Ecommerce in India: Will the bubble burst ?

Recent years have seen a remarkable transformation in the way India shops and trades. Even the ‘Republic Day Parade’ was not just limited to the Rajpath in this generation as another ‘Republic Day Parade’ was making its debut in the digital world – thanks to various e-commerce websites that showed their patriotism at the right time and flooded the customers minds with some seriously heavy discounts and shared their love for the Indian customers.

Over the last two decades, rising internet and mobile phone penetration has changed the way we communicate and do business. E-commerce is somewhat a fresh concept. It is at present heavily leaning on the internet and Smartphone revolution to fundamentally alter the way businesses reach their customers. Typically, now-a-days, it is Google that people first reach before buying a product. Thanks to Google India again – ‘The Great Online Shopping Festival’ 2014, which took place on Dec 10 - 12, involved over 450 online retailers and millions of customers.

Additionally, with improvement in infrastructure such as logistics, broadband and internet-ready devices, there is likely to be a significant increase in the number of consumers making purchases online. It is estimated that around 65 million consumers in India to buy online in 2015, as against around 40 million in 2014.

In India, e-commerce can be considered as the fastest growing sector which is likely to record a 70% revenue growth in 2015. If you observe any television program, more than 60% of the advertisements are related to digital sales. It may be e-commerce giants like Amazon, Flipkart, Snapdeal, Jabong etc., or service related websites like Magicbricks, Carwale, 99acres etc. This strongly establishes the fact that e-commerce growth is tremendous in countries like India. This is definitely not the case 5 years ago. People are getting more inclined towards the best and easy way of buying goods. The e-commerce market in the country is expected to grow 37% to reach $20 billion by next year on the back of growing internet population and increased online shoppers

India, one of the Asia’s fastest growing e-markets, with an internet user base of about 250.2 million as of June 2014. Adding to this, the option of availability of few products only on e-commerce sites, the demand is increasing day-by-day. Chinese electronic company, Xiaomi sells almost all of its smartphones in India through Flipkart. It sold around 26.1 million smartphones in the first half of 2014 itself, which would have been impossible without the e-commerce link. A manufacturer cannot offer his products at such low prices if he reaches the buyer directly through outlets or any other physical way as many other costs add up to the original price.


Hence, e-commerce in many ways is acting like a bridge between consumers and producers benefiting both of them. So growth in the e-commerce sector is definitely a great opportunity and will continue until the competition sustains in this field, which leads to continuous innovation.

In India, e-commerce is very thickly existing mainly in metros and tier 1 cities. We are yet to see e-commerce in India spreading to the semi-urban and rural parts of India. This segment of our country still has no access to proper internet connection and believes strongly in touch and feel concept and is rather uncomfortable buying something online. So, while the large percent of Indian population can be a strength, it can also be a threat to e-commerce companies. Fortunately, with increasing reach of mobile networks and internet to other parts of India including semi urban and rural areas there is a huge scope for expansion and growth of e-commerce industry.

In India, it is also observed that the responsibility of e-commerce industry is held on the shoulders of very few players, which includes the big 3 online shopping giants i.e., Flipkart, Amazon, Snapdeal. All the three companies have been known to play the long term game of sacrificing short term profitability for long term gain by investing heavily in IT infrastructure, warehouses, logistics which serves as a moat for other players looking to enter the industry while also making themselves prepared to be able to serve the growing user base better. The business environment and price wars between companies is making survival of small companies difficult.

Forget the Flipkarts, Snapdeals and Amazons. Travel is where the real money in India’s e-commerce is. Online travel accounts for nearly 71% of e-commerce business in India, followed by e-tailing (16%). E-commerce in the travel sector includes e-ticketing and hotel reservations sites like makemytrip, yatra, cleartrip, IRCTC, redbus and many more. With the growing number of internet and smartphone users, the industry has evolved, and like any other online business is shifting its focus to mobile. Traffic and transaction from mobile is on the rise as the penetration of credit card usage on mobile phone is higher than on desktop. This can be clearly observed form the exponential growth of ticket booking sites like, TicketGenie and Kyazoonga.

Among all the categories, Fashion and Apparel Category topped the charts leaving behind the all-time forerunner ‘Mobile & Technology’. After a fabulous year, Fashion category is expected to grow 400% in the next 3 years. Thanks to the e-fashion pair Myntra and jabong for keeping the fashion-hunger of the customers alive.

The scope is very much open for these Indian ecommerce companies but what they require is a strong basic structure. At this moment all that can be said about Indian ecommerce industry is that it is here to stay and rise. The “bubble” just defines its constructive state but for those who lack basic and elementary marketing structure, the needle is just dangling above…

Moreover, while families in the upper middle class are increasingly being comfortable with high and standardized prices, the middle and lower middle class families still keep looking for good deals. This mentality might prompt the e-commerce companies to cut their profits even shorter, further inflating the bubble.

All the above points might be a contributing factor for e-commerce bubble to burst in future. But one need not be too pessimistic also. Investing in technology that will make infrastructure and logistics cheap will be a boon to the e-commerce companies. So, that is one thing these companies would be monitoring regularly. While they can expect a rosy picture from urban India in future, they need to listen to the markets of semi urban and rural India to survive and gain profits in the long run.

To conclude, ecommerce in the last 12 months has seen explosive growth. The path of social media has helped online retailers and marketplaces to generate high traffic and engagement. It is definitely a learning curve for India’s Ecommerce market and it seems that we are riding it the right way.



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