The dot-coms that e-commerce saved

Or maybe e-commerce was saved by these dot-coms. Gaurav Patra on the Indian e-commerce scenario and four sites that braved the storms and are now sailing smoothly

Many say that things will never be the same for players in e-commerce. The dotcom bust was followed by the ongoing economic downturn, and many consumers and businesses have already written the epitaph of business-to-business (B2B) and business-to-consumer (B2C) entities, and refuse to have anything to do with them. But now that the lava has settled down and the volcano is quiet, it’s perhaps time to review the Internet business all over again. After all, we have an eBay and Amazon to consider. Back home there are industry reports which indicate an overall e-commerce upsurge. This seems to indicate a good future, but a realistic one this time, unlike in the past when everything was hyped and little turned out to be real.

IDC, which closely follows market swings in the B2C segment, estimates that the total Indian market size was Rs 126.9 crore for CY2001, Rs 238.3 crore for CY2002, and forecasts it will grow to Rs 2,340 crore by the end of 2006. If this happens, it will amount to a compounded annual growth rate (CAGR) of 79 percent, and put it in the realm of what may be called impressive.

The categories that were favoured by early adopters have become staples of the B2C environment. Music CDs, gift items, books and consumer electronics top the list of items purchased in terms of volume of transactions. Experts say a different picture emerges when the data is analysed in terms of rupees. Gifts and consumer electronics are at the top, followed by the travel industry. Apparel and jewellery closely follow suit. Computer hardware and software are the next in order of preference. The most interesting trend in B2C e-commerce is that the travel industry has emerged as the fastest-growing category. IDC expects the travel space to grow at a CAGR of 140 percent to reach Rs 1,430 crore by 2006. With the launch of online ticketing by the Indian Railways, and almost all the domestic airlines, growth in this space is expected to take off. According to IDC, key Indian e-commerce sites include baazee.com, rediff.com, indiatimes.com, fabmart.com and sify.com.

Another interesting trend observed is the growth of Internet-assisted commerce. According to those in the know, Internet-assisted commerce grew by around 70 percent in 2002 over 2001. Financial services and home loans account for nearly 45 percent of this particular segment, followed by the auto market and real estate. It is also interesting to note that while approximately 40 percent of Indian buyers preferred shopping at focused shopping sites, an equal number of people did not have any specific preference between an exclusive shopping site and large portals where shopping was just one of the things on offer. According to IDC, Baazee is currently the most preferred site for such business.

People access the Internet and buy online for different reasons. IDC estimates that while convenience has emerged as the single most important reason for buying on the net, cash-on-delivery has emerged as the most preferred mode of payment, followed by credit card. It is expected that growth will be boosted after Indian cyber laws are strengthened. What is heartening is that more than 80 percent of buyers on the Net term their online experience satisfactory or highly satisfactory. “This is crucial because these people will act as referrals for these shopping sites, and will be instrumental in getting more people to shop on the Net,” comments Shekhar Avasthy, head, Internet, communications and convergence research, IDC India. Apart from this, prompt customer service and the ability to track orders are things most buyers value.

Rising awareness, growing customer expectations, and increasing market competition are driving B2C growth, says Shekhar Avasthy

For buyers, B2B marketplaces promise not only to deliver more competitive prices, but also rid the supply chain of a host of inefficiencies. One sees maximum action on the B2B vertical application sites where business is focused; i.e. verticals for pharmaceuticals, real estate, automobiles, steel and chemicals generate more business in these segments than sites which are non-specific. The B2B market is expected to grow following the increased investment in telecommunications infrastructure, and after the apprehensions regarding intellectual property rights and legal protection for business over the Net are resolved. “Even if we go by pure statistics, we will see definite growth in the overall e-commerce segment. I believe B2B is seven to eight times larger than the B2C market,” feels Brijesh Agarwal, chief operating officer, indiamart.com. A study done by Ernst & Young in 2001 to assess the amount of business which could have been done through indiamart.com arrived at the figure of Rs 600 crore. Considering the number of other companies around, this speaks for the opportunity that the Indian B2B space holds. Says Harmeet Anand, brand manager, baazee.com, “IDC estimates B2B e-commerce in India to be 90 percent of total e-commerce by 2004.”

