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, it is much more cost effective to power components of the shopping experience using these best in class, niche technologies which are maturing every day. Whether you are an online retailer or a service provider, the opportunities are limitless. The key is to build win-win partnership models where the sum of being part of a value chain is greater than the individual parts. For the Indian market, where eCommerce is still in its early stage of evolution, this opens up a lot of uncontested space. Here are some ideas:
- Customer/Product Reviews: A model such as an Indian version of Power Reviews is not only viable, it is much needed at this time. Most online retailers have built very basic product review capabilities and the review content is moderated very poorly. A lot of times, the reviews listed on product pages are general questions from customers that look more like customer service issues, than product reviews. Having access to a service provider that can not only provide highly sophisticated technology but also provide value added services for review moderation will be a huge success. On the other hand, there still isn’t any destination portal that provides unbiased and extensive product content/ information to help buyers make purchase decisions. The only “somewhat” credible source is mouthshut.com but it is too broad – offering reviews from car dealers to restaurants to products – making it less appealing for someone who is looking specifically for reviews around purchase, along with immediate price comparison information. A Power Reviews like model will help in quickly building up this unbiased destination portal, which could offer a significant value in the Indian context.
- Content Management: Product content is a fundamental component of the online shopping experience and an essential differentiator for successful online retailers. Several surveys have been done in the mature eCommerce markets where customers rate high quality product content as one of the most important factors to enhance a buyer’s online experience. However, if you look at the product content on most ecommerce sites in India, you don’t have to be really online savvy to come to the conclusion that the content is extremely basic. Whether it is the product images, or the copy or the attributes – most of the content is provided directly by third party sellers who do nothing more than copying and pasting it from another site. Notwithstanding the copyright issues, the content is generally not of much help to customers in helping them make the shopping decision. There is an opportunity for service providers to start building and licensing a rich repository of online content for major categories such as electronics. Content is a critical component for any online retailer and it is an activity that takes up significant resources to keep up with and manage. Having access to a rich repository that is being managed and built by a service provider who does it for a living can be a huge value-add. In addition, we can extend the above example of Power Reviews, and instead of charging significant licensing fees for this content, the service providers can in return, obtain reverse licensing for additional user generated content being generated on the online retailers site. Again, a win-win situation for customers and online retailers.
- Email & Campaign Management –Email marketing is one of the most cost-effective and quantifiable ways to market an online retailer’s products and services, allowing them to send more personal, precisely targeted messages than other mediums. When used correctly and effectively, permission-based email marketing can also become the number one customer acquisition and retention tool. However, Email marketing has still not evolved as a mature channel for online retailers in India. It is still being done in an adhoc fashion, and there is a need for more mature service providers, who can provide an overall management of email program, including activities such as handling end to end planning, reviews, as well as monitoring Bounce rates, click rates, A/B testing based upon the concepts. Given the highly quantifiable nature of this channel, service providers can look at offering revenue sharing models where the initial cost of using the platform is negligible, but they get paid based upon the performance and effectiveness of these marketing programs.
- Assisted eCommerce Solutions – One of the reasons eCommerce hasn’t yet reached enough scale in India is because of relatively low Internet penetration, especially in B or C class cities. There are models possible where a combination of technology as well as local presence can help in building virtual hubs in parts of country where internet is not easily available. This will require a larger investment, and a regional sales force – but the pricing advantage or availability of large virtual assortment of products can provide strong reasons for individuals living in this city to consider online channel as a shopping alternative. Service providers can think of a number of categories in this space – from local kiosk solutions to internet café solutions that work on a affiliate/ rev share model so that the online retailers are only paying a percent of the additional demand being aggregated through these channels.
- Payment Gateways – A large expense that eats into the operating margins of online retailers in India is the transaction cost to payment gateways who act as the interface between online retailers and issuing credit card banks. In today’s environment, not many options are available to online retailers. In some cases, the smaller volume online retailers end up paying 6-7% of their sales as payment gateway fees, wiping out majority of their product margins. CCAvenue – one of the original players in this space, charges 7% transaction fees as part of its “economy plan”. If you are a retailer, selling products in the electronics category, you are probably earning 8-10% gross margin. In this scenario, there is not much scope for online retailers to achieve reasonable profitability. Although I don’t want to undermine the importance of a payment gateway solution, but when I see 7% being charged for a service, that at an overly simplified level involves routing transactions from the retailer to the bank, I do think that this space needs more entry. Payment gateway is the core need of any online retailer, and the market can easily support 8-10 strong players in this space. The initial setup cost to build a payment gateway service offering will certainly be high – but there is a large opportunity to begin offering easily integrated, Plug and play solutions in this category at significantly lower transaction costs.
The list of opportunities is limitless. As I mentioned in one of my previous posts, the ecosystem is slowly evolving which will help improve the maturity level of end to end ecommerce experience. However, if you are interested in offering services in this space, or are already playing in this space, this is the time to think about how you can carve out a niche and a unique business model that can not only provide low acquisition costs for online retailers, but can also create a significant value for your business and the end customers.