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Top 10 Trends In Indian E-commerce In 2010

21 December, 2010

2010 has been defining for the Indian e-commerce sector, which has (and some may sigh “finally”) come of age with much of the evolution being clearly visible this year. Though a fairly old industry in India, this sector has caught the fancy of investors and has generated multiple entrepreneurial avenues, riding on macro trends such as increase in broadband penetration, change in buying patterns and the success of group buying sites globally. So, what did we see this year?

Most significantly, travel site MakeMyTrip’s listing at the Nasdaq spurred the interest of many an investor as they saw a clear potential of a liquidation event. 2010 also nearly double of number of M&As (25) compared to 2009 (11), according to data compiled by our financial research platform VCCEdge. In this backdrop, VCCircle spots some key trends, including M&As and private equity fund-raising, in the e-commerce space in 2010 that will have a bearing on the way the industry evolves in 2011 and beyond.

Categories that are flying: Domestic entrepreneurs are raring to set up online stores mimicking global ecommerce sites. The top categories within e-commerce, investors say, are travel, classifieds, group buying, auto sales and luxury brands.

Travel, the big e-commerce story: The catalyst for e-commerce, one category which is largely responsible for making users more comfortable with online transactions is travel. Top players such as IRCTC, Makemytrip.com, Yatra.com and Cleartrip.com are witnessing a boom in online ticketing sales and are expanding their portfolio of services to add hotel booking and packages. Makemytrip India Pvt. Ltd. acquired online bus ticketing company Ticketvala.com from Mumbai-based Travis Internet Pvt. Ltd. in March 2010 and in August had a high profile listing on NASDAQ. In October, Yatra Online Pvt Ltd, the owners of Yatra.com, picked up a stake in Travel Services International Pvt Ltd, a wholesale ticket consolidator. B2B travel network Via and bus ticketing service Redbus.in are also making inroads and experimenting with new services.

Travel sites are also spending more online and spent a total of Rs 59 crore on display ads in fiscal 2010, according to the IAMAI.

Exclusive book retail not sustainable: Flipkart, which set out as book retailing portals, has spread out to cover other products as plain vanilla book selling is not sustainable business. “Books were a good hook to draw in users but on its own, book retailing online is not a scalable business. It will work online but can never become very big as the average book value in India is very low. That is why sites like Flipkart and Infibeam are expanding into other categories,” said Suvir Sujan, Partner, Nexus Venture Partners. The site also sells movie and music DVDs, games and consoles and mobile handsets. Infibeam has expanded similarly with used cars and bike classifieds.

Indians love discounts: Having received high valuations, deal sites and voucher-based ecommerce is the flavour of the year with domestic startups mimicking global sites, primarily Groupon.com. “Indians like deals, so daily deal sites will continue to attract users,” says Rajan Anandan, an angel investor. Sites such as Snapdeal.com, Mydala.com and Dealsandyou.com have established themselves and a slew of more daily, localised deal sites are cropping up such as DealMagic and Koovs. According to Harjiv Singh, who is exploring global markets with his Comparenbuy.co.uk rather than India, the Indian e-commerce space is not ready as yet for serious e-commerce players. He explains, “There are too many players right now in the industry and the customers are not sophisticated enough. India will be ready in 3-5 years and by then we will see only a few ones still standing – only those who build it up will get brand recall. In India, it will be a numbers game, with the ones who win getting the most number of merchants, deals and users.”

But we also like fashion: Today eBay acquired Germany’s fashion and lifestyle shopping site brands4friends.com for $200 million, to foray into the hottest sector in ecommerce – high end luxury portals. In India, sites such as 99labels.com, exclusively.in and Fashionandyou.com are competing in this segment. In November, Accel India Venture Fund and Helion Advisors Pvt. Ltd. invested $2.8 million in Exclusively.In, Inc. followed by Sequoia Capital infusing $8 million in Fashionandyou.com. Anandan warned that retailers tend to be laggards when it comes to technology – and this will prove to be an issue for e-commerce players.

Strategic shifts: General e-commerce has shifted from being a horizontal space to vertical and shopping sites such as Indiatimes Shopping and Rediff Shopping need a total makeover. On the other hand, many portals are expanding horizontally – take Yebhi for example. Bigshoebazaar was recently rebranded as Yebhi – it no longer is a shoe-only store and also sells accessories, bags and clothing.

Classifieds going strong: Jobs, real estate, matrimonial continue to see traction. Linkedin, Naukri and Monster.com have top-recall followed by TimesJobs.com and Shine.com by HT Media. Matrimonial sites such as Consim Info Pvt Ltd’s Bharatmatrimony.com, Shaadi.com and

Jeevansathi.com continue to reign. Naspers Ltd infused $40 million into the Nexus-backed OLX and in July, Mid-Day Infomedia Ltd. acquired SnatchKing Online Pvt. Ltd. In August, Naaptol Online received $7 million in venture capital funding from Canaan Advisors Pvt Ltd while Nexus India Capital Advisors Pvt Ltd invested $1.5 million in Magic Rooms Solutions, which offers an online hotel inventory distribution software. Carwale.com’s auto classifieds business was acquired by Axel Springer and India Today, and other websites such as eBay Motors, Gaadi.com, Carazoo, Zigwheels and Automartindia are players in this space.

 

What is in store: Large e-commerce companies in India will need to spend heavily on infrastructure over the next three years to maintain momentum. Despite shipping delays, billing errors, poor user interfaces, checkout issues, the perception of online transactions not being secure and the continued lack of bandwidth, the mood of e-commerce players is one of optimism as they wait for 3G networks to roll out.

