Thoughts Reflexion and Analysis for the Indian Market June 2014

8/11/2019 Thoughts Reflexion and Analysis for the Indian Market June 2014

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ThoughtsReflexion and Analysis for the Indian Market June 2014The e-commerce giants dominate the arena but

what will be the future of the small ones?


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From $2.5 billion in 2009 to $16 billion in 2013, the e-commerce market is expected to reach

up to $56 billion by 2023. The $75 billion giant Amazon couldnt avoid this market! In June

2013, Amazon, after quietly watched the local market, decided to make its entry into the

market with a marketplace format.

Since its launch, the company has gone from 2 categories to 24 and from zero sellers to morethan 1,000.

Amazon has been on the move, not only by launching category after category, but pushing

the envelope on other fronts such as next day and same day delivery and innovated by

piloting deliveries at HPCL and BPCL outlets and even dropping off packages at small kirana

stores in certain location.

Amazon takes its investment in the Indian market very seriously. It spent nearly $4 million on

lobbying in 2013 and did it again in the first quarter of this year to press its case.

While the Giant put its step in the market, the local big boys are standing their ground.

However, the battle is evolving into an Amazon vs Flipkart one, with Snapdeal as a scrappy

third rival.

The changing trend of the market: the Mobile-Commerce

Today, Flipkart is preparing to go to the battle. The company, which has raised $550 million

from investors, started off with an inventory-led model and changed into a full-fledged

market place, lining up an assortment of 4,000 sellers in its quest for $1 billion in revenue it

has already reached a year before its expectation.

The next battle wont be on the computers and broadband connections but over mobile

broadband users.


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In a country where there are over 930 million mobile subscribers against 160 million internet

users, the m-commerce can become even bigger than the e-commerce.

It is not denying fact that mobiles devices are far more affordable than desktops and laptops,

and an average Indian consumer doesnt have much disposable income in his hand to buy

high end devices. Plus, one doesnt even really need expensive smartphones to shop online ormake mobile transactions.

The affordability of mobile devices is a key of the development of the m-commerce.

M-commerce customers are not bound by limited wired and WiFi Internet connections. In the

last 3-4 years, the number of users who access the internet through a 3G connection has

grown to round 22 million. If you compare this figure with the 15 million fixed line

broadband connections accrued over the last 17 years, the difference is notable!

Mobile payments participate to that market trend. A customer can use a mobile phone to

transfer money or to pay for goods and services. So anyone who has a bank account can make

a transaction.

Last but not least a mobile has become an indispensable extension of oneself so people are

more comfortable using their mobiles for various activities, as it gives them a sense of


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privacy and security, while offering easy usability. Since already there are way more mobiles

in India than computers, m-commerce could gradually grow bigger than e-commerce.

The big squeeze in e-commerce

just 18 of them attracted a follow-up round.

In the past year to 18 months, there has been a substantial clear-out in Indias e-commerce

space, as investors have been wary of investing in this space, either backing large scale

players such as Flipkart or putting smaller amounts into high-margin niche start-ups.

The future of the Giant players

Indias e-commerce industry has reached an inflection point. Amazons entry has bought

some urgency and competition into the market. The consolidation of the market will have for

consequences to see emerging 3 or 4 large Indian players and a long tail of high margin

speciality players in categories such as apparel, accessories and jewellery.

In that context, the leaders of the market will open their development for inorganic growth.

Thus end of May we have seen Flipkart bought fashion portal Myntra in a deal estimated to

be worth $370 million.

Just to give an idea of how many different investors have invested in these 2 companies: the

two companies have three common investors, Tiger Global, early-stage investor Accel

Partners and Belgian family office Sofina. Flipkarts other investors are Naspers, Dragoneer,

Morgan Stanley and Vulcan Capital. Myntras investors also include Premji Invest, Kalaari

Capital and IDG Ventures India.

The market has been through several rounds

of churn, as Venture Capitalists initially

chased opportunity in the market, only to see

many of their investments crash and burn.

To give a figure from NextBigWaht, 136 e-

commerce firms shut down between

November 2012 and April 2013.

According to other data from AllegroCapital, 80% of all Indian e-commerce

companies are on their last legs, having

failed to raise fresh funds. Between 2010 and

2013, 52 e-commerce firms in funding, but


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Snapdeal too is keen on inorganic growth. Most recently it acquired Doozton, an online

product discovery firm, to expand its presence in apparel and fashion. Previously, it acquired

Grabbon, Esportsbuy and Shopo to expand into areas such as sports equipment, Indian

handicraft and strengthen its presence as full-fledged e-commerce market place.

However the real scale may come by adding new categories and products to their baskets. For

example, Flipkart has rolled out a range of furniture and wants to expand its presence in

white goods.

Snapdeal too is constantly ramping up several categories including some unexpected onessuch as car tyres where it is seeing strong sales.

Value-added services will be the next big battle in Indias e-commerce market.


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The future of the small players

Creating an online store is no longer limited to those who are adept with computer

programming. Entrepreneurs can bring their products and services online even with only a

little knowledge due to the existences of market place platform.But the model of the e-commerce in inventory management has shown its inefficiency in

term of profitability.

Thats why 80% of the e-commerce nowadays are on one leg and just use their last cash flow

before shutting down.

The two main reasons are:

-

Marketing spend is very reckless: the cost of the customer acquisition is very high. If

you are an inventory-led model, the pressure of selling it sooner and faster is higher

and that means you need to use more aggressive marketing techniques. Theconsequence is that you have to spend more money to acquire a customer. With the

level of marketing spent, profitability is impossible to reach

- Free shipping: in the USA and Europe, frees hipping for an online shopper is a

privilege and not a right! In India, free shipping kills the profitability of each delivery

Thus how can a small player can survive in this jungle where the big players raise million of

dollars and small players shut down one after the other.

The solution lies in an evolution of the format from a boutique to a showroom.


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Thoughts Reflexion and Analysis for the Indian Market June 2014

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