10 Things Which Make Online Businesses Difficult in India
27 January, 2010
Pushkar Gaikwad, founder, 6to10 MediaThis is a quick ‘10 Pointer list’ (could have more points easily) based on what I am seeing and have seen on the Indian web space and what problems online businesses face or common mistakes they make.
1. Majority of the people who are starting the web startups in India think they can make money from anything, building anything. This just doesn’t work. The advertising model also doesn’t work (unless you are a 2-3 member team with little expenses). You can look at the 2007-08 posts review of startups of Pluggd.in, AlooTechie and StartupDunia and see how many are still surviving?
2. Too Spread Too Thin is a major problem with the Indian online space, about which nothing can be done unfortunately. The Indian online space is way too spread and is way too thin, making each startup to push extra hard to find, convince, acquire and retain customer meaning the startup has to put more resources hence higher burn ratio something which I am seeing more and more often.
3. Another mistake which founders make (I myself did a couple of times) is to overestimate the market heavily, meaning not able to understand the volume and value of the market. Most of the figures which are projected of various Indian sectors (say media or advertising or marketing) are often fragmented and saying the market is of Rs 350 crore often does not mean that the market has full untapped potential of Rs 350 crore.
4. Entry level barrier is too low and IP (intellectual property) laws are non-existing which mean copycats pop up in matter of weeks in India. The cost of starting a web business has come down so much that anyone can start it in a matter of days without building any business plan or revenue model. Once a site starts getting some traction, 20 similar sites also pop up adding no value and just crowding the market.
5. Ignoring existing players – With online businesses, many times, when you start a business, you fail to see the overlap between already existing players or players which are there but you never see them and later find them.
6. Unlike in USA, all venture capitalists in India like to play safe so the money is only going into big players who know how to pitch themselves or have good connection, of course, we cannot blame VCs for playing safe, it is their money and India is yet to mature.
7. People in India don’t want to use credit cards which often make cost of acquiring customers very high. This hits the cost of acquisition, and retention is the reason why majority of the sites in India which start with big bang either shut down after 2 years or go into maintenance mode due to not turning enough profits.
8. Payment Gateways – The situation of payment gateways hasn‘t improved much. Last month, when I was looking to write a post on them and reviewing most of them, many of them were not even working properly, most of them had ridiculous fees (I call it ridiculous business model) where they are charging heavily on per transaction.
9. Last Mile Connectivity – The lesser said about this, the better it is. India seriously needs a package like Reliance Monsoon Hungama which was offered by Reliance in 2000 for Rs 500 which created a revolution and people went crazy for mobiles, which now has resulted in 640 million mobile connections. Now that the mobile connections are being getting saturated, it is good time to get into the broadband war for these operators and start offering internet for free or for Rs 99. Let people get the ‘taste’ of internet, once they get it, they will automatically start using it. The reason for such long rant is, though TRAI says India has 8 crore active users online (those who use internet once per month), from whatever I have seen, I think India has about 3-4 crore active users, mostly in the range of 16 to 32 years.
10. Short sightedness of founders for long term – Though I really can’t blame founders for this, but many times I have seen founders looking to make huge profits or looking to exit in the second or third year, this is not very unlikely scenario in India. For example, Faisal Farooqui started MouthShut in 2000 and is still running it. He could have sold it for a decent price in 2006, may be in 2008 as well, but he kept it, a good lesson for others too.
I can think of few more points but will cut down the list here only.
Editor: This article first appeared in Pushkar Gaikwad’s blog Gaikwad.in and has been republished here with his permission.
Yup its very difficult to start such a business in India..But its not impossible.
Great post Pushkar,
online business is really hard to start in india, but thanks for pointing some things
Valid reasons given here. There is no doubt about difficulties faced by online business in India. But at the same time, there are plenty of bottlenecks as well in the system. Ofr instance, connectivity as highlighted by you is very strong case against online thing. Thankfully, some private operators are doing good in terms of boradband connectivity and customer servic but when it comes to state owned companies, they are simply disastrous. Unless this thing is handled, hope for improvement is quite blurred.
Absolutely true then what we can do for online business in India. Pushkar Gaikwad observe very good points and share with us. This are some basics for start up online business.
thanks we will revisit again for some related article.
