Industry Report

Indian E-Commerce Industry

Pritam Banerjee, IIM ASumoya Ghosh, TISS Mumbai

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E commerce marketSource: IAMAI, 2013

Asia Pacific region is witnessing the fastest growing changes in the e-commerce sector with India being one of the top contributors to the phenomena.

A number of reasons can be attributed to this Decrease in the price of personal computersGrowth in the number of active internet users Extremely competitive Internet Service Provider (ISP) market.

Current trends display a staggering CAGR of 34.58% from 2009 to 2012, bringing up the investment in the Industry from INR 19249 Crore (USD 3.49 billion) to INR 47,349 Crore (USD 8.60 billion) in a matter of 3 years.

The E commerce industry has grown with a CAGR of 35% from 2009 to 2012

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India B2B Market (USD Millions)Source: Ken Research, 2013

Growth of the Business to Business (B2B):

Shot up from USD 135 million to approximately 351 million from FY 2010 to 2012 (Ken Research). Medium enterprises have the highest contribution at 48% followed by 32% and 20% of small and micro companies. Micro enterprises have experienced hampered growth due to lack of awareness among the micro enterprises. However things look promising as small enterprises have displayed the highest CAGR of 69% in the last 3 years. This is mainly because a majority of these firms are run by young entrepreneurs who have higher propensity to use internet as a platform for generating sales. Players like indiamart.com, Tradeindia.com and Alibaba.com have hogged a majority of the market share

With a 3-firm concentration ratio of .957, the B2B market is high concentrated

The B2B market is highly concentrated with Medium enterprises having a lions share.

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Share of contribution

Online TravelE tailingFinancial ServicesClassifiedsOther online Services

E-Commerce industry Segments:Mainly travel and non travel sites. Online travel comprises 71% of the Digital Commerce pie. Main reason for the same is due to booming urban internet savvy population.

Business to Consumer (B2C) domain growth: High internet penetration and increase in the number of active users. Rise of the disposable income of the middle class India has led to an increase in online spending of the goods. According to Internet and Mobile Association of India (IAMAI), as many as 19.2 million people have looked for information online, Out of these, 73% have bought either some goods or services from the internet. The number of people who shops online has doubled in just two years and is a positive sign for the ecommerce industry

The other segments mainly E-Tailing, Financial Services, Classifieds, and other online services constitutes much lesser share of the digital space

The E commerce industry has grown with a CAGR of 35% from 2009 to 2012

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Onine travel segment (INR Crore)Source: IAMAI, 2013

Top Travel Websites Reach

Indian Railways 19.2%

Makemytrip.com 11,6%

Yatra Online 8.35%

Jet Airways 4.6%

TripAdvisor 3.9%

Indiainforail.com 3.2%

Cleartrip.com 3.0%

Expedia 2.9%

Travor Media 2.6%

Mustseeindia.com 2.3%

Redbus.in 2.0%

The Indian online travel market is highly fragmented. Indian Railways, the market leader, has only 19.2% reach. Other major players like makemytrip.com and yatra Online has 11.6% and 8.3% respectively. The portals have transformed from a mere ticketing website to a complete travel guide. The online travel segment market is expected to grow at a CAGR of 32% for the next 5 years and will remain a dominant contributor to the total e-commerce revenue.

The online travel segment has seen a CAGR of 55.5% from 2007-2012. This is due to rise of disposable income, surge in demand for domestic travel and the boom of the tourism industry. Domestic travel contributed to as much as 50% of the total market, followed by railways tickets, international air tickets, hotel bookings and bus tickets.

The online travel market forms a major chunk of the ecommerce industry and is growing at a healthy rate.

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Etailing (INR Crore)Source: IAMAI, 2013

E-Tailing:

E-tailing encompasses buying consumer items like apparels, electronic devices, home and kitchen appliances, jewellery, online. Competition is intense due to low entry barrier of this segment. However, Amazon.com, flipkart, snapdeal.com, jabong.com, and myntra.com are some of the major players. This segment is expected to grow further as people become more pressed for time. Also the choice that e-tailing sites offer to customers will drive demand for this segment. However there will be intense price based competition in this sector and consolidations are in the order

•The E-tailing market grew at a staggering pace of 60% in the last 3 years. • This high growth is due to changing customer preferences, faith in online retail, and high convenience yield provided by online shopping.

E-tailing segment is the most growing segment in the e-commerce space.

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Financial Services (INR Crore)Source: IAMAI, 2013

The financial services segment includes applying for insurance, paying online bills, and premiums and online transactions. According to Ken research group, in every 18 minutes an online insurance plan is sold. The costs of these insurance policies are lesser with premiums being 40%-60% cheaper. This is a win-win situation for both the insurance provider and the customers. Also the convenience provided by online portals has led to more customers choosing the online route for bill paymentThe growth will be fuelled by the expanding online insurance market and more internet penetration.

