This document provides an update on the E-Commerce Market in India

1. development, surge in internet and Evolution of E-Commerce in
E-Commerce smartphone users.
India
Market in India E-Commerce in India
The first wave of e-commerce in India (from
1995 to 2000) was marked by B2B directories
E-commerce in India is steadily mushrooming being emulated by the classified services of
The rapid growth of internet and mobile on account of favorable developments in the the online matrimonial and recruitment
telephony in the developed and developing supporting ecosystem and other humane services.
countries has been responsible for the aspects inter alia the hectic pace of urban life,
The entry of low-cost carriers in Indian in 2005
transition in the modes of transaction over rising fuel prices and parking space constraints
promulgated the second wave in e-
the past decade. The growth of internet and at retail localities. Retailing in the cyberspace
commerce as consumers started adopting the
mobile telephony has reciprocally been has gained acceptance among a section of
internet for selection of travel destination and
instrumental in the development of new Indian e-urban population.
reservation with regard to the same. The
business models, namely e-commerce.
The “online emptor” space is magnifying in a success of the online travel segment helped
Global spending in online B2C1 transactions is multitude of activities such as purchase of increase the Indian consumer’s acceptance of
estimated to be about US$1.2 trillion (2012) travel, movie, accommodation reservations, the online media for other retail
and the spending in online B2B transactions is reading material, matrimonial services, requirements, leading to the development of
estimated at about US$12 trillion (2012)2. The electronic goods, fashion accessories, and the online retail fora.
global e-commerce market has grown rapidly. even grocery.
The growth of online retail was partially
However, the growth rate has not been 4
The B2C/C2C e-commerce market has grown driven by the metamorphosis in urban
homogeneous across jurisdictions, attributed
at about 50% CARG5 over the past 3 years to consumer lifestyle and need for convenience.
to different market dynamics such as
capture a market dimension of approximately Online retail in India developed further with
development of supporting infrastructure,
US$9.86 billion in 2011 and the B2B e- the launch of multiple online retail websites.
regulatory framework and cultural ethos of
commerce market is estimated to be These new businesses were driven by
people. The USA, UK, Japan and South Korea
approximately US$48.8 million in 2011. 6 entrepreneurs who looked to differentiate
are the major e-commerce markets with a
themselves by enhancing customer
cumulative market share of more than 50%
experience and establishing a strong market
(2011)3.
presence, collaterally.
Emerging markets such as Brazil, China,
Furthermore, logistics infrastructure, internet
Russia, Mexico and India are expected to
penetration, charge card penetration, mobile
witness high growth in the e-commerce sector
telephony and mobile wallets, have all helped
subject to a precipitated economic
4 the second wave of e-commerce
Business to Consumer / Consumer to Consumer
5 entrepreneurs in India to develop a successful
1
B2C - Business to Consumer Compounded Annual Growth Rate
business
2
BuddeComm Research
6
“Digital Commerce,” IAMAI reports, March 2011,
3
Forrester Research p.4;

2. Characteristics of the E- of competition and reduction of commission The online classifieds market grew at a CAGR
Commerce Market in India structure for travel reservation agents. of 33% (2008-11) and is currently valued at
Facilitation of accommodation reservation in approximately US$ 292 million. Owing to the
The B2C e-commerce sector in India can be
India is the close target space after travel concentration of keen online advertisers in
split into two broad categories: travel and
reservation, given the high commission urban locations, online classifieds are mainly a
non-travel. Online travel is the largest B2C e-
margins (approximately 25-30%), though the phenomenon of the top 30 to 50 cities in
commerce segment in India, accounting for
unorganized nature of the small to medium India.
approximately 81% of the e-commerce market
sized accommodation facilities poses a
revenues in 2011. The online non-travel
challenges.
market is further segmented into e-tailing,
digital downloads, financial services and
Drivers of E-Commerce in India
Analyzing the non-travel, e-tailing market in
classifieds 7 The non travel segment of the e-  The discretionary spending in India is
India, contributed to approximately US$572
commerce market is expected to drive the million that accounted for ~ 6% of the e- expected to rise from 52% in 2005 to 61%
next wave of growth, backed by the flurry of commerce sector revenues in 2011. Within e- in 2015 and 70% in 2025. The annual
B2C e-commerce platforms targeting all the tailing, consumer electronics emerges as the disposable income per household is
niches in the market today. most traded product category online expected to increase at a CAGR of 5.1%
accounting for about 50% of all online from 2005 to 2025
The fragmented nature of the travel industry
transactions.
has motivated the growth of the online travel  Around 40% of the internet users in India
market in the country. The online travel In bullion driven economies like India Cash-on- are users in the age bracket of 25-34
market has grown rapidly at a CAGR of 52% Delivery (COD) payments have helped Indian years, who spend a significant time on the
from approximately US$1.5 billion in 2007 to consumers overcome their inertia of online internet and also are the working
approximately US$8 billion in 20118. The OTA purchase. COD has expanded the customer
9 population.
market penetration has also increased from base of e-commerce companies beyond
2.2% in 2005 to 28% in 2011.10 Online ticket  The Indian consumer is price-sensitive and
charge card users and has attracted
reservation is the largest segment in the consumers like students who do not have discounts are a key incentives to purchase
online travel market with about 90% share of charge cards but spend maximum time on the online.
the US$8 billion pie. Online air travel internet compared to other age groups to use  E-tailers in India are providing various
reservation is the most prominent segment the media to purchase books, music, software, value-added services such as free
with about 50% penetration. This segment of fashion accessories amongst other products in shipping, product returns, product and
the market faces threat due to an increasing the country. price comparison, user reviews and
7
A short ad in a magazine (usually in small print) Group buying has seen a phenomenal rise in demonstration videos, etc.
and appearing along with other ads of the same terms of the magnitude of consumers visiting All these factors are driving the change in the
type and availing the group/couponing deals. The preference from offline to online retail among
8
ResearchonIndia, & MakeMyTrip limited market size of the ‘deals' segment was the Indian population.
9
OpenTravel Alliance estimated to be US$76.3 million in 2011
10
ResearchonIndia, & MakeMyTrip limited

