e-Commerce Growth in India –Challenges Funding, Growth Stats, trends and Ocean of Opportunities
India’s eCommerce awaits more billion-dollar babies – Yet to get its own Alibaba or Amazon
eCommerce gives improved user experience, flexibility and control to users to buy a product or service when they are ready to purchase – irrespective of time and location – This is the key for growth.
Due to fast adoption of Internet enabled devices like smartphone and tablets we have seen an unparalleled growth in eCommerce. The avalanche of telecommunication technology has completely changed the way of our living, communication methods, shopping etc. It has a huge impact on how we communicate with friends and relatives, how we travel, how we access the information and the way we buy or sell products and services.
Even though India has low Internet penetration –about 19% in comparison to other economies where it is up to 90%; size and potential are epicenter for the attraction of the Indian eCommerce market. India has a third largest user base with 159 million mobile Internet users –followed by America’s 250 million and China’s 550 million; has ample of opportunities. The number of mobile Internet users in India is projected to be twice and cross the 300 million by 2017.
Major Challenges of eCommerce in India
With around 1.25 billion populations out of which internet penetration is only 19% India has enormous opportunities for commerce. Besides being such a big marketplace (attracting global eCommerce players and investors) it has own challenges.
1. High Return Rates: Though the trend is changing still eCommerce players are experiencing heavy product return rates, which are incurring losses for them, as reverse logistics presents unique challenges..
2. Consumer prefer COD (Cash on delivery): Due to trust deficiency; still lots of people don’t prefer to use a credit / debit card or internet banking methods for transaction, rather they opt for “Cash on Delivery” which is risky and leads less business margin.
3. Payment gateways Inefficiency: Consumers usually experience a high failure rate of payment gateways. Usually once a customer does not reattempt after a transaction failure. It leads to loss of businesses.
4. Quality Internet penetration: India has an internet penetration of about 19% in comparison to countries like US & UK where it is up to 90%. However, that is not the concern for eCommerce players it is prospecting, the major challenge is about quality of connectivity. The speed and frequent drops cause frustration and restrict user from using eCommerce for their major source of buying.
5. Feature phones still rule the roost: Majority of the population resides in villages and rural areas where the majority of residents use feature phones, not smartphones. However, this shift is being changed and with a steady rate it is growing up.
6. Reliable Logistic and Supply Chain: India is a large country which has thousands of cities and areas which are not easily accessible. Though the Metropolitan cities and other major urban centers have not issue with supply chain, but the attraction lies in market size due to its large population. Through eCommerce consumer want to buy a product in not just efficient manner but also expect to get it delivered at their place in least possible time.
7. Computer/Internet literacy and effective reach: India has poor reach of personal computer (PC) which is very low as 3.5/1000 of the population, compared to Five Hundred/1000 US cause of digital illiteracy. The internet is still accessible by half of the internet user population through PCs with the help of telephone lines. Given the penetration of telephone only 2.1 per cent of the population, e-commerce remains far away from the common man. It is difficult for e-commerce to reach to 1,000 million populations spread over 37 million households in 6, 04,374 odd villages and 5,000 towns and cities. Besides, both cost of PCs and internet access in India are quite high.
8. Tax norms and compliances: Yet a lot of initiatives have to be taken by government to simplify complex tax norms which have different rates at different states.
9. Overfunded competitors are driving up cost of customer acquisition: The vibrancy in the Indian startup ecosystem over the past couple of years has channeled a lot of investment into the eCommerce sector. The long-term prospects for eCommerce Companies & players are so exciting that some investors are willing to spend irrationally high amounts of money to acquire market share today. Naturally the Indian consumer is spoiled for choice. However, this trend has reversed as investors are getting worried about slipping further down a slippery slope, and I expect more rational behavior in 2014.
10. Too many Players, startups have to struggle: Due to physical/infrastructure/technology and customer acquisition has challenged a startup doesn’t just need to raise huge amounts of capital rather they have to cultivate new ideas to gain popularity and win trust. Also, there are big chances that some big players who are currently brick and mortar business and have huge support of infrastructure, people, warehouses can use their money to evangelize the market.
