eCommerce in India - A blog by Darpan Munjal

It is about 6 weeks before Christmas. One can feel the holiday spirit in the air. However, something is missing. Even though one can see people shopping in the malls, there is a general gloominess in the air due to the worsening economy. The coming months look certain to bring more turmoil. Even if events do not turn out to be quite as bad as those of recent weeks, it is still highly likely that we will – in the words of US treasury secretary, Paulson – live in “extraordinary times” for quite some time.

Obviously this is not good news for online retailers. Although the US online retail has been hit much harder, there is clear evidence that eCommerce in India is slowing down as well. The question has now shifted from “will the internet economy be affected?” to “how bad will the internet economy be affected?”

There is no question this downturn will be deadly for a considerable number of internet startups. However, some of the victims will not be killed by the recession itself; many would have inevitably failed because they didn’t have a sound, fundamental business case to begin with. A recession that makes it harder to generate revenue and to raise additional capital will simply speed up the dying process.

However, I am an optimist. I think there are plenty of reasons to believe that many entrepreneurs and smaller businesses may emerge from the coming downturn in just as good, if not better, shape than they went in. After all, many of today’s most successful companies began in tough times and many others have emerged out of previous downturns stronger than ever before. These are the times that will separate the wheat from the chaff.

Some people would argue that online shopping mainly involves products that classify as “discretionary spending”. Cellular phones, DVDs, LCD TVs are all example of items that might classify as discretionary, and therefore by definition, these are the products that are first to be cut from consumer’s shopping list in case of an economic downturn. Therefore, even if the online retailers have a strong business model, these times require extreme focus on cash flows and managing expenses. On the other hand, it is likely that the cost of software development and other spending categories is cheaper now than in boom times. Therefore, it is a good time to review spending categories such as Online Ad Spending, CPM, consulting partnerships etc. , because chances are that prices would have fallen in most of these spending categories.

Here are some tips on how to improve the chances of survival and emerge stronger out of the recession:

Think Nimble and Flexible

I am a strong believer of trends and cycles. Nothing stays the same way forever, and for the bold entrepreneurs these times may be just right to embark on something big. My only advise would be to build a lean and nimble venture that can quickly respond to the changing dynamics of the industry and economy. For example, instead of going on a hiring spree, consider partnering with services companies, who can probably provide as good, if not better talent in addition to much more flexibility around the financial commitment.

Focus on Value:

This is a high value market, buyers will be looking for and finding extreme deals, and if you have products that can be used to create those deals, or can use them as incentives to get sales, now is the time to be creative. Now is not the time to spend marketing dollars on artificial measures of success – such as increase user registrations, increase page views etc. Instead, this is the time to focus the marketing spend on categories which will add a direct value to consumers. Whether it is kick-back programs (e.g. buy XX now, and get YY Gift card for your next purchase) or aggressive product offers, the focus on direct and measurable results from marketing spend should be highest than ever.

Leveraging Social Networks

The other day I received an email from Sears which offered $5 Sears Gift Card just for signing up as a Sears Fan in Facebook. I immediately thought to myself - was Sears trying to buy friends on Facebook? Is that ethical? As I was thinking through this strategy, I became quite impressed with the potential outcome. On one hand, a $5 gift card would result in a guaranteed spend at Sears (in most cases for a higher order size - albeit at lower margins). On the other hand, Sears suddenly had tens of thousands of so called “fans” who were in a way promoting this store to their own friends and connections! All of this, with no immediate cash outlay because the discount would only be offered when Gift card is redeemed. Overall, I thought this was a great strategy.

Now I am not suggesting that this strategy would work for everyone. However, different variants of this strategy can generate solid results, with minimal upfront investment. It’s definitely possible to execute many of these activities by tapping into your staff’s talent to provide the right content.

Improving On-Page Conversions

The effective use of landing pages and video content has been shown to improve conversion rates on both service and product-related websites. Proven by case studies far and wide, and according to MarketingSherpa’s Search Marketing Benchmark Guide 2008, testing landing page elements improves conversion rates anywhere from 5% to 50%. In November 2007, eMarketer cited a study showing online shopping conversions increasing 35% with the aid of rich media, including video. Of course, succeeding at improving on-page conversions requires the proper analytics coupled with methodical testing.

How well do you track your competitors?

