Site Navigation

Bunch of news last week related to developments in the ecommerce industry in India, so I decided to do a quick rundown on the current happenings and present some thoughts.

Clearly, the leader is online travel market. You can get a lot of stats here but the bottomline is that it comprises of majority slice of the ecommerce indusy. It is not surprising then, that there are so many players (as many as 8 of them VC/Angel funded) that its already getting overheated for its size. The next two major sectors are matrimony/dating and jobs. Online matrimony sites have recieved a bunch of funding recently from big Silicon valley based VCs. You can read some news here and here. Online job listing sites are also turning out to be quite popular among Indian customers. Monster India has quoted an impressive figure of 1 crore (10 million) registered users, in a country where total number of internet users is estimated to be 37 million (of which only 10 million are “power users”). And then there are other verticals like online real estate (which has a bunch of players) and online movie distribution (which got quite a bit of news recently)

One sector that is lagging behind at this point is online retail market, with few major players(notable ones include rediff shopping, indiatimes shopping, fabmall, ebay.in, firstandsecond etc.) vying for a small market (roughly $250 million including travel, which is a significant chunk of it [pdf link]). But finally it looks like this sector is no longer being ignored and lot of big players are making an entry in this market. Here are some recent news bits:
1. Reliance and Pantaloon plan to enter the online retail market
2. Alibaba coming to India
3. Godrej and Boyce to launch online portal
4. Dominoes online pizza ordering and ecoupons

Now some of my thoughts:
As mentioned earlier, travel, matrimony and jobs sector have already grown big. They have recieved lot of funding, have a considerable user base and are set for more growth in years to come. The interesting sector to me is online retail, because this is one of the proven models of Internet business and have a large pie of the ecommerce industry in markets other than India (just for some perspective, US alone has at least 100,000 online retailers and more than double this number if you count all the small merchants on ebay and other marketplaces). Its not that online retail is something new to Indian market, in fact this has been around for a while in India, but has really not picked up because of various reasons including
1. Lack of credit card penetration, mindset of the Indian online population and lack of quality overall experience for shoppers.
2. Another interesting angle is that there are so many new and fancy shopping malls (note that these are not only very upscale ones, but for middle class population too like Bigbazaar etc.) springing up in India, which is relatively new concept for Indian customers. These malls not only provide a great shopping experience but have added entertainment value also as they are often seen as hangout places as well.

Considering above points, I am sure online retail market will take off, how fast depends on (obviously other than increase in number of internet users) how merchants can make the online shopping experience better than #2 above. The reasons cited in #1 can be overcome if the online merchants can provide a real cost benefit and top-of-the-line shopping experience. Good shopping experience may include reliable and smooth delivery process, easy returns, dependable product and merchant reviews and multiple payment options. If someone is really interested, Startup Review blog has interesting case studies on Newegg and Zappos, the two successful online retailers in the US, who developed their business against all odds and have sailed through bad times.

Update: Just after posting this, thanks to Venture Intelligence Blog got a link to this article from businessworld [free registration reqd], which has some interesting stats on online retail market in India. The main ones being:

1. Online spend on retail was roughly $260 million in 2005-2006, which is still a very small fraction of the total $11.5 billion of organized retail.

2. About 35-40 percent of the online transactions on Indian sites are done from abroad

3. Things that people like to buy online are books, electronic gadgets, railway tickets, accessories, apparel, gifts, computers and peripherals, airline tickets, music and movies (in that order)

Couple of days back attended a talk at Stanford by Sabeer Bhatia on planning and development of the “Nano City” project. This has been in news last week, but he revealed a lot more details in the talk, which I will list here. The impressive thing about this project is of course the grand scale at which it is being planned. The project is much bigger than a typical SEZ, both in terms of the area being planned and the amount of investment planned. The idea of this project is to develop a complete ecosystem that promotes research, innovation and high quality development in high-tech industry.

Salient points from the talk:

• It is a public-private sector partnership between Haryana government and Sabeer Bhatia’s company

• It is being developed in a place 15 km from Chandigarh in Haryana on a land of around 5,000 acres

• A world class highway will be construcuted on the 15 km stretch, which will be an investment of $15 million

• Initially planned population density of the city is 100 per acres (just for some perspective: Delhi is 250 per acre, Mumbai is 1250 per acre, Manhattan 750 per acre), which means a total population of half a million.

• Infrastructure: $2 billion worth of investment on a power plant to supply electricity. Construction of dam on the nearby rivers to provide clean water

• Total investment for the development of this city would be roughly around $5 billion

• Plan to set up a top notch University to ensure a constant talent flow into the city. Currently in talks with some American and Australian Universities

• The 5 year plan is to have a population of around 50k and in ten years around half million (could be faster looking at how quickly Greater Noida has developed)

• The city would attract companies working on technologies like nano technology, biosciences, software product development, next generation Internet products, materials research and energy.

This could become a Shenzhen of India if it turns into reality, which will definetely encourage more state governements and corporates to take initiatives like these. Considering that there is so much [pdf link] foreign investment flowing in even with current poor infrastructure, it is mind boggling to imagine what could happen when more and more world class areas like this project spring up in India.

Another example of similar project that I spotted recently is the Smart City project in Kerela, although not much details out on this yet.

There was a news last week regarding the tie up between Sify and IRCTC. The deal mentions that customers can book railway tickets by paying cash at the Sify Iway locations. This will definitely open a new chapter in the way tickets are sold/distributed. Considering that currently the total revenue from online ticketing for Indian Railways roughly stands at a paltry 2%, the room for growth is huge. At the present time, the only way of booking tickets online is through IRCTC website. With this deal two major barriers are broken:

1. Internet access: Even if you choose the best sounding statistic of 37 million internet users (I say “best sounding” because the number of pepole who actually use the Internet at least once a week is just under 10 million), there are lot more people who are trying to book tickets. Going to cybercafe and paying cash to book ticket is just like going to a travel agent. This essentially means many more railway tickets “travel agents” at standardised rates. Couldn’t get better for customers!

2. Mode of payment: The IRCTC site accepts payment in the form of credit card or net banking facility, which is a major blocker for large number of Indian customers. A data from recently concluded IAMAI conference suggests that credit card bankable population is only 0.03% (add some such small figure for “net-bankable” population.) So its not surprising that number of customers using the site is only 25,000.

Lets see what gates could this deal open:
1. The deal does not mention that it is exclusive. So there could be more deals coming with Reliance Webworld and others.
2. The time may not be far when airlines also start using the cybercafe channel for ticket sales. Especially, budget airlines like AirDeccan which rely completely on web based bookings will need to find more distribution channels like this as they expand more.
3. In fact, this is an excellent channel for any other service that requires tickets sales. If I were to think of implementing a Fandango in India, this is surely one of the channels that I would use.

Currently there are around 3,300 Sify Iway’s in around 150 cities. The next step is probably to cut a deal with Reliance Webworld who have around 240 outlets in 150 cities. A bigger challenge (of course to get much more penetration) is to actually use hundreds of thousands of small standalone cybercafes spread all over India as distribution channels.