Key Drivers of eCommerce sector growth in India:
- There is a massive growth in Internet and 3G Penetration:
Data from internetlivestats shows India has already surpassed numbers of Internet users than the United States.
— Sphinx Solutions (@sphinx_solution) August 19, 2015
Rising standards of living and ability to spend, the Indian market will be the third largest by 2020. (Sources – Worldbank)
- Availability of a much wider product range, legends and new eCommerce players (including online purchase from international retailers and direct imports) compared to what is available at brick and mortar retailers.
- Busy lifestyles, urban traffic congestion and lack of time for off-line shopping.
- Real product experiences, flexibility to compare services/product, enhanced shopping experience (payment, shipping etc.) through shopping cart.
- The 100 % focus on Mobile app strategy only- Shopping on apps vs. websites.
Focusing on Mobile technology is no longer a strategic decision for eCommerce businesses but a mandate. But mobile website V.S. mobile app is a decision many strategists still debate on. However, looking at India’s largest retailer, Flipkart gunning for the app-only strategy is a risky move that may prove to be successful in the long run. Even Myntra and Urban Ladder has a Mobile App only strategy. The main reason for this shift is to provide customers a great mobile experience which is definitely possible through an app than a mobile site. However, a lot of veterans in the market say this is a good move as they weigh the pros against the cons. From personalized recommendations to Geo targeting, a ‘Mobile App only’ strategy is the hero of the hour.
- Indian Ecommerce industry is going to hire 100,000 talents in 6 months!
Big players as well startups are aggressively hiring talents. These talents are going to create huge difference in terms of technology and marketing support for eCommerce players in upcoming years. Backed by robust growth, the leading 10 companies in the sector are themselves looking to absorb at least 15,000 professionals by December 2015.
- Evolution of Mobile App: Due to several big reasons, including 50% mobile internet access, two third generation under 35 years and high smartphone penetration the strategy of #MobileAppOnly with personalized discounts and offers is attracting Indians, and will soon imbibe the new shopping route.
Although brick and mortar based retail is still preferred, but due to favorable demographics and technology reasons the shift is being changed from the classical way to electronic channels. Individuals, companies and private equity firms investing in eCommerce sector In 2012 while the total eCommerce sale was 2.12 Billion US Dollars, while projected eCommerce sale will be 17.52 Billion Dollars by 2020. Along with this unprecedented growth and several other big reasons; investors are seeing eCommerce a favorable place to invest. Brought to you by Sphinx solution Along with big e-commerce players like Flipkart, Amazon, and Snapdeal who are seasoned with big investments; emerging companies and startups and niche portals like First cry, Myntra are also making their spot in the sun. Besides Tiger Global, Sequoia, and Naspers this year Indian eCommerce segment is grabbing the attention of new investors like DST Global, Soft Bank, BlackRock, and Sofina etc.
Global eCommerce funding
In the recent 5 years, investors have funded $30.3B dollars through 2,013 deals. The number of deals has seen a gradual upward trend from 166 in 2010, to 481 in 2014. The annual growth in dollar-amount invested globally has been uneven, but there was a significant leap from $4.8B in 2013 to $11.2B in 2014 with a 133% rise. In the last four quarters, including Q1’15, year-over-year growth slightly accelerated to 136% of $12.5B in investments.
There is significant retail opportunity in India, which is tied with a demographic dividend (young population, rising standards of living and upwardly mobile middle class) and rising internet penetration. From an investment perspective, the market is a primarily minority stake market, with maximum traction in early-stage deals. Such early stage funding will help companies develop a strong foundation to start from. With such strong market prospects and an equally upbeat investor community, we look forward to many more eCommerce companies from India entering the coveted billion-dollar club. Ambitious Digital India project and the modernization of India: An initiative by the government of India.
Realizing the potential, reach, ease and technology trends the government has taken major steps to offer a one-stop shop for government services through Digital India Projects via Smartphone Apps. These sorts of initiatives will also encourage to the eCommerce market.