e-Commerce market in India

Executive summary

Although the trend of e-Commerce has been making rounds in India for 15 years, the appropriate ecosystem has now started to fall in place. The e-Commerce market in India has enjoyed phenomenal growth of almost 50% in the last five years.

Key factors driving the growth story of e-Commerce in India include:

• Considerable rise in the number of internet users
• Growing acceptability of online payments
• Proliferation of internet-enabled devices
• Favorable demographics

The number of users making online transactions in India is expected to grow from 11 million in 2011 to 38 million in 2015.Venture capitalists (VC) and private equity players have demonstrated their faith in the growth of e-Commerce in the country. This is amply substantiated by the significant increase in the total investments (US$305 million in 2011 against US$55 million in 2010).

Modes of e-Commerce transactions

Based on participants involved in the transaction e-Commerce transactions can be segmented into three broad categories or modes:

• Consumer-to-consumer (C2C) – Online classifieds, online travel
• Business-to-consumer (B2C) – Online retail, online retail/e-tailing, online classifieds, digital downloads, financial services, online travel
• Business-to-business (B2B) – Online classifieds

Size of the e-Commerce market in India

India’s consumer-facing e-Commerce market (B2C-C2C) grew at a whopping CAGR of 49.1% from 2007 to 2011 to reach a market size of US$9.9 billion. Online travel, the largest domestic B2C e-Commerce segment, accounted for 81% revenues in 2011.

Consumer-facing e-commerce market size(US$ billion)


Source:IAMAI

India’s e-Commerce ecosystem

Pros

• Annual disposable income per household to grow by two-and-a-half times by 2015
• Discretionary spending expected to form a major portion of expenditure in India
• Proliferation expected in the sales of PCs, tablets and smartphones
• More Indians increasing time spent online
• Probability of growth in internet user base, mirroring that of the voice user base
• Volume and average value of transactions higher for credit cards than debit cards
• Increase in the number of payment options

Cons

• Low average broadband speed and flat average internet speed cause for concern
• Online payment landscape marred by low penetration of credit and debit cards
• High failure rate of online payment transactions

Online travel

Online travel has traditionally been the largest e-Commerce sub-sector (by revenue) in India. To improve margins with online retail, online travel players are diversifying their offerings to include hotel reservations, along with the regular ticketing services. They however need to develop skill sets that are different from the ones required in the ticketing segment. Also, they need to manage challenges associated with a diverse supplier base, technological constraints, customer experience, authenticity of information and grievance redressal.

Online retail

This segment has evolved and grown significantly over the past few years. Cash-on-delivery has been one of the key growth drivers and is touted to have accounted for 50% to 80% of online retail sales. Players have adopted new business models including stock-and-sell, consignment and group buying; however, concerns surrounding inventory management, location of warehouses and in-house logistics capabilities are posing teething issues.

Online classifieds

Classifieds, the earliest entrant in the e-Commerce space in India, is undergoing a shift in operational model from vertical to horizontal offering. Players now offer a gamut of services ranging from buying/selling cars to finding domestic help/babysitter.

Challenges for the e-Commerce sector in India

The phenomenal growth of the e-Commerce sector is accompanied by certain challenges:

• Absence of e-Commerce laws
• Low entry barriers leading to reduced competitive advantages
• Rapidly changing business models
• Urban phenomenon
• Shortage of manpower
• Customer loyalty

However, e-Commerce is set to continue on its growth path on the back of the stabilization of the ecosystem and interest demonst