As more companies start focussing on procurement costs, and start adopting the Net as a way of doing business, B2B business will grow. One can already see this trend among MNCs, and one expects it to trickle down to regional and Indian players. Verticals that have benefited the most from B2B e-commerce are primarily in the area of engineering, automotive, pharmaceutical and fast moving consumer goods. However, the banking and finance and other service sectors have also started realising the benefits of B2B e-commerce.

E-commerce drivers
A small number of retail consumers and some corporate users in India have been actively trying to explore and use the Internet as an effective medium for transactional purposes. According to a TNS worldwide survey, the overall percentage of Indian Internet users who bought something online in the past one month has doubled over the last year. The widespread penetration and overall growth of the Internet is one of the major factors responsible for the growth of e-commerce activities in India.

Another factor which has played a role in the growth of this segment is the increased availability and adoption of broadband. “Rising awareness and acceptance of the concept of buying online, growing customer expectations, and increasing market competition are also driving growth, especially B2C growth,” feels Avasthy.

Some of the growth in online retail buying can be attributed to the growing use of broadband links. At the same time, an overwhelming majority of businesses have at least experimented with online procurement. Some other trends such as the online experience, the narrowing Digital Divide, and the shake-out among online retailers have been factors influencing e-commerce since 2001. “The potential of the Indian e-market can be gauged from the fact that 16 percent of Indian consumers want to buy online in the next six months, which places it high on the list of countries with good online potential. Only Korea (28 percent) and Australia (26 percent) have better demand,” informs Anand.

Today’s cutting-edge online companies have a new-age formula for customer relationship management (CRM). They’re taking the old school of thought and are focusing on loyalty. This is not dominated by a corporate brand, but rather builds on the values that companies are providing. Experts say that focusing on loyalty could be the key to the future of the New Economy, especially in the B2B space. “The Internet provides the ability to drive repeat purchases by getting instant consumer feedback, and by allowing users to interactively experience their brands as well,” comments Agarwal. Adds Anand, “One of the methods to build that interactivity is to focus on mechanisms whereby feedback can flow fast and is acted upon even faster. This goes a long way in building trust and confidence in trading on the Internet.”

CRM solutions are also going to play an important role, especially for B2B sites, because implementation of such solutions is not that cost-effective in the B2C segment. “CRM definitely has a role to play in the e-commerce space, especially in high-value product segments,” observes Thomas Abraham, director, India, Interact Commerce.

A sharp increase in the number of buyers and sellers is also one of the biggest drivers of e-commerce. “The success of a marketplace depends on two things: the presence of a large number of buyers and a large number of sellers,” Agarwal points out. He says that improvements in the telecom infrastructure are going to provide the required boost to the Indian e-commerce segment both by creating awareness and by connecting more sellers and buyers.

One of the biggest benefits of e-commerce has been disintermediation, which has led to reduced margins and better deals on the Net, something realised by most consumers today. “We have seen that convenience and good deals are the two main reasons that change consumer behaviour towards transacting on the Net. Fuelling these factors further are changes in the lifestyle of Indians,” says Anand. Increasingly, one has also seen that smaller towns have started playing a bigger role in e-commerce. People here have growing aspirations with increased access to cable TV; they also have higher disposable incomes. At the same time, they are confronted by limited access to the latest products.

E-commerce inhibitors
As with any other segment, e-commerce is also faced with issues and concerns. Low PC penetration, poor automation within Indian companies, and lack of infrastructure are cited as some of the reasons for e-commerce not really picking up in India.

Although Internet penetration has increased over the years, quality still remains one of the major concerns for e-commerce players in the country. “Poor quality of dial-up access is a major concern,” says Deep Kalra, founder and chief executive officer, makemytrip.com. This is happening because intense competition in the ISP segment has resulted in sharp reductions in access tariffs, which in turn has resulted in ISPs becoming almost unviable. This has led to ISPs cramming a higher number of users with the same bandwidth at the backbone, and therefore slowing down effective Net access speed for their subscribers. “Bad last mile connections add to the misery, and have resulted in customers buying during office hours,” adds Avasthy. The absence of proper cyber legislation in line with international standards is also stopping users from using credit cards on the Net. Although with the upsurge in broadband services there is right now enough bandwidth available in India, it is not as cheap as it is made out be. In fact, cost-effective and good quality bandwidth is not reaching the masses. Indeed, Kalra feels that bandwidth remains the major constraint for the growth of e-commerce in India, and that this is what is hampering the market to a great extent.

