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E-commerce or e-bubble?

While the 2nd round of e-commerce activity in India started in 2007-08, it was only at the beginning of 2011 that trade pundits started talking with confidence about the return of e-commerce as a viable business activity. Rachit Vats reports. Ecommerce industry numbers | Celebrirty and endorsements in 2011 | Top e-retail sites by users number

india Updated: Jan 30, 2012 01:21 IST
Rachit Vats
Rachit Vats

While the second round of e-commerce activity in India started in all seriousness around 2007-08, it was only at the beginning of 2011 that trade pundits started talking with confidence about the return of e-commerce as a viable business activity. Some major e-commerce sites that had shown initial success in drawing consumers expanded operations and, like in the case of flipkart.com that started off as an online bookstore and expanded to consumer electronics, extended their propositions. http://www.hindustantimes.com/Images/HTEditImages/Images/30_01_buss05.jpg

Everyone in the know started saying that this time around, consumers would respond positively to the online buying proposition as people beyond the metros and big cities could access products and services they had no access to earlier. This would be very unlike the first dotcom bubble that burst around 2000 because of poor ‘business’ blueprints.

This time around, besides the metros and large cities, small-town India has responded very positively and transaction sizes have been rising dramatically. Consumers across urban India, according to published reports, are not fighting shy of deal sizes that cross Rs 20,000-25,000 today. Earlier, they stayed in the Rs 2,000-5,000 range. According to a Vizisense study in 2011, adoption of e-commerce product sites is higher at 57% in urban India beyond the top eight metros’ 43%. For service sites too, the pattern is similar at 54% versus 46%.

Therefore, e-commerce seems to have become a very good business idea as India’s huge consumer population, aspiring for more and better if it can access them, is opening doors and prospects for online consumer-based businesses. With entry costs comparatively low, at least to start off with, the second half of 2011 and the beginning of the current calendar have seen the launch of a good number of new e-commerce sites spanning across an expanding pool of propositions.

Everyone wants to be a part of this race. Experiments by the dozen are emerging week after week. Consumers are spoilt for choice. There is, in many cases, an explosion of me-too e-commerce ventures, while in other cases, there is a genuine attempt to create differentiation and a long-term vision.

With angel funds and venture capital firms more than willing to look at e-commerce start-ups for funding, the fire is getting further stoked as even more new start-ups are cropping up in what industry pundits are still calling a nascent sector. http://www.hindustantimes.com/Images/HTEditImages/Images/30_01_buss06.jpg

Are we seeing another bubble building up? How spoilt can you make the consumer before he/she gets more selective? Can all e-commerce ventures successfully handle their biggest challenge — that of the logistics behind the products and services they offer online? According to research by Vizisense, almost 50% of e-consumers conclude their transactions on their first site of choice itself. As e-commerce sites explode across all propositions, how will all of them manage to stay in the target consumer’s consideration set? What is the profitability timeline most e-ventures are looking at? What’s pushing the valuation so high?

“The bubble thing is very valuation-driven and takes place when unreasonable appraisal is demanded. There are many players entering the market and that’s good. However, it is difficult to say how many similar experiments India can absorb, and at the same time, it’s unfair to say that India will have just one or two leaders. We’ll have our own ecosystem with multiple leaders,” said Gautam Sinha, partner, MyFirstCheque, an upcoming venture capital firm.

The average breakeven period is anywhere between three-to-seven years. Flipkart started in 2007 and is looking to achieve profitability over the next two years, ahead of its 2015 target. "We are already profitable at the gross margin level. The growth is fast and from Rs 50 crore revenue in 2010-11, we are looking to cross Rs 500 crore in the http://www.hindustantimes.com/Images/HTEditImages/Images/30_01_buss07.jpg current financial year," said Ravi Vora, VP marketing, Flipkart.

Flipkart has so far raised close to US$31 million (around Rs 750 crore) at a valuation of $ 1 billion. The company raised funds to build capabilities in logistics, technology, customer support and marketing, to scale up the business. “E-commerce is in the nascent stages and is growing fast as there is a lot of value for customers. There are a lot of players who are trying to fulfill the demand that is there. The big difference is that some players are making a lot of investments in the backend, which is a must, while most others are making the same mistakes that were made in the earlier dotcom bust,” said Vora. “We’ll look at raising more funds to fulfill more capabilities,” Vora said.

Deal site Snapdeal.com, which also retails products now, has so far raised close to Rs 260 crore. Ever since its last series of funding, an investor who has seen promise in the company has shown interest in pumping in more money, which could be equal to or more than what the firm has raised so far.

“Our goal is simple. We want our customers who go out shopping to try out Snapdeal before making any purchase. He’ll always come back for more,” said Kunal Bahl, founder, Snapdeal. “We are building India’s largest online deals and products destination. You need a lot of expertise to do that. We are gearing up for the future and doing everything possible to make sure consumer and the investor interest is sustained,” said Bahl.

Snapdeal is hiring engineers from the IITs to make sure its website is accessed in less than a second. Further, beginning March, the site will see “an explosion of categories. In every category, there are a lot of players but you need to build your way up through differentiation and customer satisfaction. That’s where most of our investments go in,” said Bahl.

For an industry still at a nascent stage, its straddle in indeed expanding fast, covering every conceivable product and service proposition — women’s fashion, men’s fashion, shoes for men and then shoes for women, kiddie stuff, followed by accessories, groceries, home furnishings, electronics and electricals and so on. And now, the straddle is expanding to even more niche propositions that include jewellery, spa products, dog food, automotive parts, plumbing works and anything that one can imagine under the sun.

“The bubble will burst for many companies, but those who have a long-term plan, investment in the right places and a differentiation will survive. So, we started out as there was a gap in the market for men’s apparel. There’s a market size for men, and there’s merchandise too. Our aim is to make Fetise the one-stop online destination for men’s shopping,” said Chetan Bafna, co-founder, Fetise.com.

“In general, there is much less talk about eyeballs in this phase of resurgence. There are more players talking about innovation and the actual transactions. And that’s exactly what venture funds are looking at when they go out to invest in e-commerce ventures,” said Paritosh Joshi, CEO, StarCJ, a home shopping TV channel with an e-commerce presence as well. “Our online presence touches anywhere between Rs 5-10 lakh on a daily basis and that number will grow.”

For the e-commerce industry in India, he predicted: “There will be consolidation and many firms with the me-too models will simply get knocked off.”

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