’ came into our lives – think again!

So what is this magical term e-commerce that lets us buy things from all around the world simply through the magical portal called the Internet? How did it come into being and importantly how big is it really today in India?

 

Put simply, e-commerce is the term used for buying and selling goods and services through the Internet.

The first form of e-commerce started in the 1970s when it was used by businesses to send commercial documents such as purchase orders or invoices electronically. However, it wasn’t until 1990 when the World Wide Web was introduced and it took another four years until advances such as online banking and the opening of an online pizza shop by Pizza Hut in USA took place. During this time (1994) Netscape introduced secure encryption of data transferred online which gave birth to Amazon in 1995 and E-bay in 1996 in the United States.

 

However, in India, e-commerce did not really pick up steam until much later. In fact, in India online shopping only gained in popularity post the dot com bubble bust in 2000. In the past 12 years, online shopping within India has developed and evolved to a great extent. E-commerce in India has gone from having a few online buyers that were hesitant to buy even small ticket items despite having credit cards, to a thriving community of customers that are comfortable buying a wide range of items online and do so without owning any form of credit at all.

Initial problems with e-commerce

In the early days of e-commerce, there were significant structural and procedural problems involved with buying online. We talk about the main ones below and innovations that have been designed to overcome these problems, which are unique to India.

Internet Adoption

When e-commerce was introduced in India, the customer base in India was low due to the lack of Internet access for customers that did not live in the major metros of India. Moreover, even in the metros Internet speeds were slow and broadband was relatively unheard of. This made creating a positive user experience for the customer a challenge for businesses who were forced to keep their sites simple, with few images. Therefore, the earlier versions of e-stores did not have the big images and elaborate product descriptions that we now take for granted.

Businesses also had to battle with the customers’ innate need to touch and feel the product prior to purchasing it. In the early days of e-commerce customers had to rely solely on the product description listed on the site and the basic product images that accompanied this description. This required a significant trade off in terms of the shopping experience from the customer, which meant that online shopping was perceived as being risky.

India, a vast country

Due to the vast area that India is spread over and the unreliability of the postal system, e-commerce businesses had to invest significant amounts of money in planning the logistics and ensure that they were able to secure products from suppliers promptly and more importantly that customers received their products within the promised time-frame.

For the customer that had to already deal with the disadvantage of being unable to experience the product prior to purchase, thanks to the ambiguity of the Indian postal system there was also the risk that the product may not reach your doorstep. Moreover, if it didn’t most e-commerce sites did not have a human being behind the website which meant that the customer had to accept that if anything did go wrong, there was no ‘collar’ that could be grabbed.

Payment problems

While majority of e-commerce enterprises globally operated through PayPal or credit card payments, this was not possible in India where more than 90% of retail transactions are made in cash. In addition to that, prior to the economic boom of the 2000s in India, penetration of credit cards was low within the market and customers did not even own debit cards. This meant that even though there were customers willing to take the risk of buying products from a new portal, the inability to complete the purchase

was another obstacle that the customer had to overcome. This problem has not diminished in India even today where even though a huge proportion of customers have credit and debit cards, the perception that cash transactions are safer than those done online prevails widely.

To overcome these problems, there are some features unique to the Indian market that have been developed:

1. Cash on Delivery – Introduced widely in the Indian market to overcome customers’ risk of paying for un-seen and potentially un-delivered products upfront. In this model, while the customer places the order on the internet they only have to pay for it when it is delivered to your doorstep in a similar way to the delivery service model of pizza outlets worldwide.

2. In-house hiring of delivery staff – Flipkart, which was setup in 2007 are pioneers of jettisoning courier companies in favour of an in-house delivery service to overcome the risk associated with the product not reaching the customer on time or getting misplaced/damaged in transit. By not out-sourcing deliveries companies are able to control the last mile for deliveries which significantly decreases bottlenecks within the operations.

India Plaza – India’s first e-commerce store

India got its first e-commerce store in the form of Indiaplaza in 1999, which then offered only music CDs for sale. Back then; India had less than 3 million users on the internet. Between February and October 2000, the website introduced many additional categories including movies, watches, books and groceries and in 2002 even went the way of brick and mortar by launching the first offline grocery store in Bangalore, India.