I agree entirely. Especially with copycat sites and the Payment Gateway fees being ridiculous.
Very Good Post.
i think in todays comptetive world if you want to grab customers attention you need to presentable. I worked for a travel portal and have realised that though they are big players in market but you should have a business model to attract prospective customers.
The ecommerce market in India is slowly increasing but still its just mere 15% as compared to 70-80% of the market abroad. So you see the difference is here. And yes the model of payment gateways SHOULD be improved to gain trusts.
I am quiet agree with the post. Online business is not as easy as we people sometimes think. It requires lots of planning and marketing strategies.
This credit card problem is really killing Indian online market. People really don't prefer paying anyone online through credit cards. I run a travel domain and I face this problem now and then.
I would agree with most of these points. As far as 'Connectivity' is concerned, things are going to change very soon with 3g.
Very wise sir, all these points clearly talk about your experience of a start up - i m must say these are some of the useful points that bring a knick knack for any start up.
Definitely there are some factors that make online business difficult but then its one of the most lucrative business opportunity in the present era. If you know how to analyze the market and master the online world then there s nothing that you cannot get over...even the difficult online business.
I guess the potential is huge for online businesses in India. This is reflected in the huge number of start ups that are mushrooming by the day and there success rates.
This article clearly mentions some of the major points why most of Indian online start ups are not able to survive. Competition from old world and advance economies will also be there, all one need to do is to have belief in the product/service/idea, quality content and proper promotional skills. Those who are successful have put a lot of energy in all these fields. I agree with the author that there may be many more points. I can mention them here but would prefer to wait for another superb article.
It is very well researched and informative article. Point no 1 is particularly true. Internet business all over the world is supported by advertising and promotion and it is where we Indians are lagging behind. Traditionally also we love to get a feel of things/products before actually putting money in it. It is still considered that things and information over the internet is free and I know people who get all the details/specifications from internet and then buy the same product from neighbourhood showroom.As mentioned in the article, Indian internet market is still not matured; it will take some more time before running a business over internet will be seen as a natural thing to do.
These are valid facts, thats why we as a travel agents are facing lot of problems in scaling it online. Segment where we operate in is very low on value and profit. With target audience not very comfortable transacting online make our lives more tougher than the rest of the players in the travel segment per se.
Its an interesting thought. I am not sure if others feel the same way, but another problem that it seems to me is that with so much happening in Digital world ( new technologies, new trends, developments:) ) that we in India are not able to fully utilize one thing and then we see that there is another thing on the horizon which is creating the buzz.
Its hard for industry to accept high standards on one thing and they have to quickly move on to new things.
So if you look at things, when USA moves from point A to Point B it moves over an already built up infrastructure whereas our growth is so rapid that we are unable to establish our firm position on A and we are vying for B........this seems like a little bit of a problem for a growing industry.....and the end result is for all of us to see.
Aditi
Good Read Pushkar, all the above 10 points are roadblocks for internet business development in India.
Would like to differ slightly though, I see the online industry a little bit different.
There is a lot of scope of online business (and having said online, it does not have demographics).
The only problem I see with most of the venturists is that they do not focus on multiple streams of revenue.
If a company has to sustain on ad revenue model, it needs to have a healthy 3 - 5 years of investment to break even. This patience level does not exist with VCs.
Talent needs to IT knowhow People have great business plans however do not think of getting into business as they think IT costs will touch a fortune which is a complete myth. It takes not more than Rs 3 to 5 k annually to start a website which I think can breakeven in a matter of 6 months.
Thanks and Regards,
Neelesh R Pednekar
The bottom line is clear in the minds of smart indian consumers... "do i get good value for what i give"?After research i've noticed that Indian users don't worry using credit cards if they see real value proposition - not just fake promotions!!
True, but the online market in India is growing and in future, India might emerge as one of the biggest online marketing platforms.
Very valid points presented here. The impediments you have talked about are truly an obstacle in making India a giant in above mentioned segment of the business. These hurdles are more related to regulations and mindset and both of them need drastic changes.
Wonderfull post Pushkar..
