Click,shop,sell

Advertising is the foremost indicator of the vitality of a company or a business. Prosperity,even its anticipation,is usually a big driver for ad spends. The references above,therefore,are good indicators of the fact that the e-commerce space in India is buzzing.

E-commerce refers to buying and selling of goods and services over the internet. “There are more than 100 aspiring e-commerce entrepreneurs in the market today. We get at least three proposals a week for funding,” says Suvir Sujan,Managing Director and co-founder,Nexus Venture Partner,a leading venture capital firm.

On the face of it,it seems audacious that a bunch of aspiring entrepreneurs,still green behind their ears,are seeking to redefine the buying behaviour of a people who proved a hard nut to crack even for the most toughened businessmen such as Kishore Biyani and Mukesh Ambani. Yet,as Sujan says,“Their excitement is well-founded.”

Sujan speaks from experience. He successfully rode the wave of e-commerce that hit Indian shores around 2004 (India missed the first wave in 1999-2000 because unlike in the West,the dotcom boom and bust happened almost simultaneously here) by first setting up an online auction site,bazee.com,and then selling it off to the world’s largest e-auction player,eBay,for $50 million.

There aren’t many survivors around from that first wave in India in 2004. Those who managed to stay afloat are today worth billions of dollars. Launched in India in September 2005,online travel agency makemytrip.com,for instance,was valued at close to $1 billion at the time of its listing on Nasdaq in 2010. “Everyone today wants to be the next makemytrip.com,” says Sujan.

The Two Waves: Then,Now

On the ground,nothing much seems to have changed between the current and the previous e-commerce waves. Like the previous wave,this time too most entrepreneurs are chasing the fabled “potential” of the Indian market. Like then,the action now is primarily driven by ambitious entrepreneurs wanting to make it big. And motivated by the same reasons,there are enough private equity and venture capital investors this time too,ready to oblige these deal hunters. In the past eight to 12 months,at least 10 e-tailing,or electronic retailing,ideas have been funded by investors with the average investment being $1-3 million. More than 20 online retailing sites have been launched in the past six to 15 months with more or less similar models.

According to the Internet and Mobile Association of India,a body of new media companies that studies consumer trends,in 2009,e-commerce was mainly driven by online travel that accounted for 76 per cent of total e-transactions worth Rs 19,688 crore. E-tailing or non-travel consumer transactions accounted for a mere 7.8 per cent. The projections made by the study for 2010 and 2011 don’t signal a major shift in this trend except for the fact that the overall e-commerce pie may expand to Rs 31,598 crore and Rs 46,520 crore respectively.

The Social Networking Phenomenon

A stark difference this time,however,is the emergence of social media platforms such as Facebook,LinkedIn and Twitter. “Facebook and Twitter are the lifelines of our business,” says Anisha Singh,founder and CEO,mydala.com,a group-buying online platform launched in December 2009. “Unlike the previous time,when players had to resort to traditional advertising platforms,which are very expensive,to promote themselves or even to find buyers,this time,we have social networking platforms which have become a medium unto themselves in building the buzz,” she says.

“India has around 20 million Facebook account holders and more than 15 million LinkedIn subscribers. This internet-friendly population is playing a crucial role in scripting the e-commerce success this time,” says Sujan. “If you have a good deal on offer,you simply have to put it out on these platforms and the rest is taken care of,” says Singh.

The other interesting development is the emergence of the non-metro consumer on the virtual platform and for them,the driving force has been television. “With TV reaching far-flung areas in the country,people are getting exposed to things they hadn’t seen or heard of. They now want to possess them,” says Hitesh Dhingra,founder and CEO,letsbuy.com,a site that sells gadgets. But availability can be a challenge in smaller cities and towns. Enter online platforms. “We are making things available to them at zero cost and also at cheaper rates and they are loving it,” says Dhingra.

According to Dhingra,more than 50 per cent of his customers are from tier-II and tier-III towns. “We have sold computers,cell phones,accessories and even LCD screens to customers in Kanpur,Karnal,Bhatinda,Ajmer and several remote places in Maharashtra,” he says.

