Business Standard

E-commerce in India - Version 3.0?

Flipkart's ability to raise $200 mn could be a sign that online retailing is finally gaining acceptance as an idea in the country

Arvind Singhal
Flipkart's successful raising of $200 million (about Rs 1,200 crore) in its fifth round of funding could well mark the launch of version 3.0 for India's still fledgling but rapidly maturing e-commerce activity. The timing of this announcement could not have been more propitious since till just before this event, there were growing legions of sceptics questioning the viability of merchandise-oriented e-commerce business models in India and others who felt that e-commerce may have a future in India but only many years down the line. Perhaps some of these sceptics would now give a fresh look at the potential of e-commerce and begin to accept that it is a phenomenon whose time has already come, even in India.

The first wave of e-businesses, better known as "", came with a big bang in the late nineties but fizzled out with a big whimper by 2001. In hindsight, the reasons for the collapse of the phenomenon were quite obvious with the most glaring being the near-absence of a tangible revenue model. The second version of e-commerce took off after a brief hiatus of four or five years. In this version, there was much sharper focus on generating of revenue both through sale of a wide assortment of merchandise and services. Most of these second-generation e-commerce start-ups had a much more tangible business proposition, and a much better configured business model. The biggest challenge for most of those start-ups was to deliver profitability even though many were able to generate revenues and create repeat customers. The biggest challenge in achieving profitability was high cost of acquisition of new customers, and excessive discounting that negated the fundamental cost-advantage that an e-commerce venture could potentially offer, compared to a brick-and-mortar retail business, after achieving a certain scale.

Flipkart's incubation in 2007 (and several others that followed soon thereafter) took place in an era in which most global e-tailers were trying hard to figure out how to grow profitably. So, although Indian emulators could see what the likes of Amazon, eBay, Taobao, 360buy, and hundreds of others were successfully doing in the US, China, UK, and elsewhere to generate revenues, they had to figure out the path to profitability entirely on their own. That's because India had its own unique set of challenges that included poor penetration (and poorer quality) of internet, poor penetration of credit or debit cards and at the same time, the wide prevalence of a "cash" economy, and under-developed supply chains and logistics infrastructure on the ground. It also did not help that almost all of these start-ups were by bright, young and enthusiastic entrepreneurs who did not have much else by way of business experience or capital.

It is no surprise that India's political and bureaucratic leadership has consistently missed (or dismissed with disdain) some of the most transformational trends since independence - whether on physical infrastructure (roads, energy, affordable housing, and public transport) or social infrastructure (education, health care, clean water, and sanitation). But what is surprising is the near lack of enthusiasm from large businesses. Historically, Indian conglomerates and big businessmen have been the first to spot emerging business opportunities and commit a huge amount of resources, even if such investments are likely to be loss making for years to come. Several examples of such exuberance abound in diverse sectors that include power generation and distribution, roads and airports and other such infrastructure, telecom, oil and gas exploration and production, brick & mortar retail, and many others. Inexplicably, there is no major mega-investment push from groups such as Tata, Birla, Ambani and so on in a pure-play e-commerce-oriented business, whether it is consumer-oriented or business-to-business focused, or even in providing logistics and the back-end support to consumer-facing e-commerce businesses where the last-mile connectivity requires logistics providers who can cover the length and breadth of India.

So, although the government continues to ignore the irreversible trend towards non-store retailing and prohibit international investment in such ventures (even brick and mortar retailers with foreign investment cannot have e-commerce activities) and Indian big business regards e-commerce as a fad, the current Indian players in the space can rejoice in Flipkart's success in raising this impressive amount of additional funding. It is quite certain that this vote of confidence from Flipkart's investors will enthuse many other investors too and more funds will flow into the e-commerce space. Further, almost all of these investors have been providing a much-needed mentoring support to these typically very young promoters, and also providing them support to get some top-quality managerial talent on board.

Hence, India's e-commerce version 3.0 launch year could well be 2013-14. This is the year that could see the beginning of a much more rapid convergence of many enabling conditions - a rapidly increasing pan-India base of internet users, imminent launch of better quality fourth-generation platform data services, enhanced access to financial capital, experienced managerial talent and a better understanding of revenue and profitability drivers for e-commerce formats. Above all, it could be the beginning of steadily increasing acceptance of e-shopping as the retail channel of choice by the middle and upper middle class Indian consumers.
Disclosure: Technopak has no current engagement with Flipkart
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of or the Business Standard newspaper

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First Published: Jul 15 2013 | 9:46 PM IST

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