Can e-commerce ventures play a role in India’s consumption story?

Can e-commerce ventures play a role in India’s consumption story?

Back in 2000, when Deep Kalra (now the founder and chief-executive of MakeMyTrip.com), wanted to launch an Internet business, he knew it was too early for the Indian market. But, he still launched it, with an important strategic change to his plans. He focused on the non-residential Indian market and MakeMyTrip.com was born.

Over the next few years, the information technology industry led a consumer revolution in the country. Indians started traveling more, spending more and more importantly, had easier access to credit and debit cards. In 2004, Kalra knew the time was right to re-focus on the domestic market. MakeMyTrip.com was one of the earliest e-commerce ventures in the country. It is still thriving and recently listed on NASDAQ and it was the first large Indian e-commerce IPO in the U.S. It reported a net profit of U.S. $1.3 million for the quarter that ended in June 2010. The company is growing at phenomenal pace, with revenue growth of 49 per cent year-on-year.

To tackle everything from distribution hiccups to logistical and payment platform challenges, Indian e-commerce companies are merging western ideas with ‘Indian’ strategies.

For over ten years now, we have seen several Indian entrepreneurs take the plunge into the Internet industry. Of note, the services-driven businesses were the first to take off. The story unravelled as Indians started travelling more. The result: a slew of travel portals including Cleartrip.com and Yatra.com emerged. Matrimonial services – a concept unique to the Indian market – saw tremendous growth and success. Naukri.com pioneered online jobs and IndiaGames.com, the online gaming company, made some early inroads as well.

Growing business opportunity

Over the recent few years, several entrepreneurs have sensed a growing opportunity in the products e-commerce space, thanks to rising Internet usage, technology advancement with stringent fraud prevention tools, gen-next who find it easier to transact on the Internet and more importantly, two-way communication between the buyer and seller through blogs and VoIPs.  And the evidence is there for all to see. Some of the early starters like Flipkart.com have seen tremendous growth since their inception.

In 2007, Sachin Bansal and Binny Bansal, ex-amazoners, started up FlipKart.com, an online bookstore focused on the Indian market. They wanted to build India’s Amazon.com and they have grown at breakneck speed till date. Their revenues touched Rs. 25 crore in the year 2010 and they are targeting Rs. 100 crore in the next financial year. The success of FlipKart, in some sense, is an indication that products-driven e-commerce ventures will work in India. The logistics and distribution industry, which is critical for this sector, is going through a transformation as well.

Many experts believe that India’s e-commerce industry is at an inflection point. With the e-commerce industry expected to grow at 30 per cent annually, the sector is surely evolving. The fact that India currently has over 71 million Internet users (a 42 per cent growth from last calendar year), according to data reported by Indian Market Research Bureau (IMRB) and the Internet and Mobile Association of India (IAMAI), just reiterates the business potential waiting to be unleashed. But, what is important, as is the case with any other business, is to identify and have a clear grip on your target audience and product category.

Get your fundamentals right

There are several unique ventures springing up across the nation – whether it is selling books or selling diamonds online (Caratlane.com, much like the US-based Bluenile.com) – entrepreneurs are now more confident that the Indian consumer is ready to buy online. But, for online retailers to drive traffic their way, certain fundamentals need to be in place, starting with identifying a product category, working the supply chain and managing the user experience online.

Take the case of Amazon.com.  When Jeff Bezos was setting up Amazon.com in the early nineties, he explained the idea of selling books online to his immediate boss. His boss, an investment banker, thought it was a great idea. But, he did not believe the idea would fetch Bezos more money than what he made as a banker. Back in 1992, when Amazon.com was starting up, the fundamentals of e-commerce were still not clear. The business model had to evolve and everyone from suppliers to customers had to be educated about the nuances of buying and selling online. Now, almost two decades have passed, and the fundamentals are on the table.  And Bezos earned himself a place in the pages of the web’s history.

Now, with the growth seen over the last two decades many strategies have better clarity.  Amongst the first things to do is to identify the niche. Mitra reiterates, “I recommend that entrepreneurs find a niche segment to zero in on.” Remember, Amazon.com started with books. Blue Nile sells diamonds. Diapers.com sells diapers. All these are niche product categories, but, clearly their target audience is well defined.

