Current market level of e-business companies in India

There has been a remarkable transformation in the way shopping and trading is done in India in recent years. A new and unique form of trade emerged in India, which was called E-commerce. It has taken the retail world by storm and captured the imagination of young entrepreneurs, with e-commerce ventures getting flourished with various businesses. The growth in the last couple of years has already pushed the biggest firms among these ventures past the billion-dollar mark. The sector has grown manifold in four years to nearly 12.6 billion USD in 2013. Several Industry estimates project that the sector will further grow five to seven times over the next couple of years.

Recently shopping through online sources has gained momentum though it represents a small fraction of the total e-commerce space. It is a challenging task to undertake online commerce by breaking the barriers and delivering to the customer’s doorstep. Engineering and framework in e-business is the backbone of the fulfillment network and the basis on which stringent service level expectations are set and met, and customer mind-space among competing alternatives is won. Given the ever-increasing population of younger generation below 25 years of age, coupled with internet penetration and better economic performance, India’s e-Commerce revenue is expected to increase from $30 billion in 2016 to $120 billion in 2020, growing at an annual rate of 51%, the highest in the world, according to a joint ASSOCHAM-Forrester study paper.

There have been reports that for the last six to eight months the industry had come to a standstill, making it difficult for the players involved. The same report, which accessed and analyzed data for top e-tailers, revealed that the online retail market stagnated between May 2015 and 2016 in terms of the value of goods sold. Though last year, the e-commerce biggies showed a gross merchandise value run rate of $9 billion, that number has grown marginally to about $10 billion at the end of May this year, resulting in an 11% annual growth. Last December, the total GMV run rate had reached $10.5 billion due to the festive season, which usually results in a rush of discounting from all e-tailers.

As far as the base is concerned, India may be far behind than China and other giants like Japan, but the Indian rate of growth is way ahead of others. Against India’s annual expansion of 51%, China’s e-commerce is pegged at 18%, Japan 11%, and South Korea 10%, according to a recent study. The report further stated that increasing internet and mobile penetration, growing system of online payments and favorable statistics has provided the e-commerce sector in India a unique opportunity for companies to connect with their customers. Branded apparel, accessories, jewelry, gifts, footwear are among the best sellers on the e-commerce shopping list, and included in the list are the mobile phone applications. In a country like ours, mobile devices and tablets are generating around 60-65 percent of the total e-commerce sales.  Smartphones are used to shop extensively and it is proving to be a game-changer. Industry leaders believe that commerce done digitally could contribute up to 70 percent of their e-commerce revenues

According to industry estimates, the eCommerce sector has seen tremendous growth in 2014. This sector has seen growth increasing year after year due to technology adoption led by the increasing use of devices such as smartphones and tablets, and access to the internet through broadband, 3G, etc, which in turn has led to increased online consumer base. Moreover, favored statistics and a growing internet user base have resulted in an increase in growth.  Homegrown players such as Flipkart and Snapdeal have registered significant growth and the huge investor interest around these companies displayed the immense potential of the market. The data collected from primary research and echoed by multiple stakeholders in the industry indicated that Flipkart, the country’s largest online retail player, has seen its GMV run rate stuck at about $4 billion for almost a year, while an upbeat Amazon has gone from clocking $1 billion to $2.7 billion in gross sales, though Amazon’s operations in India only began three years ago and it’s been growing gradually on a smaller base. The point to be noted is that Flipkart notched up a 400% growth the year before when its GMV zoomed from $1 billion to $4 billion, post that the numbers have shown downward spiral. Another eCommerce player Snapdeal, on the other hand, has registered an almost 50% knockdown in sales numbers after reaching a certain level a year ago. Until June, Its GMV run rate was more than $2.5 billion. E-commerce companies earn anywhere between 5% and 15% in commission from sellers who are their main source of revenue.