Since its introduction, the company has grown and evolved. Shortly after their introduction, Indiaplaza was re-branded as Fabmall. The business then also restructured into two separate online and offline entities and Fabmall.com once again became Indiaplaza – this time with a difference. In 2007, two distinct India-centric websites were launched with indiaplaza. com created to serve customers in the US and indiaplaza.in being created to serve customers in India. However, as e-commerce has grown and the world has become a smaller place, in 2011, Indiaplaza introduced a common single website to serve customers worldwide.

 

Today, Indiaplaza offers over 10 million items online for sale across books, music, videos, CD-ROMs, electronics, camera, mobile phones, appliances, apparel, flowers, chocolates, cakes, sweets toys, watches, food items etc. – you name it, they probably have it. With nearly 1.5 million customers worldwide, Indiaplaza is the most popular destination for Indians outside India to send gifts to their friends and relatives living in India.

 

Indiaplaza is as old as the ecommerce industry in India. However, even after successfully concluding private equity funding in 2011, K Vaitheeswaran, founder and CEO of Indiaplaza feels that the e-commerce industry in India has all the makings of a perverse fight as flush with cash from venture capital, online retailers in India today are pursuing a single minded strategy of acquiring as many customers as they can by cutting prices and aiming solely for topline growth without any thought of making money. Growth has taken precedence over profitability – the key tenet of any business. Think about it. Today, if online retailer is cutting into their 35% margin to offer you a 40% discount and also offers shipping for free – how long can this model be sustainable?

E-Commerce in India: The long journey of evolution

The Indian e-commerce industry has come a long way since its humble beginnings some years ago. Then, online transactions were predominantly related to travel and banking functions. This changed and people started buying products of relatively low value across a range of categories such as home décor, gifts, books and flowers. As credit card penetration increased and a larger sector of people became comfortable with transacting online, e-commerce shops started offering fashion & lifestyle products as well as high value items such as electronics.

How have things changed you ask?

For a start, customers started spending more time on the Internet and became more aware of the wide range of products available on the world wide web, which simply did not compare to the local kirana store or neighbourhood mall. As virtual social networks grew in popularity, online stores introduced the ability for existing buyers to review products they have bought thereby adding the validity of ‘friend’ recommendations that physical purchases used to thrive on. Sites have gone from having a single product image to having multiple high-resolution images with some even offering product videos and try and buy options.

Websites also went one step further and started offering huge discounts on products offered at physical retail stores, thereby passing the benefit gained from economies of scale to the end consumer. While this strategy has definitely led to growth, whether it has led to long-term profitability is yet to be determined as what started of as an incentive to grab customers has created a culture where customers go shopping for discounts from one online store to the other. In fact, several start-ups are now making money by recommending customers the cheapest site that they can purchase their products from.

 

Another recent advancement has been the advent of ‘deal’ websites. These special sites such as Snapdeal and Crazeal have changed the way Indian customers shop both online and offline by offering huge discounts on a wide variety of products and services for limited periods of time. Such sites have become enablers for small businesses and for many it is a key part of their marketing strategy. What is the impact on the profitability for such brands however remains to be seen. While businesses now get an opportunity where huge volumes of customers come to try their products, many customers claim that they do not receive the same level of ‘service’ that full-paying customers do which means that instead of creating a base of repeat customers. This has created a new segment of customers that hop from business to business seeking the next best deal.

 

As e-commerce in India continues to grow, there are several ‘luxury’ players that also now want a piece of the online shopping pie. There are websites today such as Excluzen.com, Fashionanyou.com as well as caratlane. com where one can buy couture fashion the likes of Jimmy Choo and Cavalli, limited edition accessories and handbags as well as pure diamond jewellery online with price ranges being anywhere from Rs 10000 – Rs 5 lakh per item. To reduce the risk associated with making such high value purchases online and to entice customers, these websites not only offer discounts up to 25% of the retail price but some also have EMI facilities. Moreover, some fashion retailers have opened ‘experience lounges’ for their customers to try the product before purchasing their order.

 

E-commerce is now part of everyday vocabulary and people are buying everything from a photo print to a plane ticket online. In 2012, some say that e-commerce has come of age while others say that it is still at a nascent stage in India. However, one thing is clear - This decade is likely to be the decade of e-commerce.

