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.

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 will probably reveal a long list of shoes, and the end users have to sort through a lot of information to really make their purchase decision. So what if we started to stir things up a bit? What if we can build something that can combine the networking power of Myspace or Orkut with the data crunching muscle of Google, and in the process bring a little more humanity to the act of shopping online. Social shopping sites can do just that—they offer new ways for consumers to find what they should buy and provide new opportunities for retailers to reach their customers. Taking our Men’s shoes example further, a similar search on social shopping site on the contrary will immediately point the users to the opinions of the site’s most fashion conscious and influential users – a much stronger factor in helping the users make their purchase decision. This is where psychology of human shoppers comes into play. Most of the online retailers, almost assume that people coming to their sites know exactly what products they are looking to buy. They hope that the visitors will search for the product they are looking for and then begin the purchase process. That is, however, hardly the case. Although a small percent of visitors may know exactly what they are looking for, a large number of them need help in deciding what they should buy. Especially, in the Indian context, word of mouth plays a great role in individual’s shopping decisions. However, that word of mouth spreads in a very ad-hoc fashion today. How many times we have heard statements like these – You shouldn’t buy that LG LCD television because my neighbor’s cousin thinks that LG is not a good brand for TV, or I know someone at work whose Aunt purchased a Bosch washing machine and they love it! If we were able to build a platform where these recommendations could be more structured and easily accessible, there is a potential to significantly change the buying behavior. Now the question is how do we make these recommendations more structured and available online? How do we get that neighbor’s cousin or friend’s Aunt to be online and make the same recommendations? The answer is we don’t really need to get everyone and their brother to be online for this model to work. We just need a small number of experts, early adopters and some knowledgeable product owners who have made good or bad shopping decisions in the past – we need to give them the right incentives so that they can actively contribute to the online community. So what kind of platform could we build that can enable all of this? I see the following ingredients that could make such a model successful –

• <!–[if !supportLists]–> Ability for experts to make unbiased product recommendations and share their favorite products online.
• <!–[if !supportLists]–> Ability for others to vote for the product recommendations or other content (such as reviews) posted by these experts.
• <!–[if !supportLists]–> <!–[endif]–>An incentive structure that rewards the experts based upon their level of contribution and the size of their following in the online community. The rewards could be monetary or a premium status that gives them access to additional benefits.
• <!–[if !supportLists]–> Popularity driven navigation – ability for popular products, popular expert recommendations to bubble up to the top of the site.
• <!–[if !supportLists]–> Ability for appropriate checks and balances to deter individuals who want to game the system for their personal benefits.

If these basic ingredients are there, a platform can be built that not only offers high quality recommendations for products but also keeps users closely connected with the style leaders and experts resulting in much more informed shopping decisions that would otherwise be very difficult. Stylehive.com, for example, showcases its top experts on the front page and lets people literally “follow” these experts. As these experts make recommendations or share products they like, they are immediately visible to all the users who follow these experts. The experts themselves are selected and voted by the online community based upon their contributions – building a self correcting eco system. ThisNext.com goes one step further – with the tagline “Real recommendations from Real People” , it truly “gets” the psychology of online shoppers and starts engaging them not when they are ready to make a purchase – but when they are ready to discover what to buy. Sometimes I wonder, why do most of the traditional online retailers build these artificial boundaries? They try to capture customers too late in the purchase cycle – and then get concerned when 9 out of 10 visitors leave without making a purchase. If we can extend these boundaries and start engaging customers when they really start the product discovery process, they will certainly build a strong loyalty and will keep coming back more often.  This is where social shopping can really fill the void.

