Venture Bytes #17 – Indian E-Commerce: A Vibrant Opportunity

Posted October 16, 2015

Indian E-Commerce: A Vibrant Opportunity

What do you get when you combine a booming, youthful population with increasing mobile penetration, rising disposable income, in a consumption-based economy? You get a vibrant, loud and colorful ecommerce market. You get today’s e-India.

India has all the makings of a vibrant e-commerce market, this has been well telegraphed. Will it live up to its full potential? The evolution of opportunity into billions in sales is something that needs to be watched. The strong winds of change have already started blowing. By 2020 the country is poised to become the world’s second largest digital market. The population is disproportionately skewed toward younger age cohorts – 68% of the population is under the age of 35 years, and the median age is 27. India is much younger than her usual comparison partner, 27 years of median age, versus 37 years in China and 38 years in the US. Smartphone penetration is expected to go from 16% today to 54% by 2020, according to Ericsson. For reference, China today has 78% penetration and US 82%. That is a lot when you consider that India is on track to become the most populous country in the world. More important, smartphone prices have come down appreciably across India with the cheapest 3G handsets as low as $40. India is a young country, poised to become digital and within striking distance of being more populous than economically slowing China.

Furthermore, and arguably more important, roughly 71% of India’s GDP is consumption-based, well above China’s 49% and US’s 67%. Rising standards of living and a burgeoning upwardly mobile middle class with high disposable incomes, are powering the demand side of the equation. A wide product range (including online purchase from international retailers and direct imports) compared to what is available at brick and mortar retailers is a welcome development for the e-economy. India’s emerging middle and upper income classes are defined by busy lifestyles, urban traffic congestion and lack of time and selection for shopping.

India is different from China in far more ways than are reasonable to count. One major difference is that competition is more open and international leaders compete with emerging local ecommerce companies. Thus, the firms emerging in India are poised to be globally competitive.

Against this socio-economic backdrop, ecommerce is booming in India. Buying online has become more attractive and convenient for consumers all over the country. They are increasingly more comfortable snapping up books, electronics and other items from the nation’s three large online marketplaces: Flipkart, Snapdeal and Amazon.

But not everyone is on the Indian e-commerce bandwagon. There are those who say the challenges India presents make long-term profitability very elusive. They point to the large youth population as a negative given their lower disposable income compared to the older age groups. They point to poor infrastructure and the resulting higher delivery costs in a country with low disposable income. And they point to a strong culture of mom and pop corner stores which are the backbone of the retail infrastructure in the country.

While all valid factors, all of them will actually work in favor of the nascent but growing e-commerce market. A majority of online purchases in India are for low cost items. Second, studies indicate that the wealthier, middle aged slice of the population in India, with more disposable income than the youth population, is more inclined to make expensive purchases at a physical store rather than online.

Also featured in this edition is our news section containing articles from VentureBeat, The Wall Street Journal, Fortune, and Bloomberg