Here are some thoughts from the market leaders on the e-commerce revolution in India:

“When 99labels first started out, we were entering an e - market which largely catered to online ticketing and banking functions. Online shopping for fashion was not popular in India, despite being a rage abroad with sites like Gilt, Fab and Vente- Privee catering to online fashion shoppers.

Also, e-commerce in India had a mainly male member base. All of these factors have changed with time” – Ishita Swarup, CEO and Co-Founder, 99Labels.com

“With the popularity of social networks increasing and with the introduction of smartphones/tablets, the E-Commerce space has witnessed a complete transformation. Retailers are preparing for a splurge in online sales this year, with nearly 60% of shoppers expected to spend more money in 2012” – Praveen Sinha, Co-Founder, Jabong.com “Online shoppers benefit from the great variety, great deals and convenience of home delivery offered by e-commerce websites. Indian online buyers are buying everything from the latest laptop to a beanbag from the comfort of their homes, cyber cafes or even their mobile phones.

 

E-commerce has great relevance in cities outside of the few where modern retail has penetrated. Consumers from these smaller cities, towns and villages now have immediate access to all latest gadgets and products immediately upon their launch” – Muralikrishnan B, Country Manager, eBay India.

Local Success Stories

There has been a proliferation of e-commerce sites in India with a majority of them working towards the ‘Master of All’ strategy where a wide range of products ranging from groceries and flowers to fashion and electronics are offered through their portals. Some of these recent success stories are Jabong.com and Yebhi.com

Jabong.com was founded in India in 2011 and is an online fashion and apparel store but also deals in furniture and homewares. Tagged as ‘delivering lifestyle’ within 4 months of launch of operations, the company has over a million page views daily and has an Indian rank of 66 on Alexa ratings which provides website analytics. When asked on how Jabong reduces the level of risk associated with shopping online, Praveen Sinha, Co-Founder of Jabong.com said, “Trust is an important factor in the buyer-seller relationship and this is especially so for the online community. To build customer confidence, we have introduced a 30 day return policy as well as the concept of open box delivery where we insist that the customer checks the contents of the package before accepting delivery”.

 

Yebhi.com, another popular e-commerce site founded in 2009, started by powering the sale of multi brand footwear online and later expanded into other categories like Apparels, Accessories, Bags, Jewellery and Mobile. In 2011, the company was awarded the ‘Highly Commended Website’ award by Online Retail Awards. Their business model is differentiated from other competitors as, “Yebhi.com deliveries are made by Yebhi Champs who as B-school graduates and offer all round support like product demos, installation, return or sales support. In comparison to others, we offer a 100 days return policy and have introduced a friendly ‘One-click automated returns’ as part of our user interface”, says Jatin Modi, Assistant Vice President: Business Strategy, Yebhi.com

International E-Commerce Phenomenon – eBay

Since the introduction of Indiaplaza into the Indian market, it is clear that the industry has progressed and continues to evolve to better meet the needs of the customer. However, no story about e-commerce can be complete without talking about international e-commerce giant, eBay. eBay globally as well as in India has been an e-commerce powerhouse and have changed the way people shop around the world. eBay entered India by acquiring Baazee in August 2004 and launching eBay India in March 2005. The company is a market leader in nearly everyone one of the 39 markets where they have operations and in India has over 4 million registered users. “At any given time, there are over 6 million live listings on eBay India across 2000 categories of products in electronics, lifestyle, collectibles and media verticals and approximately 30,000 sellers sell on eBay India annually”, says Mr. Muralikrishnan B, Country Head, eBay India.

So, why is eBay such a global phenomenon? It’s because eBay has a unique business model. Rather than sourcing products from established brands and selling these for a margin, eBay India has instead created the largest online bazaar globally that is free of middlemen and unconstrained by geographical boundaries which makes it possible local products to be sold across the country and exported across the globe. E-commerce has come of age in India and recent eBay census documents the following interesting facts:

 

  • Over 45% of all purchases are in the lifestyle category with 30 – 35% of online shoppers in 2012 being women

  • India contributed 40% to eBay’s global transactions

  • Mobile e-commerce is the latest advancement and eBay Inc clocked in revenues of US $5 billion globally from mobile commerce in 2011

As eBay continues to expand in India, the company sees great promise in tapping the Tier 2 and Tier 3 cities of India as well as the rural markets. “The Internet & Mobile Association of India (IAMAI) has estimated that the industry will grow at an encouraging pace of 70% year on year. E-commerce websites in India therefore need to be built for scale. At this nascent phase in the industry, it makes more sense to have a horizontal play rather than serve vertical niches”, adds Mr. Muralikrishnan