Having said all of this, let’s come back to the India scenario and the issue about internet adoption. First of all, I don’t want to discount the fact that the level of PC and broadband/internet adoption in India is a big concern. However, sometimes I feel that this issue gets played up much more than it should – it almost gets used as a “whipping boy” for all the things that are not working for internet and eCommerce in India. If customers see enough value in online shopping, I don’t think the adoption as a big hurdle. There are over 30 million Indians who are online today – this is nothing to sneeze at! Over 10 million Indians are registered on Orkut alone– making India #2 country on Orkut. People see a clear value in what Orkut offers, and as a result have adopted it. One could certainly argue that comparing Orkut adoption to eCommerce adoption is not apples to apples – but my point is that we need to think about the psychology of these 30 million users and give them a reason to consider online as a shopping channel. We need to think of ways the online channel can play a role in their product discovery and purchase process so that they can make much better informed decisions, compared to what they can do today. There is no question that over time, customers will see this value – and there is no question that the 30 million internet population will grow to 50 or 100 million in the coming years. The question really is, are we offering a strong enough value proposition to these 30 million people for them to shop online? Internet is all about connecting individuals with no constraints around geographical barriers. Are we doing enough to leverage this true potential and connect individuals with other shoppers or experts so that they can make much more informed shopping decisions? I strongly feel that the concept of social shopping, if implemented properly, will be very successful in India. It will take few years for this concept to fully mature, and for consumers to start changing their shopping behavior. However, if you are considering an investment in an eCommerce venture, this is a good time to start thinking about adding that missing Human touch so that your customers can not only start connecting with other customers, they can start building a much bigger connection with you!

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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, is that enough? Are there additional opportunities to leverage the motivations of Indian consumers, and improve standardization across online retailers? I believe so, and I will be sharing specific opportunities around price comparison and other aggregation platforms.

4. <!–[endif]–>Online Marketing

Ok – this is not a new concept and companies have been doing it for years. The question is whether traditional approaches such as SEM or banner ads are enough? What are the opportunities for service providers to offer end to end services around execution of online marketing programs as well as measurement of the benefits? I believe there are significant opportunities in this space, and will share some specific concepts.

5. Analytics Services

Most online retailers use some type of web analytics product – whether it is Google Analytics, Omniture or Web trends – a lot of data is being collected. However, the question is what is being done with that data? What can service providers do to help business managers of these online retailers make more informed decisions and act on this data?

6. Fraud Detection & Security

Credit card fraud is a concern for most online retailers as well as banks. There is a lot of work being done in India such as 3D Secure to minimize the likelihood of fraud. However, I would argue that although several measures have been incorporated into websites to ask additional questions during the payment process, not much thought has gone into the implications of these additional steps on the user experience. How many “authentic” users are abandoning their online check out process because of additional “speed bumps” that they have to face? Are there opportunities for service providers to offer “non intrusive” services that can help detect fraud, and at the same time, improve the overall customer experience. I believe there are, and I will share some specific examples in this category.

. Specialized e-Commerce offerings

Today, with the exception of few online portals, most of the shopping portals look and feel the same. Most of them carry similar assortment of products, at similar price points and a level of customer experience that leaves a lot to be desired. So what are some specialized/focused ideas that can target specific demographics or unique customer needs? In this category, I will be discussing various opportunities for the NRI community, online concierge services, assisted e-commerce opportunities for mass market etc.

8. Loyalty programs

Today, the online players don’t look at loyalty programs as a strategic differentiator or a tool for building lifetime relationship with their customers. Most of the programs available today offer basic point accumulation and redemption options. This area has a lot of opportunities for 3^rd party service providers who can help execute integrated loyalty programs that reward the most profitable customers of online retailers.

9. Logistics/ Customer Service

Although this category doesn’t seem as exciting as some of the categories above, this is certainly a category that can help in strongly differentiating an online retailer from others. Ironically, this category has received the least amount of focus and investment among online retailers in India. There are several business models and opportunities available for service providers which can help online retailers significantly improve their overall service levels and consistency in execution.

I do hope the ideas that I will be posting during next several weeks will provide food for thought to entrepreneurs within this online space. So stay tuned and get your thinking hats on – let’s collaboratively build upon these ideas to help drive eCommerce in India to the next level.

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Although technology plays a critical role in building an eCommerce operation, just focusing on a technology platform without careful planning of other factors is a recipe for failure. I have heard a lot of people say that successful eCommerce companies require a strong technology orientation and should therefore, be led by a technology team. Although a technology leadership can certainly help, having a strong technology foundation doesn’t obviate the need for traditional factors that make a retail business successful. Customers don’t buy products in an online store just because they love the technology. At the end of the day, it comes down to having the right mix of products, at the right price, coupled with a strong execution and end to end experience that is difficult for other competitors to copy. No doubt that technology can and should play a key role in all above factors. However, one must remember that technology is like a foundation of a house, it is a necessary component, and if poorly designed, it can destroy the house. However, a house requires a lot more things than just the foundation for it to be livable.

This is a great time to begin an eCommerce venture in India, however, if you are thinking about getting in before the mad rush begins, you should consider a few things to maximize your chance of success.