Apart from this, a few improvements in different areas would help the growth of the e-commerce segment. For example, banking regulations that allow the free flow of money between banks in India, and the smoothening of the payment process. Improvements in the logistics industry will also help leverage the fundamental power of the Internet—that of having no geographical boundaries, but which needs to be supported by a strong logistics backbone.

Educating the end user is another factor that has to be taken care of. There is a need for a lot of education in India on credit card security, buying from the Net, and the benefits of e-commerce. Companies or different industry associations like Nasscom or CII should take the initiative to educate the masses about the benefits of e-commerce.

Still, there is good news for the business. As per industry sources, there has been an indication of renewed interest in dot-coms worldwide as well as in India. “Yes, investors have started showing interests in dotcoms, although that interest is limited to the large players in the Internet space who have demonstrated their ability not only to survive and grow, but also to make profits,” says Anand. Adds Kalra, “Investors have started showing interest in various projects…they are coming back.” And adds Agarwal, “Investors were so badly hit the first time that they still do not want to put in money. Instead, they are monitoring the more stable dot-coms before they invest once again in these companies.”

We have seen a trend of increased IT spending over the past few years, especially in the Internet and telecom sector, and one expects the same will continue. With the evolving face of mobile telephony, and the ease of getting broadband connectivity at better prices through various options now available to the consumer, better times are foretold for e-commerce.

Baazee.com

Baazee.com is an online person-to-person trading community, which has grown to become one of the India’s biggest e-marketplaces. The company today focuses on both the B2C and B2B segments. Buyers and sellers can trade on Baazee using fixed price, classified, forward auction and reverse auction formats. (Reverse auction is basically for the B2B business.)

As far as the B2C business is concerned, the company mainly targets customers who access the net at least once a week. “Generally, the majority of buyers come from the 18-30 age group. But the profiles of our users are more serious and senior compared to buyers on other portals which have started e-commerce channels as well,” says Harmeet Anand, brandmanager, Baazee.com. Baazee.com also has a strong association with self-employed professionals and budding entrepreneurs due to its unique trading platform product proposition. In the B2B space the company is targeting the top 1,000 corporates in the country.

From the very beginning the focus has been to increase both the width and depth of the site. The company increased the width by introducing various trading models, and depth by focussing on key categories. “This is consistent with the evolution of the online auction model worldwide, including eBay, which offers the same trading formats,” explains Anand. Today, on Baazee one can buy or sell using the Quick!Buy fixed price option, place or respond to classifieds, bid for or sell an auction item, or participate in reverse auctions in the B2B space. “This is an immensely scalable model worldwide which is headed in the same direction in India, although more slowly, due to lower Internet penetration,” adds Anand.

The growth of the company has so far been around 30 percent quarter-on-quarter, and they expect to continue on the same lines in future.

In the days to come baazee.com will try to provide a wider choice to the buyer, both in terms of products and payment mechanisms, and by actively engaging in friction reduction between buyers and sellers; it expects to play the role of an intermediary who helps build a trustworthy and secure platform.

Indiamart.com

Indiamart started operations in 1996 primarily as a website development and designing company. Dinesh and Brijesh Agarwal were the founders.

The initial idea was to make it a website designing and hosting agency, and serve Indian businesses by designing and implementing their websites. However, the company realised that they couldn’t sustain themselves as a simple website design and development agency. The question that hit them: Why would somebody want to design a website? They realised that basically one needs a website to generate sales, so they decided to reposition their company in a way that would help their clients generate business. Today, Indiamart is one of the leading online directories for small and medium manufacturers and exporters. “The directory as a concept was always popular. Instead of a physical directory we thought of an electronic directory, which has its own advantages,” says Agarwal.

They thus repositioned their company as a business promotion entity which would be using the power of the Internet and Internet technology to generate more business for their customers; they would also design and implement the website for their clients. In the process the company would be offering a packaged sales generation solution. This business model of linking website development and design with sales generation activity and directory services worked well for Indiamart. “We started giving a dual advantage to our customers, and we created a niche which has kept us alive,” comments Agarwal. He says they consider themselves to be a business promotion agency focussing on small and medium enterprises (SMEs). They now have around 110,000 SMEs registered with them, out of which around 65,000 are active users. Last year the company generated a turnover of around Rs 4.4 crore; this year they are looking at 8.5 crore. Next, the company is planning to open a few more offices across the country. Apart from its presence in markets like the US, Middle East and Europe, the company plans to expand its operations to other countries like China and Thailand.