Competition and hype: Competition will continue to be heated and only few will survive. Shailendra Singh, MD of Sequoia Capital India says, “There is too much hype around e-commerce right now and many investors will lose their money investing in e-commerce because too many companies are trying to raise capital and we already see signs of very intense competition. In such an environment, market leaders have an unfair advantage because the whole industry will educate the market and drive adoption and the market leaders will get  disproportionate benefit from it. We believe the market leader in each category will generate the lion’s share of value for shareholders.”

Consolidation, will it happen: Industry experts are unanimous in the view that consolidation is still a far cry in the nascent industry. Salwan said, there are no cash flows for the next 2-5 years and hence there will be no consolidation. We might not see the likes of Amazon taking over Quidsi, the operator of Diapers.com and Soap.com for $500 million in the near future, but $100-$200 million deals can be expected to take place in the next two years, according to Anandan.


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9 Comments
Ravi Venkatraman . 6 years ago

“Naspers Ltd infused $40 million into the Nexus-backed Olx.in” is not correct. It should read “OLX” instead of “OLX.in”.

Website: olx.com

Location: New York City, New York, United States

Founded: March, 2006

OLX (On Line eXchange) provides online classifieds in many international versions, including those for India, Spain, Portugal, Mexico, and South America.

Ravi Venktraman

http://www.classifieds.co.in

sonali . 6 years ago

….remarkable insight

Ashish Abrol . 6 years ago

It might be worthwhile breaking down the E-commerce pie into several different buckets. To club online travel E-commerce with luxury brands on the web would be a gross mistake by my estimate.

Travel e-commerce truly solves a problem. It saves the user from the hassles of dealing with unscrupulous travel agents (if you can find one you actually like talking to) and the prices offered on the web are competitive if not cheaper than offline agents. Ditto for hotel bookings. Further, the problem being addressed by IRCTC and bus ticketing websites is even more significant considering the queues one escapes and the time saved. Further, a ticket is a ticket and you’re unlikely to repent having bought a ticket from makemytrip.com (or any other travel portal) before you checked out your aunt’s recommended store. In short, the “touch and feel” is of no importance (or non existent). The same goes for products like books, DVD’s, mobile phones and plethora of other “standardized” products in the electronics space, white goods (TV’s, refrigerators, washing machines, etc.).

Let’s now look at luxury brands portals like fashionandyou, 99labels and Exclusively.in (when it enters India). I think the prospects for these businesses succeeding in India over the next 12-18 months is extremely bleak. Firstly, they are competing with malls (which in itself is a new concept for the emerging middle class), secondly luxury buying, especially in the case of business models for websites mentioned above, is premised on impulse buying. Impulse buying presupposes higher disposable incomes. In my assessment that is an error of judgment. Yes, disposable incomes are rising but are they rising enough to make purchases worth thousands over the internet in India? I think not. I’m not even mentioning the challenges with connectivity and the lack of trust with online payments.

Apparel buying on the internet will flourish when every middle class Indian doesn’t consider going to the mall recreation (as lot of them currently do). Motreover, online stores like 99labels, fashionandyou, etc. must tweak their models a little and must offer inventory which has more depth of choice and is available for extended periods of time and not say “Tarun Tahilani for sale for 3 days”. If Tarun Tahiliani is on sale for next 45 days (instead of 3), the customer will have the choice of exploring other offline options and she may eventually buy off the website because it truly is cheaper. But don’t expect her to buy in 3 days because you think you’re playing on her fear of missing out on the latest TT fashion. Therefore, a Marshall’s model yes but a Gilt or Rue La La model, no.

Further, apparel for standardized brands will pick up faster because one can go try a Wills Lifestyle slim fit in the store and order it off the web. But, Tarun Tahiliani? How many people have actually even tried a TT outfit to know what the fit might be like? My last point is that just as apparel on the internet begins to take off (18 months from now), these online only stores will have stiff competition from offline stores sprucing up their online presence. It’s probably time to rethink and redefine E-commerce in the Indian context.

Ashish Abrol

Mehul Gupta . 6 years ago

Hi Preeti,

The numbers quoted for display ads is incorrect,its not 59 crores,instead it is 417 crores for the 2010 fiscal,for details please visit the following link:http://www.iamai.in/Upload/Research/OnlineAdvertising_46.pdf.

Would appreciate of you could amend the numbers.

regards,

Mehul

Deals and You . 6 years ago

Preethi – Thanks for giving dealsandyou.com a heads-up. Definitely, 2010 has been a hallmark year for Indian e-commerce sites. We’re equally hopefull and excited about 2011 as it brings newer challenges on the horizon!!

Deals and You Team

mydealstreet . 6 years ago

We have launched a daily deal aggregator http://www.mydealstreet.com This should really assist all the deal seekers in India extensively..

Deal Magic . 6 years ago

Preethi – Thanks for including us in your coverage of eCommerce trends. We agree with Harjiv, in that it will take 3-5 years for our industry to mature and deliver returns to investors. Despite this, we firmly believe that now is the time to position ourselves by curating, and evolving, a model that is truly capable of leveraging the coming opportunity in India. Exciting times ahead, and I do hope that you continue to follow our journey. Happy New Year to you!

Manish Bhatia . 6 years ago

I think for Fashion Online Buying; the site design and Product Mix across categories has to be right.

The assortment Plan in most brick Mortar Retail store for fashion has Good/better/Best mix in SKU’s; which help in upgrading customers and repeat customers in specific.

Similar Logics and thought has to be taken while designing Prduct mix for Online and while customer browse.

I think as the pressure on Physical retailers build for Cost; there will be more benifits coming in for Online retailers.

Manish Dewan . 6 years ago

Is the Indian consumer willing to do groceries online? What trends do we see in this busines?

Top 10 Trends In Indian E-commerce In 2010

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