The basic business requirement of gathering competitive intelligence often gets pushed aside by many companies. Competitive intelligence is particularly critical in the online marketing space, since campaign management strategies constantly change and evolve due to the dynamic bidding process. Good intelligence gathering will reduce the probability of wasted advertising dollars. To establish what intelligence should be gathered, successful marketers need internal reports with specific campaign optimization recommendations, along with data on your competition, such as upstream and downstream traffic, advertising sources, and keyword volumes.

In this kind of climate, several companies will be forced to make decisions about their spending and business focus. Survival mode will kick in, and a lot of times, this will result in companies walking away from potential profitable market share – just because it may not be their “core business”.

When this process is occurring, there is often no better time to make a move. If you’re a startup on solid footing, exploit the situation to strengthen your business at the expense of vulnerable competitors.

If you’re an entrepreneur who doesn’t need a venture capital subsidy, put your own resources to work to build a company while those who can’t do the same sit on the sidelines and go back to their day jobs.

This is certainly not a good time to start a venture if you are just “testing the waters” or if you have a half baked business plan – without a clear knowledge of where the revenue will come from. However, if you have the conviction, a great team and a fundamentally sound business plan, this might just be the right time for you to jump in and build something that might get written up as a success story during the next cycle when markets go into another recession.

I, for one, have decided to begin a new journey in the world of entrepreneurship. I have started an eCommerce consulting firm - LeapMatrix and will be focusing my efforts in helping other startups and existing companies maximize their opportunities in these difficult times.

The stakes are getting high in the eCommerce space in India. As more and more online retailers enter the market, they are driving up the cost of customer acquisition. Although this level of entry in the eCommerce market is good from a long term perspective, the challenge is that most entrepreneurs don’t have the resources or capital to wait for years before they can see some signs of profitability. The good news is that there are still some business models out there, which are mostly untapped. If you execute these well, you can not only create uncontested market space, you can make it difficult for others to compete in the game. These ideas do require some innovation –however, I am not talking about a significant technological innovation – I am talking about innovation in service offerings that can help you leap outside the traditional industry boundaries. I have written most of my articles around B2C opportunities, in this article I will focus primarily on the B2B opportunities within the online space in India.

So what are some of these ideas? Well, before discussing the specific ideas, I want to start with some of the key traits of these business models. Most of the ideas that I will discuss have one common theme – low cost of initial acquisition and high switching costs. These ideas involve offering innovative, easy to plug-in, value added services to online retailers at such a low price point that retailers have no reason to look any further. So what does one gain by this charitable gesture, you ask? Well, the key is to cut so deep into the core business processes of the online retailers, that it becomes progressively difficult for them to switch to a different provider over time.

Nothing better than starting with an example – so here goes. Power Reviews is a service provider which provides technology to online retailers in US to capture and display customer/product reviews on the site. It goes one step beyond the traditional customer reviews, and offers unique capabilities to aggregate the ratings across multiple product dimensions. The great thing about Power Reviews is that it is can be fully integrated into a website within few days. Even better, the entire offering is available for no cost to online retailers! So what is the catch, you ask? Power Reviews also maintains another online property called Buzzillions.com. The only thing they ask online retailers in return for their sophisticated Reviews technology is that the reviews collected on the retailer’s web site are syndicated and aggregated on the Buzzillions website. This is a great model – on one hand, Power Reviews is offering a significant value to the online retailers, and on the other hand, they are building a great destination site for customers with aggregated reviews from all participating retailers – a win/win scenario for power reviews, online retailers and the end customers.

Internet technology is moving more and more towards a widget based, plug and play based approach and niches are being carved out from various aspects of online shopping experience. There is no reason for online retailers to build all capabilities from scratch – instead, Continue reading �

The online shopping space in India is getting more and more crowded . Even though, the overall pie remains small, today’s customers have more options than ever when it comes to online shopping. This certainly is good news for aggregation platforms such as price comparison engines. The more options shoppers have, the greater value they would see in platforms that offer a one stop comparison of products and prices across retailers. Not surprisingly, several comparison shopping platforms have been launched in the Indian market. Tolmol.com and Bechna.com are the two most prominent ones. So if we have these comparison shopping platforms available, why aren’t people using them? Or are they?