Conversion rate in India is too low and I think point number 7 is responsible for this. People don't want to use credit cards, payment gateways are not improved making online transactions difficult.
Well researched post. Agreed with most of your points. However, there are some contradiction in your points as in your point 1, you said that most of the startups of 2007-08 do not survive now and in your point 4, you are predicting the new websites as a threat to existing one. Well I agree that most of startups who do not have proper business plan could not survive in the market, but those could not be considered as a threat to those who have a proper business plan.
Also, you have not touched the core reason of less participation in online businesses, that is the internet connectivity to commom people and awareness level among Indians. India is far behind in terms of number of users who use Internet as a business medium compared to its counterpart in Europe and America.
India needs a new payment gateway to replace Paypal, Moneybookers might be an option but are far from being comparable to Paypal.
I agree to the points mentioned above. People in India are skeptical and still afraid to make online transactions resulting in the more burn out of the product/service provider. Also the payment gateways still need to workout. With the current situation of Paypal, as the most widely used payment gateway, in India the market strongly need a new gateway with more logical business model.
Hmnn Interesting take on internet marketing arena. Especially when the profit margins are so thin, payment gateways demanding 3% sound outrageous. The extent of security awareness among Indian Internet users is way too low. Even if we expect a rise of online business and use of credit cards and payment gateways we must dread the rise in e-scams as well.
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I agree with you. It tough to do business online in India.
Another reason is, if you look at the percentage of people using internet in India is far too less than other companies.
So doing business online will be a lot easier once people become comfortable and familiar with computers and internet.
"Another mistake which founders make (I myself did a couple of times) is to overestimate the market heavily, meaning not able to understand the volume and value of the market."
The Web is so heavily populated that you have to work harder with your SEO strategies so you won't be overshadowed by your fierce competition.
The bottom line is clear in the minds of smart indian consumers... "do i get good value for what i give"?
After research i've noticed that Indian users don't worry using credit cards if they see real value proposition - not just fake promotions!!
Infact, Indian Users will even take 2 steps ahead by trying again and again if the payment gateway fails!!!
Nevertheless, we need to improve in all grounds as informed by Pushkar, but i feel the winner strategy would be: "Visible/clear value proposition for the end user!!!"
This applies for broadband penetration, credit card, startup companies etc etc..
Remember - Online sales are more often retailers - lets use those strategies!!! - distribution, packaging, promotion etc etc.
Dont agree on the article including the PG part. Indian PGs offer 50+ payment...the maximum in the world....If people are worried about using CC then there are debit cards, 35+ netbanking payment options, cash cards, mobile payments etc...If you see the e-commerce stats released by Visa, IAMAI...it shows 300% growth year on year...reaching 3 billion dollars this financial year. Thousands of websites coming...specially brick and Mortar SMEs (Indian is a nation of shopkeepers and these SME's have the product, logistics and their brand name already established in the offline world and hence extending online)..almost all utilities are going online...eGovernance...All airlines, Indian Rail, Bus guys, 3000+ hotels websites...Online central and state tax collections etc..this is propelling the ecommerce growth. Pushkar's thought is mainly from the pureplay internet startups point of view.
Completely agree with author about ridiculous business model of Payment gateways including ccavenue in India. you guy's are charging way too much per transactions... you have to bring it down to make more people use cc/PG... its not pure startup view, when you are charging too much % per transaction, its effecting everybody's business. You guy's need to come down rather than enjoying the monopoly of PG in India and make more people use it. Personally i know atleast 3-4 companies who are not selling online due to high % they have to give away per transactions to PG. When their margins are only 8-10% where is the question of they giving you 4-6% commission just for using credit card. They still receives query through website and ask people to do alternative payment methods like netbanking or cheque deposit. You may disagree but thats ground reality!!
I do not agree with you. I have been working in internet domain for last five years and have not seen much improvement. It is not the stats or number of payment options that is a the problem but the general reliability. There are heavy downtimes for even big players like icici.
Plus the rates are ridiculous. For example if you have an e-commerce portal and you are charging a commission of 10% per sale from sellers you would end up paying half of your profits to PGs(ccavenue charges 5%).
India needs a new payment gateway, one which is at-least 50% as good as PayPal.
