eCommerce in India. Who will wake the sleeping giant? - Vivek Nayak
10th February , 2007
There are broadly two schools of thoughts in India on the state of online eCommerce in India. One school states that eCommerce in India has truly and well arrived and is like a giant who is taking great strides. The much quoted reference points are the increasing penetration of internet in the country, the popular Indian Railways website (irctc.co.in) where you can make reservations online in real time and the booming online travel industry. I, however, come from the opposing school of thought which feels that the Indian eCommerce industry is no doubt a giant, but I'd venture to say that he has only just begun to stir from the deep slumber he has been in and has just started to move his limbs. But he hasn't really woken up to true potential.
There is no doubt that the market in India is vibrant and holds immense potential. It is just that the online retail industry (click and mortar) has not moved with the same pace as the brick and mortar retail industry.
First let me quote some numbers. The Indian eCommerce website base is around 4500 to 5000 websites. Compare that to a market like US where over 12 million eCommerce web sites operate. That's like putting an ant and an elephant on the same webpage. And compare this with the figures on the brick and mortar retail space in India. India has one of the highest densities of retail store availability in the world. 12 million retail stores totally. That averages to one store for every 25 families. This is a figure that scores much better than the US and UK. So clearly there is no doubt that dle market in India is vibrant and holds immense potential. It is just that the online retail industry (click and mortar) has not moved with the same pace as the brick and mortar retail industry.
The eCommerce market size is reported to be moving from Rs. 5000 crores to Rs. 9500 crores in 2007 (Source: lAMAI: Internet and Mobile Association of India). The story behind these numbers is that the real market size is a little hazy since there is no general consensus among the key players as to what actually can be defined as eCommerce. But there is no debate that the lion's share belongs to the travel sector. The share of airline bookings, hotel bookings and travel related purchases is said to account for 60% to 70% of this figure. Compare this share with the share in the US market. Travel sector share there is way below 20%. So clearly, non-travel related eCommerce in India has a long way to go to before it can claim to have a significant share of the eCommerce pie. So here is the moot question. Why is the 'non-travel' sector of eCommerce not growing at the same quick pace as the travel sector is growing?
Well, there are many contributing factors. But mainly, online customers are not seeing significant value addition being delivered to them for their online deals. Most of the non-travel sector enterprises are pure-play Internet players who have little presence in the real world. Most recognized brands are either not visibly present on the Internet or have just put up a fancy 'showcase' website without bothering to enable it to handle eCommerce. So a customer who comes online with a serious intent to purchase stuff has to endure a situation something like a love triangle. 'The girl you really want ... doesn't want you at all. And the girl you simply don't want ... wants you badly.' In other words, the online surfer is either bombarded with sales messages from unknown (read unreliable) sellers who want him to put out his money online and close the sale, or he is seduced by reputed brands who just want to strut their stuff on the website and have no intention to sell online. To get closure on such a romance, the customer has to go to the nearest brick and mortar store of the brand and buy the product which incidentally may or may not be the same one he saw online. Naturally all this has an impact on the customers and online sales. When recognized brick-and- mortar brands don't come forward and use the medium of the Internet to offer better value to their customers, why will the customer bother to go and shop online?
The truth is most brick and mortar merchants have not woken up to the immense business potential of the web. Even among the few that have, they have not been able to translate their vision of exploiting the Internet into a coherent action plan. Few businessmen understand technology and most are looking for technology solutions that are available out of a box (fit and forget) to meet their needs. The fact that an entrepreneur can put up a virtual store that is open 24X7X365 to anyone on the globe at a laughable running cost is lost on many reputed brands. The brands that work fast to seriously capture this vacant real estate on the net will reap rich dividends in the medium to long run.
Indian eCommerce entrepreneurs will get global quality software solutions at an affordable price which will allow them to compete with the international 'biggies'
There are genuine roadblocks. There is an acute shortage of trained software technicians. The ability of a brick and mortar merchant to translate a business model into a technical brief to build a relevant software solution is very limited. Businessmen do not want to get into technology but they want technology to get into their business and solve their problems. If this miracle has to happen, then there needs to be a ready pool of programmers available who understand their needs and are available to create the solutions for them at a financially viable cost. But India has is no such luck.
Talented software programmers are highly valued individuals and are sucked up by the giant global software industry majors the very instant that they get productive. So it is practically impossible for the small business enterprise to compete. So, is the future growth of the eCommerce sector in India doomed to failure because of the lack of an Indian presence in the vibrant small eBusiness sector? Or even worse, will we be left in the hands of the global multinationals with deep pockets that have the opportunity to walk in and take over? Not just yet. Let's not underestimate the ingenuity of the Indian entrepreneur. This unique situation has given rise to a new breed of online B2B entrepreneurs. The ASPs (Application Service Providers) who use the Internet to deliver "software on demand" as a service.
The business model is simple. The ASP Company spends a large sum of money in getting an industry specific eCommerce application developed and then offers it as a paid service to multiple customers in an industry segment or vertical. The cost of developing the high-end solution gets amortized across multiple client companies and each client company simply pays a low entry barrier price to the ASP, along with a periodical payment such as usage fees or per transaction fee. This model offers immense advantages to small and medium Internet enterprises, especially start-up companies. In the earlier days, software was expensive and took years to install. Not any more. The applications are hosted and maintained by the ASP Company -- not an expensive internal IT team -- and then delivered over the Web like a service. This saves the entrepreneur huge start-up costs and makes it easier to get the business going quickly. They can start an online eCommerce enterprise at a fraction of the time and cost it would take to build and run their own eCommerce operation.
This trend is fast catching on in India now and ASP Solutions Companies like Avenues cater to over 4000 web sites through its various ASP Solutions. The great news about ASP solutions is that they can be delivered virtually anywhere. Those applications that are written for the 'on-demand software' platform can unite business processes across the globe and are indifferent to differing time zones. They greatly accelerate the pace of business while reducing error and costs. This means that Indian eCommerce entrepreneurs will get global quality software solutions at an affordable price which will allow them to compete with the international 'biggies' on even ground. If the high adoption rate of the ASP Solutions model continues, the next year could be the time when the non-travel related sector of the Indian eCommerce industry comes into its own and starts to make a significant impact.
Vivek Nayak is the Chief Operating Officer of Avenues. With a customer base of over 4500 eCommerce ventures, Avenues is South Asia's largest integrated ASP solutions provider. Its eCommerce Solutions, delivered in the ASP model, cover not just the general eCommerce segment but also cover specialized verticals such as travel and hospitality, entertainment and ticketing, event management and community management.