Today’s Environment
Before we try to answer these questions, let’s try to explore the value proposition offered by these comparison shopping platforms. At the most basic level, a comparison shopping engine must deliver on a promise of accuracy, and unbiased price comparisons across a wide breadth of online retailers. The overall value proposition offered by these platforms is to help customers save time in making more informed shopping decisions. The question is how well are these comparison shopping platforms able to deliver on these basic promises? To explore this further, let’s take an example. Suppose, you are looking to buy a Nokia N70 phone – instead of visiting individual shopping sites separately, you decide to start with a comparison shopping platform like Tolmol.com. Performing a search for N70 on Tolmol.com quickly displays about 9 different online retailers selling this product. So far so good, however there is one little problem. Continue reading �

It is human tendency to resist change. The most natural instinct is to continue doing things the old way. And when changes are implemented, we try to fit them back into the mold because of our comfort level with how things used to work in the past. That is kind of how online shopping has evolved. Even in the western world, not many physical retailers believed in online channel during its infancy – they looked at it more as a distraction. However, when they started understanding the potential of online shopping, more and more retailers began to build an online presence. However, they did everything in their power to ensure that the online shopping works as close to the physical channel as possible – whether it was pricing decisions or merchandising decisions or logistics – everything was designed to work similar to how it works in the physical store. Most of the online retailers overlooked the power that internet offers around connecting individuals so that they can help each other in making better purchase decisions. Since then several new age online retailers have come up and have started capitalizing on the true potential of internet, and the role it can play in changing how people make their purchase decisions. These new players have started questioning the well accepted norms such as “category managers are the ones responsible for selecting the product assortment and making the pricing decisions” - Why should an internal category manager’s intelligence be better than the collective intelligence of hundreds of thousands of online users – who use these products day in and day out?

This question is the premise of my topic today – a topic that is near and dear to my heart and the one that happens to be first in my series of new venture ideas – Community based shopping. Before we go further, let me just clarify what I mean by community based shopping. At the most basic level, this describes an environment where online communities or users play a key role in helping other people make their purchase decision. As you read this post, I am sure one thought would certainly go through your mind – is India ready for this? At a time when internet hasn’t reached the home of a common man, when users aren’t even able to do their own online shopping, how can we expect them to help others shop online? This is a good thought and at a high level, it makes a lot of sense. However, we really need to dig a bit deeper to understand the real opportunities.

For a few minutes, let’s keep the issue of internet adoption in India aside (I promise, I will come back to it later). Let’s just evaluate, at the most basic level, whether the concept of social shopping makes sense. If we look at most online players today, the notion of human touch is missing from the online shopping experience. For all its power, Google can’t tell shoppers what’s cool or what their friends or like-minded consumers recommend. Same is the case with majority of the shopping sites. A search for men’s shoes on a typical shopping site Continue reading �

As the internet penetration reaches the average household in India, the digital eco system would need to evolve, opening up several gaps in the value chain. If you are an entrepreneur or dream of becoming one in the near future, there are significant opportunities related to internet/eCommerce that might give you a first or early mover advantage for the Indian market. Until now, my blog has focused on discussing trends, opportunities and best practices at a macro level. Now, however, I think it is time to make things a bit more interesting, and start focusing on specific concepts or business ideas that can be monetized in the Indian context. Over the next several weeks, I will be posting a series of blog articles which will showcase different business ideas in various categories related to internet/ online commerce in India.

Needless to say that these are just ideas and an idea alone cannot make a venture successful. End of the day, it is about execution and the team. If you have a strong team, with solid execution, the chances of your success are significantly higher even if you don’t have a killer/unique idea. However, everything else being equal, a differentiated idea will help further improve the chances of success as long as you are filling a genuine gap in the marketplace. So here are the categories in which I will be posting new business ideas – my hope is that some of these ideas turn into reality and when they do, the overall eco system for eCommerce will significantly improve, resulting in a far bigger pie for everyone.

1. Community based shopping:

In this category, I will be posting some ideas around the next generation of online shopping which will leverage the online communities at all levels of ecommerce value chain. We have already seen some of the successful Web 2.0 models for India outside the online shopping space; it is time now to look at some interesting models that fit within the online shopping space.

2. Content Management

As more players enter the eCommerce market, companies will seriously need to reconsider their content management strategy. There will be an obvious need for third party service providers who can provide value added content for products (e.g. detailed attributes, images, videos etc.). There is no need for eCommerce companies to keep this function internal, and outsourcing it to a mature service provider might help improve the overall user experience, and ultimately, the conversion rates. I will be discussing some business ideas for service providers who can rule this virtually uncharted space.

3. Aggregation Platforms

We are already seeing activity in this space. Portals like TolMol.com have started seeding this market and influencing customer behavior around online price comparison. However, Continue reading �