The online financial services segment is expected to grow at the steady pace of 23% for the next 5 years.

There are plenty of opportunities for the online financial services in India.

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Classified segment has also witnessed approximately 40% growth over the last few years. Currently it is in a very nascent stage and has lot of scope for growth. Online advertising is lot cheaper than conventional methods and unlike the latter; it is not constrained to a geographic location. Here, the growth is mainly fuelled by services like online job (60% of the segment), online matrimony, B2C classifieds and B2B classifieds. Naukri.com, timesjob.com, monster.com are the major players in the job market while jeevansathi.com, shaadi.com are the major matrimonial sites.

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Classifieds(INR Crore)Source: IAMAI, 2013

Classified sub segment in the B2C sphere will have a good growth in the future

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Other online Services

These include sites offering online services like buying entertainment tickets, food and grocery. IAMAI estimates the market size of these services to be around INR 1,110 Crore in 2012. This is expected to grow by 25%. The market for buying entertainment, movies and sports tickets is valued at INR 795 Crore while online food delivery is sized at INR 250 Crore. Bookmyshow.com is a major player in the segment.

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Other Online Services (INR Crore)Source: IAMAI, 2013

The other online services although smaller in size, is growing significantly .

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PDI of India (USD Billions)

Source: IMF 2013

Personal Disposable Income will continue to rise

1. According to the International Monetary Fund (IMF), personal disposable income has grown by 15.8% annually from 2007 to 2012 reaching to USD 1546 billion in 2012.

2. As personal disposable income rise, it signals that the purchasing power of the people and their standard of living has increased.

3. As a result, demand for goods and services are expected to rise. With more disposable income, the benefits of time saving offered by e-commerce will lead to growth in the sector.

With rising personal Disposable income, E commerce will get a huge boost.

Number of active Internet users in India is poised to riseInternet penetration has increased by a CAGR of 30% from 2007 to 2012. There has been an increase in internet user base and such trend is expected to continue. With more number of unique users, the attractiveness of the sector will rise. This will led to more advertisement on the digital media. As advertisements increase, the trial rate and the repeat rate for online retailing is likely to increase. This will trigger growth in both the travel and non travel segment due to more customer acquisition.

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No of Internet Users India in MillionsSource: Ken Research, 2013

Number of active internet users are rising which is an impetus for e-commerce

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Total No of Plastic cards on the basis of cards outstanding (Milions)

Source: Ken Research, 2013

Demand for debit and credit cards will see a rise

The demand for debit and credit cards has also seen a steady rise over the last few years. Most of the banks now provide online banking and debit card facility with every new account. With the financial inclusion drive by the RBI, the number of bank accounts (and hence the number of debit cards) will definitely see a rise. This coupled with rising disposable income will invariably lead to more online transactions.

With more demands for plastic cards, the e-commerce industry will get a momentum.

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The ecommerce industry in India is nascent. With internet penetration, Personal disposable income on the rise and with gradual demand of debit and credit cards, the ecommerce industry is all set for some good growth numbers in the future. There are, however, concerns amongst customers regarding the quality of the product/offer, lack of the “fun” factor of shopping, and, about the security of the online payments. These challenges are being addressed by innovations like cash on delivery, money back guarantee; such challenges can be easily dealt with. Due to lower barriers of entry, competition is likely to be quite high. Price based competition can lead to shrink in margins. However the next few years will see some consolidation in the market space and inflow of investment in this sector is quite likely.

Overall the future of the ecommerce industry is indeed very bright.

"I believe we can still be a footnote in the history of e-commerce.“-Jeff Bezos (US founder and CEO of Amazon.com)

We have a very positive outlook for the E commerce market in India

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Pritam Banerjee

Work Experience: Consulting, Deloitte, Mumbai Summer Internship: Equity Research, Espirito Santo Investment Bank, Mumbai

A meritorious student from BESU, and an internationally rated Chess player, Pritam has worked for Deloitte Consulting as a functional domain Analyst and is appreciated for his high quality deliverable. His summer internship report on Direct Cash Transfer is widely discussed in Press and has been appreciated by Senior management of various companies. It has also been a part of the curriculum of IIM Ahmedabad.

Sumoya Ghosh (Coordinator, E-cell, TISS Mumbai) College: Tata Institute of Social Sciences, Mumbai. Work Experience: UNICEF

Sumoya is a student of Social Entrepreneurship in TISS Mumbai. She has worked with UNICEF and is the coordinator of the E-cell of TISS and the editor of the social entrepreneurship magazine. A meritorious student of Jadavpur University, she has published reports on various topics including Direct Cash Transfers and is known for her work.

About the Authors