Once this is done, understand the market. For this, Sramana Mitra suggests, “Do a full-fledged market analysis on that industry segment, including competitive analysis and market sizing. A strong product strategy and user experience has to be defined.”

Clearly, an e-commerce venture works only if one can deliver a great customer experience. And then, as Subrata Mitra, partner at venture capital firm Accel India, suggests, entrepreneurs need to have the ability to bring in distributors and suppliers to ensure that the supply chain can scale.

While it is important to identify your niche and establish a clear target market, going forward, scale can come from expanding on product categories. FlipKart.com started off with books and over the last year, they have expanded their product offering to movies, music and mobile phones. Subrata Mitra, who sits on the board of FlipKart, explains, “Once a customer is tied in, it makes a lot of sense to dig deeper into the customers’ purse over a period of time, and therefore category expansion is natural.”

The simultaneous revolution

Interestingly, Jeff Bezos setup Amazon.com, a good 32 years after the first Walmart had been established. Unlike in the U.S., in India, both modes of retailing – offline and online- are evolving at the same time. As Sramana Mitra, Silicon Valley-based technology entrepreneur and strategy consultant, says, “Online and brick-n-mortar retail developing in parallel actually throws up a stronger opportunity for specialty retail, than if they developed in sequence. One leverages the other, and as a result, in India, I fully expect that new brands will emerge over the next decade that have both online and physical presence.”

From distribution hiccups to logistical and payment platform challenges, Indian online retail ventures are merging western ideas with ‘Indian’ strategies. Whether it is the ‘cash on delivery’ model or ‘offline relationship centers’, Indian Internet entrepreneurs are ready to experiment, listen to the customer and innovate accordingly.

The backend – logistics, suppliers and technology

Almost every successful retailer in the world, online or offline, had a great back-end. To put it very simply, the front-end or customer service, has to ensure the user experience is extraordinary. The back-end drives efficiency and is the backbone of top-notch customer service. In India, almost every aspect of the back-end is evolving by the day.

Going back to the Amazon.com example, in the initial stages, the company benefited immensely from the back-end established by the U.S. retail industry. The whole retailing ecosystem had to be educated and revamped to accommodate an online retailer, but, the basic back-end existed. In the late nineties, Amazon.com hired several high-profile executives from companies like Wal-Mart Stores to manage everything from warehouse operations to distribution management.

India’s logistics and distribution industry is going through a transition. Suppliers are beginning to understand the benefits of selling online. Technology ensures suppliers, customers and partners stay connected and inventory management is on track. Along with large organised retail companies like Future Group and Reliance Retail, several smaller entrepreneurs – across technology, inventory management, warehousing and supply chain – are emerging. The development of these smaller entrepreneurs and a robust backend ecosystem will play an important role in the growth of e-commerce in India.

Touch and feel factor

Fundamentally, Indian consumers are very different from consumers in other markets. They like to analyse products in depth, touch and feel them before they make a purchase. While for companies like FlipKart, which sells books, it is easier to break this mindset, it is that much more difficult for companies that sell, say, clothes or electronics.

Ishita Swarup, founder of 99Labels, an online fashion retailer that sells fashion and lifestyle products at a discount, says, “The current strategy is to focus on our online platform. Our photo shoots of products are fairly elaborate and give as close to a real life experience as possible. Every aspect a customer is worried about is addressed, be it size charts or detailed product descriptions.”

99Labels is a member-only portal which sells discounted fashion apparel and lifestyle products, primarily working with fashion labels looking to sell excess inventory. While the Indian consumer loves the touch and feel factor, the fact that products are available for a huge discount is the primary value proposition of 99Labels. Swarup believes that once a customer tries out their offering, they typically come back for more. 99Labels has flexible return policies in place to entice newer customers to try out their service.

Following a slightly different strategy from 99Labels, BlueBusTees and Saffront Art are working on an integrated online-offline strategy for their businesses. BlueBusTees, an online retailer of t-shirts with one-line slogans, has recently partnered with The Bombay Store, to sell their t-shirts through the retail channel. Says Pranav Kapur, founder of BlueBusTees, “The fundamental reason we are expanding offline is to build a brand and drive more traffic to our website. All our t-shirts have our URL printed on them.”