India’s claim to e-commerce fame: The Cash on Delivery (COD) Model

India is predominantly a country whose economy runs on cash. Though in recent years, credit cards have penetrated the market, Indians continue to remain skeptical about shopping online if it involves having to share credit card details or paying up-front without having the physical product in their hands. While cash on delivery is touted to be one of the best innovations in the Indian e-commerce industry, business continue to have mixed sentiments about this model that has become synonymous to Indian e-commerce. E-commerce businesses that are operating within a niche market in India such as 21 Fools, an online company that sells greeting cards feel that, “Cash on Delivery is one of the best innovations within the segment as customers currently have a feeling of ‘inertia’ when it comes to sharing their card details and due to the proliferation of the concept tend to not purchase from sites that do not offer this option”, says Divyanshu Asopa, Co- Founder, 21 Fools.

However, when the same question is asked to more established players within the industry, they feel that COD is a very inconvenient payment option for consumers as well as merchants and they strongly encourage their customers to pay online. “From a merchant’s point of view, Cash on Delivery allows customers too much time to change their mind, which they do! Within the industry, the return rates for COD products are as high as 45%. Moreover, when the customer does accept the product and pay, courier companies enjoy the cash float and take long period of time to return the cash to the companies thereby making this entire model one that is not financially sustainable in the long term”, says Mr. K. Vaitheeswaran Founder & CEO Indiaplaza.com – one of the few sites that enjoys the privilege of having over 95% of all their orders being paid directly online.

Hot or not, the COD model seems to be here to stay within the e-commerce market as more and more players enter the market almost on a daily basis. One can only hope that like many of the other problems that the e-commerce industry has overcome, this too shall be created into a positive opportunity for business and customers alike.

Heroes in the Making

Each new e-commerce model that is introduced within the Indian market today brings to the fore traditional models that have been re-designed to create businesses that have the potential to make it big within the industry. Below are just three from the very many that are capitalizing on the high paced urban Indian lifestyle to offer true value to the customer:

LocalBanya.com: This site is what busy working individuals have probably been praying for. Rather than waste time separately calling the chemist, local veg vendor and the corner grocery store as well as making that monthly trip to the supermarket, Mumbai-ites can now simply order it all online through one portal and it is delivered to your doorstep, more importantly exactly when and where you want it. If that wasn’t enough, they also promise to offer the best prices with upto 40% savings on retail prices on some items. With a growing product portfolio of over 4600 products, Local Banya is all set to give your kirana shop some tough competition.

21Fools.com: With a name as intriguing as 21 Fools and a vision to make people smile, here is a portal that sells cards for all occasions. The company believes that a special day is not needed to make someone happy or to thank them and sending them a card is a timeless way to bring joy to that loved one. Their newly introduced break-up cards are as poignant as their popular birthday and thank-you category of cards and the company hand writes each card with a message of your choice to give it that truly personal touch.

FlybyKnight.in: Ever faced the problem when the hunger pangs hit you in the middle of the night and the empty shelves on your refrigerator mock you or a group of hungry friends drop by for a ‘surprise night in’? FlybyKnight comes to your rescue specifically for those moments and provides a midnight delivery service for essentials such as food, drink and other unmentionables.

With innovative marketing strategies such as Midnight quizzes and a countrywide drive to send cards to the jawans on the border for Independence Day, these upcoming niche e-commerce sites prove that expanding horizontally and being the ‘Master of all Trades’ may not be a strategy that works in the future.

What the Future Holds?

The future is e-commerce. The Internet has added an entirely new level of convenience and consumer service to shopping that no physical retail stores can match.

From the big daddies’ of e-commerce such as Indiaplaza and eBay India to next generation of businesses such as Local Banya, all believe that the Indian e-commerce story is ready to grow exponentially. Large offline retail chains are expected to enter the online space, mobile commerce is picking up and awareness about online shopping is spreading to rural India. While some businesses are using traditional mediums of advertising to increase their reach, others are betting big on search engine optimization while another sector focuses on guerilla marketing strategies to engage customers.

 

There is no doubt that e-commerce has penetrated deep into India and the industry is now poised to become a vibrant business eco-system.