eCommerce in India

Recently started answering a question on Quora about the future eCommerce in India, and realized that it was turning into an article. So I thought I’d share it here.

Question: What is the future of eCommerce in India? And who’s going to lead the pack in terms of profitability by 2012?

My Answer:

Very broad question, but I’ll take a stab. Let’s divide eCommerce into three categories:
1) eCommerce for physical services
Already taking off in a big way – e.g. travel ticketing, jobs, matrimony, events etc. Some leaders already visible in various categories. Larger number of consumers are becoming comfortable paying online (or are finding someone to do it for them). This category was helped by the fact that fulfillment of digital orders is not a logistical nightmare, and the alternative (standing in line) is a royal pain. This category has opened the path for the following two categories by generating consumer awareness and creating the enabling layer (payments, analytics, support/logistics software). This category appears set for continued success and perhaps accelerating growth rates as the whole ecosystem grows, payment mechanism bottlenecks are reduced, and consumer awareness increases. The market is really betting on this category with MMYT trading at 30X real revenues.

2) eCommerce for physical goods
This is the category that is currently riding way up the hype cycle, with new startups/stores launched every day. First avatar of this category was a relative non-starter with players like Indiaplaza and even eBay India remaining at limited scale. However, v2.0 disrupted here in true Clayton Christensen fashion.
Apart from early leaders such as Flipkart, Infibeam, Homeshop18, Indiatimes etc, expect to see slew of additional horizontal and vertical retailers over next couple of years selling everything from mobile phones to pet food. Expect price wars, shakeouts, extensive warehouse buildouts, monster fund-raises in this space, but not profits. Great for consumers, but I’d personally stay away from investing here at the current point. Remember, it took Amazon a decade to turn its first profit – in a much larger market.
I’d expect there to be some successful smaller players in this space that come from the left field with innovative models around delivery, or niche product sales, or as providers of enabling services.

3) eCommerce for virtual goods (Music, Software, Movies, In-game etc)
Has been a relative non-starter in India so far, largely due to piracy issues and perhaps social mindset (“who pays for virtual stuff”)?. The only green shoot in paid digital content is the anachronistic operator MVAS model. Expect significant changes in that equation over the next few years. Looking for someone to disrupt this space, by getting some Category 1 customers above to start paying for virtual goods as well. Let me know if you find such a company 🙂

So to answer your second question, I expect a company from the first category to lead in profits (or be closest to profitability) in a couple of years. A few large player from category 2 might have respectable revenues, but are likely to be far from profitability. Also likely to be some smaller interesting players from category 3.

Note: I have not touched upon the local commerce (couponing, LBS, checkins, yellow pages, classifieds etc) space in this answer, which is starting to have significant overlaps with eCommerce. The local commerce space can be a topic for a PhD thesis in itself!

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