 "Indian e-commerce market growing despite payment challenges")
Until recently, says a report from
Avendus Capital
, India’s internet was all about virtual goods and services such as tickets, classified ads and ringtones. Now, it claims, e-commerce is taking the stage with e-tailers showing double digit growth that challenges their bricks-and-mortar rivals. India has some 80 mn internet users. Seven percent of the population (17 percent in urban areas), which current trends suggest, should grow by a factor of five to 376 mn by 2015. It’s unsurprising that the key factor in this growth is the expansion of broadband connectivity, as it is in many countries. Users’ experience of the internet changes dramatically when they move from dial-up to a permanent broadband connection: Time spent online increases as users stop counting the minutes, and faster speeds improve the online experience. Avendus found, however, that the number of computers in India was not a constraining factor in internet usage. India has 55 mn PCs, which BCG estimates will grow to 216 mn by 2015, but only 6 mn of them will have broadband connections. [caption id=“attachment_146960” align=“alignleft” width=“380” caption=“India has 55 mn PCs, which BCG estimates will grow to 216 mn by 2015. Reuters”]
[/caption] When it comes to broadband adoption, price and availability are key. India has some of the highest connection costs in the world and the required infrastructure is simply missing from much of the country. Hope, however, might be seen in the increasing use of CDMA dongles and 4G:
CDMA dongles have grown very rapidly to become the second biggest contributor at 4 mn connections. The introduction of 4G in the Indian markets is expected to be the next game changer. […] We estimate around 17 mn 4G connections with half of them catering to PCs by 2015.
Avendus estimates that “India will have 39.3 mn broadband connections, a penetration of 15.6 percent of households, by 2015” driven primarily by 3G, which it says will reach 22 percent of the population by 2015. The data that will most interest online retailers is the number of Indians shopping online. About 11 percent of the total online population in India, i.e. 8 to 10 mn people, use the internet for e-commerce. Some 6 to 7 mn are booking on travel sites, representing 25 percent of total travel bookings, with 2 to 3 mn people using other e-commerce sites. The number of people buying online in India is expected to grow to 39 mn by 2015. But one speed bump, however, is the lack of credit cards in India, which remains a cash-driven economy. Indeed, 95 percent of all transactions are cash, causing a significant challenge for e-tailers. There are only 18 mn active credit cards in circulation, held by an estimated 8 mn people. There are many more debit cards however, which account for twice the value of credit card transactions: Rs 75,500 crore on credit cards vs Rs 38,700 crore through debit cards. But even with other payment gateways, some 30 percent of purchases are abandoned at the payment stage. Cash-on-demand options, however, go some way towards solving this problem. Growth in the online market has been mirrored by growth in investment and entrepreneurship. New VCs are entering the market, and many private equity investors are favouring early stage deals.
The entrepreneurial ecosystem has matured significantly in recent years. The current wave of start-ups in the Digital Consumer space is being led by first generation entrepreneurs and not large corporates. Several of the leading e-commerce companies including Flipkart, Redbus and Snapdeal stand testament to the impact first generation entrepreneurs (in their 20s and 30s) are having in the development of a new industry. […] Critically, the angel and seed funding ecosystem has improved significantly in recent years, making much needed risk capital and mentoring more accessible to entrepreneurs.
[caption id=“attachment_146962” align=“alignleft” width=“406” caption=“About 11 percent of the total online population in India, i.e. 8 to 10 mn people, use the internet for e-commerce. Getty Images”]
[/caption] The advertising market is also expanding, according to Avendus. The current online ad market is worth Rs 1,850 Crore, about 7 percent of overall ad spend. This is less than the global average of 15.5 percent, but is better than might be expected. Part of India’s ad success is down to a vibrant classified ads market, worth Rs 750 Crore. Online ad spend is expected to reach Rs 7,000 Corore by 2015. Unsurprisingly, Google and Facebook take the lion’s share of online ads, accounting for up to 60 percent of total spend. But the story for Indian ad networks and start-ups is promising:
There has been a continuous growth of local AdNetworks in the country which has been driven by the increase in publishers and ad inventories. Some key players have been Komli Media, Pubmatic (spin-off from Komli), Tyroo (acquired by Yahoo), Ozone Media, Interactive Avenues (AdMagnet), NetworkPlay and DGM India. […] The mobile advertising space has been dominated by mobile Adnetwork InMobi, which gained unprecedented attention on the back of its $200 million funding by Japanese media conglomerate SoftBank.
There’s no doubt that there is plenty of room for India’s online market to continue growing through 2015 and beyond. Government schemes to increase the number of people online, especially in rural areas, will improve opportunities for innovation, particularly for those nimble enough to cope with the challenges of delivery and payment. Overall, India’s e-tailers look set to flourish.