Inflection point of ecommerce in India is 10 years away: Mahendra Swarup
09 February, 2010
by Satrajit Sen
According to Mahendra Swarup, president, Indian Venture Capital Association (IVCA), the inflection point of ecommerce in India is a good 10 years away. Speaking at Wirefoot India's Internet Retail Vision 2010 organised on January 28, 2010 in New Delhi, Swarup said that the Indian internet industry has mostly been playing on borrowed money and one needs to return this to the investors in form of dollars and not in the form of page views and traffic.
Citing reasons on why ecommerce has not yet taken up in India, Swarup said that the consumers need to have a reason for buying things on internet. “Reasons like low broadband speed and less number of people on this medium are all myths. It is also a myth that Indians don’t want to swipe their credit cards online as many Indians are getting good deals and buying things from Amazon.com. People need to have a reason to subscribe broadband and get a computer at home,” he added.
Mahendra Swarup further said, “It is not easy to replace the already existing traditional channel of retailing. The challenge is to get traditional retailers embrace the internet medium as a channel that would expand the market and reach a set of consumers who would not buy otherwise. India’s largest retailer Kishore Biyani failed with FutureBazaar.com and last I heard of it, they are planning to close it down; whereas, Walmart.com is the fastest growing ecommerce site globally.”
According to Swarup, some traditional retailers are online because they know that the youngsters in India are not watching TV and reading newspapers. The traditional retailers think that they just need a fancy website and are least bothered about the execution. By doing that they are not only devaluing ecommerce but also driving people away from the net.
Swarup also said that travel is the largest ecommerce category in India contributing around 60 per cent of the total revenue of the market, but the resolution came due to the value that is provided by the low cost carriers. So, there needs to be a value for other ecommerce categories to evolve in India.
Commenting on the user interface and experience provided by various ecommerce websites, Swarup said that almost 98 per cent of the people in India can’t get their travel tickets delivered online on the first attempt. “Finding the right site is a challenge and then the user has to adapt to the navigation and characteristics of each site he visits and by the time he reaches the third site, he gives up,” he added.
Mahendra Swarup further said that ecommerce businesses need to realise that 10 million dollars are not enough for building a good ecommerce site. According to him, that is the amount one pays as the first instalment to the technology provider. “At least 30 to 40 million dollars should be paid for getting a decent ecommerce site,” he felt.
Speaking about the scenario of investments currently being made in internet businesses in India, Swarup said that the momentum in the industry seems to have been lost and it is time to see, retrospect and judge what would work. “There has to be a healthy relationship with the real world and businesses have to be focussed on consumers rather than technology and innovations. It is important to realise that till the people who are making money in the real world buy into our vision, it will be hard to regain the momentum and make profits,” he added.
“One thing that we must feel fortunate about is that we have extremely good talent in this (internet) space now. We have people who want to take risks and become entrepreneurs. But I think they have to think big, think scale and put large amount of capitals for their ventures rather than seeking small amounts and thus create further layer of value with their technological expertise,” Swarup concluded.
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I think the second and the third screen will play an important role in building brands and consumer loyalty going forward. You watch the first screen (TV) from a distance, look into the second screen (PC) from nearer distance (two feet away) and then you have your third screen (mobile) with you 24 x 7 and very close to you. How effectively you use these third and second screens is the way forward for any brand. "
Anurag Gupta has an excellent article on Indian Retailing and eCommerce http://anuraggupta.blogspot.com/2010/02/retailers-in-india-www-challenge..., you guys may want to read this too.
Interesting views. Scale is a problem online, which is the reason a www.flipkart.com can start well but will face challenges in just one area like books. There are other multi-category players like www.indiaplaza.in who retail everything - in their case some scale seems to be there but except for books, their execution overall still needs improvement. India probably need an amazon to come in and grow the market. Looks like VCs dont want to bet on e-commerce in India. I agree with the other point - offline retailers need to go online and grow the medium. The potential is immense.
I love the part where he says we live on borrowed money. Rings true.
Some of the points that are missing:
- Biggest failure of ecomm is the gap between expectations & delivery. If the product you see is not what you get or if you don't get it within the committed time etc, it makes for a really bad experience
- Vendor dependency is just too high
- Air-tickets/OTAs succeeded precisely because of the above 2 reasons. The delivery of the service was online in the form of an e-ticket so logistics was never an issue
- Indiatimes spend I would assume over 70-80 crore on ecomm & travel over the years & the results are there to see. So, spends is not the answer
- Agree that usability is critical.IRCTC sucks on this front..but then, monopoly matters!
Nope, he's missed a very serious point completely, two great shifts that are occurring now which are very serious game changers.
He may be right, it may be ten years away, but he has omitted two very serious changes that will most certainly occur, and why even if one does have to wait ten years, the preparation must begin now.
If you are looking for a five year return, this is simply the wrong business for you, whether you are PE, VC, angel or individual.
Ultimately your business model needs to deliver in the short run and be able to tick over until the point of inflection. If it cannot do that, then the model is wrong, or at least I wouldn't touch it.
Quite realistic views on the whole internet business as a whole as well as e-commerce operations in India
Insightful article, Mr Swarup. Not in the least negative as it may appear to most visitors to this website.
The USD 30/40Mn is not entirely unreasonable or certain types of e-retailing setups - that's about 160Cr to set up a national business. But there are plenty of opportunities in original businesses that are far more nimble with capital.
In any case, 10 yrs to the inflection point looks somewhat fine. What's more accurate to say is that there seems to be no light at the end of the ecommerce tunnel which seems to be about 3 yrs long. What happens beyond 3 yrs is anyone's bet.
After reading this interview, I am not surprised that the VC model in India is really in bad shape. These guys should be private equity investors for stable companies, not venture capitalists who bet on the next big thing. As for ecommerce, verticals like ticketing(bookmyshow) and books ( flipkart) are rising so fast but are these guys even noticing? Each of these new growth verticals can easily accomodate 3-4 large players in a few years with multi-million dollars revenue per month.
Disagree on various points with Mahendra:
(1) $30m-$40m to start a successful e-commerce operation is a failed idea. The reason Future group failed is just because of that. Customers are not looking for a visual view of the offline inventory. They need an experience.
(2) $10m as a technology installment may work if you are wal-mart and catching up and the demand has been created by amazon, etoys, buy.com, ubid.com, ebay, etc. India is a nascent market -- if a village does not have a doctor, do you send one with stethoscope or another one with an X-Ray machine?
(3) Amazon was started as a $40K + $100K installments in technology and operations. Putting more money does not solve the problem.
(4) Look at flipkart.com, they are growing like weed in India. Solving one problem and doing best at that. Time will tell whether the inflection point was 10 years or 5 years away.
(5) Travel tickets worked coz the airline market expanded -- it was the tail wind example for the internet.
Thank you for the positive spin Mr. Mahendra.
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