Makemytrip.com

The company started operations in April 2000. Deep Kalra, founder & CEO, says that the dot-com boom of that time gave him the idea of starting a dot-com company, so he looked at the travel space, online trading, and a few other segments, and came to the conclusion that travel was what it would be. “The online travel space was very good overseas, and there seemed to be no reason why we could not succeed in India as well,” explains Kalra.

Right from the beginning the company decided to address not only the outbound market but also the inbound market because Kalra considered the latter a bigger market. The company leverages the power of the Internet. “We access our customers over the Internet. In Europe and the US they are comfortable with the Net.” The second thing the company leverages is its presence in India and the (comparatively) low cost of operating from here. They thus have an IT-enabled model.

Initially they started with all three markets: in-India, ex-India and the domestic market. As far as the inbound market is concerned, they look at both foreigners and NRIs. Kalra feels that if they had relied entirely on the foreign tourist market they would have been hit very badly. “We got our target segment and target market right, and we got the positioning bang on target,” he adds. Apart from this, the company has developed a world-class, in-house booking engine on their site, which is very user-friendly. Through its call centre, the company is today in a position to offer 24x7 services to its clients. This is a major advantage for the company. “We got into the right market at the right time, and we built a value proposition around it,” informs Kalra.

In the first two years the company did not make any profits, while in the last fiscal it made a marginal profit. Last year its turnover was Rs 35 crore; this year it is expected to be around Rs 100 crore. The company’s biggest market today is the US. Apart from its Indian offices, makemytrip.com also has got some small front-end liaison offices in the US and Australia. In addition, the company has developed a B2B site, indiaahoy.com, for its travel agents in Australia. Future plans include paying more attention to the Canadian and British markets.

Freemarkets.com

Amit Bhatia, chief executive officer, Freemarkets, feels that two types of companies can survive in the e-commerce space: one that is into technology and one which is into services. Freemarkets provides both. This dotcom is an online B2B marketplace solutions company. It empowers organisations with the software, services and information to capitalise on the global economy. “Our global supply management (GSM) solutions help our customers in lowering costs, reducing risks and increasing profitability by improving their supply management processes and expanding the reach and capabilities of their supply management organisation,” informs Bhatia. “We believe in working hand-in-hand with our customers to enable them to attain optimal results that will drive bottom line benefits for the entire company.” Freemarkets helps its customers accomplish this by providing a broad and deep mix of products and services that fit their unique GSM programmes. Freemarkets.com not only offers a vision of what effective GSM solutions can truly accomplish, but also a practical, configurable set of software and services to enable organisations to achieve success. The company has tremendous experience and expertise in the GSM marketplace. “We’re committed to listening to customers, identifying the supply management challenges they face, and developing solutions that solve these challenges and enable them to lower their total costs,” says Bhatia.

The company has already completed Rs 1,000 crore worth of e-sourcing in India. Not surprisingly then, this dot-com is considered to be one of the leaders in providing e-sourcing software and service solutions in the country. “Looking ahead, we expect market opportunities with government and public sector undertakings, diversified companies, high-tech and auto companies,” informs Bhatia.

Today the company has more than 20 customers in India, out of which half are subsidiaries of multinational companies. The client list includes GSK, Texas Instruments, Sun Microsystems, Tata Engineering and Indo-Rama. These companies have sourced items ranging from fasteners to synthetic rubber to tyres to capacitors to powder paints through Freemarkets. Apart from this, Indian vendors have bid for global contracts through Freemarkets. The company also organises seminars and conferences where leading CEOs, CIOs and CTOs discuss supply chain management issues.

Two of the popular solutions from Freemarkets are FullSource and QuickSource. FullSource is the comprehensive e-sourcing solution designed by sourcing professionals that will turbo-charge a company’s ability to reach its strategic sourcing goals. QuickSource, embedded with a robust set of technology features and functionality, is a powerful yet easy-to-use e-sourcing application that sourcing professionals can leverage to enhance their efficiency and save money quickly.