Challenges faced by e-business companies in India

The e-commerce market, which has grown by 34 percent in the last seven years, was about USD 600 million in 2011-12 and is expected to touch USD 9 billion by 2016 and USD 70 billion by 2020. According to a well-known researcher, the Indian e-commerce market is expected to grow at a rate of over 57 percent between 2012 and 2016, which will be the fastest within the Asia-Pacific region. The key reasons for this exponential growth are the rise of Internet usage (growing at 20 percent) & 3G penetration, and increasing Smartphone users with the availability of the Internet on mobile phones. As per the current scenario, there are 27 million mobile Internet users in India out of which 4 percent are buying products on mobile despite the advantages of ebusiness in India.

Despite the sheer advantages, there are certain challenges to be faced, which are as follows:

Indian customers have the tendency to return much of the commodities they purchase online. E-business in India is populated with first-time buyers. This means that they are unable to make up their mind about what to expect from e-business websites. As a result, buyers sometimes fall prey to pressure from the sellers. However, by the time the product is actually delivered, they reveal their dissatisfaction and return the goods. Though consumer dissatisfaction is a global phenomenon, it is all the more prevalent in a country like India, where much of the growth comes from new buyers.

Cash on delivery is the preferred payment method for most of the customers. Lower credit card access and lack of trust in online transactions has led to cash on delivery to be the preferred payment method in India. Unlike electronic payments, manual cash collection is risky and cumbersome.

Online Payment kiosks have a high flop rate. As if the choice for cash on delivery was not bad enough, Indian payment gateways have an unusually high failure rate by global standards. E-business companies depending on Indian payment gateways for payments are losing out on business, as several customers do not attempt making payment again after a transaction fails.

Internet coverage is far below international standards. Internet spread in India is still a small fraction of what is there in a number of western countries. Over and above, the quality of connectivity is poor in several regions. However, poor internet penetration is a thing of the past now since the day is not far when connectivity issues would not feature in a list of challenges to e-business in India.

Feature phones are preferred by the majority of masses. Though the actual number of mobile phone users in India is considerably high, a significant majority still use feature phones and not smartphones. As a result, a majority of consumers are unable to make e-business purchases in one go. Though India is still a couple of years away from being a smartphone country, the rapid fall in the price of entry-level smartphones is a clear indication. I reckon that the next few months will witness announcements of new smartphones in India at a cheaper price range. That will, in turn, result in significant Smartphone ownership. As a result, the E-Business market will show rapid growth.

Business models of Snapdeal and e-bay

Sellers List on the Snapdeal website boasts of having in excess of 100,000 Sellers on its platform.

Activate Sellers by Listing Products on its website

Sellers agree to the Terms and Conditions of Snapdeal and agree on a selling commission on every order, which ranges from 5-30% of the Sale Value depending on the item to be sold.

Once the order is put up on the Snapdeal website by a customer, Snapdeal passes that to the seller and arranges for the pickup and delivery or else the Seller directly delivers it to the customer.

At the end of a period of settlement of payments to Sellers, Snapdeal accumulates the total sale value achieved by a particular seller, and after deducting the sale commission and service tax, they pass on the rest of the money to the seller.

The sale happens through legal channels and for the entire amount of sale achieved by Snapdeal for a particular seller, Snapdeal charges a certain percentage on the total sale amount excluding VAT / CST.

Snapdeal GMV Calculation

GMV is the Gross Merchandise Value i.e. the total value of the goods and services sold on its platform put together. According to one estimate, it is still in the $3 – $4 Billion Range.

Snapdeal is one of the topmost visited websites in India. As a result, it sees a lot of activity in sales / non-sale times.

Snapdeal is the one-stop-shop for all the advertisement needs of any aspiring company. It is the ideal platform for product launch, advertisements, and promotions. At some point, Snapdeal was about to put in money in a Media company to get their hands-on experience in selling ad spaces, but that deal went down the drain because of the valuation problem.

Snapdeal has a fixed ad space fee and others have sale split for commission and ad space fee mixed model.

Snapdeal Business Model through Listing Fee.

Snapdeal charges sellers to be listed on the platform for selling goods owning to its high clarity website. In addition to this, the investment in Logistics Company also adds to the revenue for fulfilling seller requirements of shipping.