E-Commerce In India - The Second Coming

“We thought our biggest challenges would be to create a good Web site, provide a wide selection of books and provide excellent customer service,” says Binny Bansal, 28. Today their secret sauce is their in-house, delivery network. The scale is massive — 400 delivery employees at present and with a plan to scale that to 1,000 by the year-end. Of course, they can afford it thanks to the $31 million in venture capital they drew!

 But some are choosing to play it safer. Fashion and You started out in early 2010 as a “private shopping club” where a select group of members could take part in “flash sales” where high fashion ‘distress inventory’ (usually off-season products) would be available at discounts of up to 70 percent to 80 percent. The CEO and co-founder Pearl Uppal, 36, has expanded the site’s product range to include mobile phones and gadgets, but does not stock inventory. This does mean four-week deliveries and irate first time customers. But even the customers seem to be a bit more forgiving. “We’re today adding over five new subscribers every minute and shipping over 3,500 orders every day to over 350 towns across India. Our revenue by December should be nearly Rs. 150 crore,” she says. But even she is now building a 100,000 square feet warehouse.

BigshoeBazaar is an online cash and carry wholesaler for hundreds of small shoe stores across the country and is using a single 25,000 square feet warehouse, which will be enhanced to 100,000 square feet in a few months, to service shoe stores as far away as Dimapur in Nagaland and Katihar in Bihar. “The conventional supply chain uses up 20 percent of goods cost in inventory lying at various places — stores, warehouses, and in-transit. Using a single warehouse frees that capital and allows us to invest on marketing,” says Manmohan Agarwala, CEO, BigshoeBazaar. While a conventional wholesale network would need about two weeks to deliver a new order to a place like Dimapur, Bigshoebazaar says it is able to fulfil the order in three days.

It is this supply chain thinking that has allowed most online retailers to win a following in small town India. It is precisely this specially configured approach that conventional retailers will find hard to match because they are geared to serve the customer inside their stores. This can be considered a form of complementary offering.

Actually the complementary nature of online retailing goes a step further.

For that, take a look at Snapdeal.com. Part serendipitous discovery, part Groupon (the US-based Web site behind the insane group buying frenzy) clone, it was started 16 months ago by Wharton Business School grad Kunal Bahl, 27. Bahl sells online discount coupons that enable customers to purchase products and services ranging from spa treatments to restaurant lunches to dental sessions at discounts of up to 80-90 percent. Snapdeal keeps 30-35 percent of each discount coupon, giving the rest away to the merchant who then provides the underlying product or service to the customer. Snapdeal has capitalised upon the high levels of distress inventory among small and local merchants in India. Bahl says he is on track to crossing Rs. 100 crore in revenue soon, just 16 months after starting out and in spite of stocking or delivering no products of its own. The catch is a significant outlay on sales and marketing to ensure enough new customers and businesses.

While there may be significant differences in their business models, there are common factors that connect together most of these entrepreneurs: Millions of dollars in the bank from venture capitalists, impatience bordering on disdain for the speed and efficiency of the physical word, the belief that the Internet is the model for commerce in India and that the only real competition is the size of their own ambition.

It’s a story we’ve heard before, almost a decade back. But there are some factors that have changed. “Traction is real because 100 million Internet users are buying things,” says Alok Mittal, managing director of venture capital firm Canaan Partners India.

Even that 100 million is set to shoot up exponentially as Indian telecom operators expand their 3G networks across the country. Then there are new players, like Reliance, which is reportedly set to spend billions on a wireless 4G broadband rollout across India.

“Three hundred million new subscribers will be added between 3G and LTE [4G] by 2015,” says P. Balaji, the erstwhile head of marketing and strategy for India at wireless equipment maker Ericsson. In comparison, there were between 2 million and 3 million Internet users in India in 2000, says Vaitheeswaran.

The rapid growth and maturity of cloud-based, pay-as-you-go Web hosting solutions from Amazon, Microsoft and Google means Internet startups don’t need to worry about the technology infrastructure at all. “Today it is almost like a non-item and doesn’t even figure in board meetings,” says July Systems’ Rajesh Reddy.

Over the past few years, travel Web sites like MakeMyTrip, Cleartrip and Yatra, together with the Indian Railways’ IRCTC Web site, have also disproved the hypothesis that Indian consumers are wary of transacting online. Travel alone accounts for over 80 percent of the Rs. 32,000 crore e-commerce market in India, according to the Internet and Mobile Association of India. With small town India taking to e-commerce, the VCs hope this will allow certain online retailers to completely dominate certain categories the way online companies dominate travel, matrimony and recruitment sectors.

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