Categories

There are certain categories which will always be better positioned to sell on the internet. This is especially true in Indian context where eCommerce adoption is still in its embryonic stage. Categories that have a larger concentration of well known brands, such as Home electronics, cellular phones are likely to sell relatively easily, compared to unbranded or private label products (such as apparel). You must make a conscious decision on how broad you want your assortment to be. You could offer a broad set of categories, or you may chose to go after a vertical niche such as cosmetics, groceries, books, electronics etc. Both of these options have advantages and disadvantages. However the one thing you should consider is that the overall eCommerce pie in India is still very small. Going to the market with a very narrow assortment could limit your ability to scale up. On the other hand, focusing on smaller set of vertical/niche categories may be a good long term decision – because when the market is flooded with a large number of broad based online retailers, focusing on a niche may help you establish the right positioning for your company and it might also give you a better control over your suppliers.  

Target Customers

Although this may seem like a text book exercise, one should always spend some time in defining the target customers. No, I am not talking about demographics such as age, internet usage, income level etc. It is easy to define that. Instead, I am talking about psychographic questions such as – Are we targeting customers who are looking for low priced merchandise or are we targeting customers who are willing to pay a small premium for a great end to end experience or are we targeting customers who are looking for good gift giving options. The initial reaction that most people have is – lets target all types of customer.  This is definitely understandable, especially if you are in a startup mode; however, it is necessary to establish a focus. I am not suggesting that one should go out of the way to avoid customers who do not belong to their target segment. However, every decision you make about the business strategy must be based upon who you are targeting. For example, if your primary target is customers looking for low priced products, it may be ok to give up control and outsource certain functions such as call center. On the other hand, if your core value proposition is around a great customer experience and quality, you may decide to have an overall control over CRM and order fulfillment.

Inventory Decision & Vendor Partnerships

Whether to stock your own inventory or to leverage 3^rd party vendors to ship products is probably the most critical decision you will be faced with. There are significant risks and opportunities with both the options, however, if you chose to go with 3^rd party vendors, the biggest trade-off is about the level of control you are willing to give up in the end to end customer experience. On the flip side, you don’t have to worry about carrying inventory costs and be faced with out of stock or over stock situations. This also speaks to the fit with the overall strategy – if your goal is to offer the biggest size of the assortment at the lowest price point, you are probably better off going with 3^rd party vendors who can source the products at a larger scale. On the other hand, if your mission is to build the best customer experience, then you would probably require a tighter control on the end to end process and it might make sense to limit your vendor partnerships to a smaller set of vendors who can execute better.

Technology

Technology is a critical foundation of any eCommerce venture. There are a number of options available ranging from Open Source (e.g. OS_Commerce) or licensed software (e.g. IBM Websphere Commerce) or managed eCommerce services arrangement. Although I would probably leave the detailed comparison of these options for a future post, it comes down to the overall objective. If you are looking for a strong differentiation in the end to end experience, it is better to build your own technology platform in my opinion. However, if you are looking for quick time to market, and if your goal is to differentiate among other dimensions such as pricing or assortment, you are probably better off leveraging a licensed eCommerce software. In any case, you should consider investing in a robust site analytics software (e.g. Omniture or Google Analytics) and a parametric based search solution so that customers can easily find what they are looking for.  One thing that usually gets ignored the most often is the automation in the back-end order management. Most of the smaller eCommerce players focus on building the front-end capabilities and rely on a lot of manual processes and adhoc reporting to fulfill customer orders. I believe by putting an equal emphasis on backend automation and robust order management solution can help you build an environment that can improve the overall predictability in the end to end customer experience.

Marketing Strategy

Even though there are limited number of eCommerce players in the Indian context, it is extremely important to carefully determine the go to market strategy and allocate enough funds to execute it. You may have the best assortment and a great customer experience, but you still have to convince the customers to come to your site and transact with you. I personally know of atleast 2 eCommerce ventures who had built a great technology infrastructure but didn’t have a well thought out marketing plan. They were hoping that the word of mouth alone will give them the desired number of eyeballs. Well they waited too long for these eyeballs to come, and in that process, took their eyeballs off the cash flow projections. They ran out of money too quickly, and then had to offer a fire sale of their equity to get bare minimum funding so that they could keep the venture afloat.

Although a lot of these factors may seem very obvious, thinking through these factors upfront can help minimize a number of startup and execution related risks associated with an eCommerce venture.