3. Challenges in Online Retailing - Stocking: Online retailers stock Investments in E-Commerce
products by buying them from the
The primary intention of a transaction even
suppliers. This results in additional risk sector in India
for an e-commerce company is customer The requirement for funds, coupled with the
satisfaction which promulgates offline, which in the form of inventory risk, as well
as a need for SKU management and growth potential in e-commerce has made the
brings a certain set of challenges.-
warehousing. sector a favorite among venture capitalists
- Logistics: Logistics cost in India is - The initial investment required to (VC). The e-commerce sector in India
among the world’s highest due to the start an online venture is as low as a attracted an investment of approximately
poor physical infrastructure in India, approximately US$10,000-20,000. This
US$305 million in 37 deals from January 2011
which has forced online retailer to is making it easier for the
entrepreneurs to secure funding to November 2011, which was 454% more
develop their in-house logistics
capacities easily. This has lead to a flurry of e- than the US$55 million raised from 12 deals in
- COD: COD is a double edged sword – commerce players in the market with the sector in 2010. The investments in the e-
Though COD assures sales, its little or no differentiation commerce sector accounted for more than
implementation adds another layer in - Rapidly changing business models: 20% of the overall VC investments in India in
the supply chain in the form of cash Due to heightened competition and
2011.11 Further, deal sizes in the second round
handling. It increases the settlement inability to sustain high costs, business
and subsequent rounds have more than
period between the online retailers models in the e-commerce sector
have been changing rapidly. Hence, doubled in 2011, compared to earlier years.
and the courier companies to 2-3
weeks, which stretches the cash companies in the e-commerce space
collection cycle of online retailer, as need to adapt to changing business
well as additional reduction in models and innovate constantly to Future Outlook
revenues in the order of 1-2%. sustain their business. The culmination of the e-commerce era in
- Tax: Non-uniform and multiple tax - User Location: E-commerce market in India is only at its alpha stage now. The road
rates across states in India, has an India is mainly restricted to urban with an inception of novelty has various
impact on transfer of goods from one areas, with majority of business
challenges to be addressed, and markets to be
state to another. coming from urban areas.
- Language: Lack of vernacular content tapped. E-commerce in India has hit only the
- Touch-and-feel Factor: Most Indian
consumers prefer to try/test/sample a on the e-commerce websites is tip of the iceberg. The expansion of internet
product before purchasing it. The lack another reason for the low user-base, increased broadband penetration,
of touch-and-feel in online shopping penetration in rural areas. introduction of 3G services, smart phone
can lead to issues such as wrong - Customer Acquisition Cost: Cost of penetration and progress in consumer ethos
product sizes (shoes, clothing, and customer acquisition is high due to
have been the key facilitators of growth. India
personal accessories) which forms a lack of differentiation and zero
looks to widen its e-commerce space with
mental barrier for consumers to shop switching cost.
improved logistics and physical infrastructure,
online.
11
Businessworld.com website

4. increasing vernacular content, and the masses
attitude the market is expected to grow
manifolds.
About the Author
Anirudh has worked as a management consultant, for about 5 years and has had the opportunity to work on several
projects for Indian and International clients in the areas of Strategy Formulation, Validation & Implementation, Business
Planning, Entry & Expansion Strategy, Feasibility studies & Location Advisory and Market Assessment.
His work has entailed, advising several companies across sectors, such as, Telecom, Media & Entertainment, Mobile Value
Added Services, Information Technology, Infrastructure & Financial Services, Real Estate, Manufacturing, etc.
He has also been involved in a conceptualizing four entrepreneurial ventures; which have given him the exposure to
fundraising, funding requirement, negotiations with investors, return appetite for various categories for investors and
investments.
His most recent venture was in the E-Commerce market in India, some firsthand experiences of which have been
Anirudh Chari highlighted in this article.
Disclaimer
All views and opinions in this article are personal
and/or have been gathered based on extensive
research in the sector and personal interest. All
data points have been collected through secondary
research, informal industry contacts and I have not
undertaken any additional work to establish the
reliability of the sources or to evidence
independence of the relevant source. Wherever
sufficient information was not available in the
public domain, suitable assumptions were made to
extrapolate values for the same.