Pushkar,
Very nice post. In fact, despite your list I would say that there are not many who are trying and failing, which is the fundamental process. The term 'ecosystem' used in Silicon Valley derives from both the successes and failures of entrepreneurs and funding teams (angels, VC's and companies doing M&A). So once we have a reasonably sized ecosystem and a few successes, others will follow and probably this will become a virtuous circle.
Copying successful ideas from other countries and trying out in India is also a way to go about it and I am an advocate of the same. What one needs to keep in mind is long term success and not exactly pennies from adsense.
Just a query - why don't Indian websites use Paypal?
Great post.
I think there are some large scale shifts happening globally, and will be replicated here if not compounded which you allude to but fail to mention specifically.
Personally I'd like to hope that is because you and others don't anticipate them, but that is probably wishful thinking.
Most of what you say I would agree with, but I would throw a little optimism on there. I think a lot of what you say will change over time, as the economy matures and develops and consumers become more sophisticated.
In terms of poor copy-cats, I think that is a universal problem, maybe more acute in India, but ubiquitous globally none the less.
And really its a good thing, because it forces true entrepreneurs to be stay competitive, and theoretically deliver better products and services that consumers over time will actively seek out. Quality is the barrier to entry.
Point 7, clearly the shift has been towards internet banking payment gateways, and really over time, credit cards really offer more protection, because you have non delivery of service insurance.
If you don't get what you pay for, you can take it up with the bank and challenge the charge, and if the merchant cannot prove delivery, the charge is rescinded, and in my experience with international banks, that was the case whilst the charge was being challenged.
In terms of consumer preference ordering and paying for things online represents a dramatic savings in time. So there will be a lot of people wary their details may be the subject of theft, whilst a great many will prefer to "risk" it for convenience purposes. It only takes one successful transaction to change their view after all, and as the Economy grows, that suspicion will certainly change and consumers will seek merchants they trust, which eliminates part of the poor copy cat threat. Suspicion is a problem now, but not a perpetual one.
Basically if you're in this business for the short game and don't have a ten year horizon, I would say you need to find somewhere else to play.
Dear better marketer ,
People in india hesitate to use cards. Thats a fact. The points you have mentioned like IRCTC are exceptions. Train reservations are mostly done online by customers using credit cards because of necessity and time saving. By travelling to book a ticket at a station, you lose time within which someone might book a ticket. Same goes for cinema ticket booking
Most other sites offering credit card payments wont see such huge bookings like irctc, because people prefer offline payments. Because, the availability will always be there.
I don’t agree with using the card point at all - if that was the case what’s your take on the 180k users swiped their cards on the irctc portal - what about the 25 k + users swiped their cards on matrimony sites to see and talk to their potential partners in the last 6 months - what about the 2500 gold coins sold on a single auspicious day on eBay India - which shows you need a credible source and a compelling offer for him/ her to swipe. One may say these are small numbers less than .5%of online user base in India- my answer if maruti comes with an offer- make your bookings online selling stock maruti 800 cars at 100 thousand INR -you will see 2 million credit card swipes in less than 24 hrs -Any doubts (so like I mentioned earlier here there is a great VALUE proposition and a truly Compelling REASON)
If you got a value proposition on board the audience always game - so let’s crap the idea of Indian audience reluctance to use credit cards online
There are ways in which even established business fails.
1)Of course, people in india dont want to use credit cards, But Ifyou have a franchise, instead of trying to get new leads from your existing franchise, forward the unconverted lead that you have to the franchise in that area, this way he can try to convert & also get commission.
2)lack of domain awareness:
I see most founders are still unaware about the importance of domain name. When it comes to domain name, 2 things must be made sure.
a) You have a good domain
b) You also foresee the domains which competitor might be able to grab when they think of starting a similar site like yours & grab them.
c) Make sure that you have all the typos of your website.
Great post Pushkar..
Totally agreed especially Credit Card Point.Indian websites really need to work on gaining trust factors of users so that they feel more comfortable in using credit card and also special attention need to be given on shipment part.
Good analysis!!
Absolutely right said -- especially about the 'ridiculous model' of payment gateways...
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