The market has also matured in the past five to six years. Going by different estimates,there are around 80-100 million internet users in the country today as against 30-40 million in 2005. Likewise,the number of electronic card holders has gone above 200 million and there are more than 20 million people with credit cards,who are more comfortable using their cards online than they were earlier. “India,today,is the third largest internet market in the world. But Indians are way behind several smaller internet markets such as France in terms of online buying,” says Ananya Bubna,who launched the group-buying site so-sasta.com in 2010,bought by the leading US-based group-buying player Groupon earlier this year. Bubna now spearheads Groupon’s operations in India.

What Indians are Buying

Indians,by instinct,are bargain hunters and e-tailers are playing on this weakness. “We offer discounts,anywhere between 15 per cent and 80 per cent,on goods we sell and netizens are lapping them,” says Kunal Bahl,CEO and founder,snapdeal.com. Bahl claims Snapdeal gets at least 1.2 million visitors a day and of them,10,000 to 20,000 definitely buy something. The average size of a transaction on his site is

Rs 750 and all transactions are card-based,he says. On April 27,Snapdeal sold 100 prepaid recharge coupons for various telecom brands in just one minute. A few weeks before that,the site sold 300 Gucci wallets,available at 77 per cent discount,in 45 minutes.

Group-buying sites such as Groupon and Mydala also operate on the discount plank. The difference is the discounts are valid only when there are a certain number of buyers available for a deal. And thanks to social networks,gathering crowd is not a challenge anymore. The most popular categories online are gadgets and electronic items such as computers,peripherals,mobile phones,cameras,pen drives and MP3 players; kitchen appliances,dining,grooming and personal care services,apparels,movie tickets and various subscription services. Players such as Naaptol claim to be catering to 4,000 customers a day,selling them 200,000 products.

Flipkart,one of the most successful players retailing books,DVDs and music,recently introduced the concept of cash-on-delivery. This single step,according to one of its founders Binny Bansal,has helped the business tremendously. A lot of buyers are still wary of making online transactions and a large number has no cards at all. Cash-on-delivery helps tap this segment.

“Today,50 per cent of our orders are cash-on-delivery,” he says. “We ship 500 orders a day to towns where there are no courier services. We have to send them by registered posts,” he says. There is a huge pent-up demand in cities and towns with underdeveloped retail network. “People want to read good books and watch good films. Going to a store is not only tedious,the choice is limited too. Whereas,we offer a varied choice on one platform,” he says.

Who Sells?

A dirty secret of the business is that more than the buyers,it is dependent on sellers,or the merchants whose products and services are offered to consumers on massive discounts. Most of them are small-time vendors with no means to reach a large number of customers on their own,some have perishable inventories that are better sold on discount and for some others,such platforms offer an alternative channel of sale with no costs involved. According to a survey by market research agency The Nielsen,eBay was the primary or the secondary source of income for around 13,000 merchants in India in 2008.

“The number must have significantly gone up,” says Muralikrishnan B,Senior Director,Marketing and Product,eBay. “Online buying and selling is a win-win situation for all involved. Customers get a large variety of choice,convenience,low prices and also,with more responsible players coming in,quality products and services. Vendors save on marketing and logistical costs and even the cost of acquiring customers.”

The sites make a margin of 15 to 30 per cent on every transaction. For most,the business is not self-sustaining as of now but they are optimistic that unlike the first wave,there will be more winners this time than those going belly up.

Even the experts can’t dismiss this optimism. “In the medium to long term,the internet will be a significant channel in influencing consumer buying decisions and driving commerce. There are,however,factors,such as the successful rollout of networks,device penetration,the creation of attractive online and multi-channel concepts and payment systems which will determine growth rates,” says Laxman Narasimhan,Director,McKinsey India.

Besides standalone operators,experts feel that in the coming days,even organised retailers will begin tapping the online medium. In developed markets such as the US,offline retailers generate 5 to 20 per cent of their revenues from online sales. “Given the potential of e-commerce,competition is only going to increase in the times to come but India will be a large online market in the longer term and there will be space for everybody to thrive,” says eBay’s Muralikrishnan.

In one of its recent reports,McKinsey projected that there will be more than 350 million internet users in the country by 2015. “This is bigger than the entire population of many developed countries across the world,” points out Groupon’s Bubna. McKinsey,meanwhile,is betting big on the mobile internet population in the country. “India has a large potential in the mobile-internet space. Depending on how supply evolves,we believe that 50 per cent of the 35 million internet users can access the internet through their mobile phones. Companies need to ready themselves now to be able to exploit this opportunity,” he says.