Welcome to the world’s weirdest e-commerce market

Few online shopping sites can boast the same traffic
Few online shopping sites can boast the same traffic
Image: AP Photo/Sucheta Das
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It is hard to know what to make of Indian e-commerce. NextBigWhat reports today that eBay will lead a $50 million round of funding into Snapdeal, a daily-coupon-turned-e-commerce business. Also today, the Times of India reports that two men were arrested for defrauding customers on their e-commerce site, Speculation mounted last week about the impending demise of SeventyMM, a movie-rental-turned-e-commerce venture. Nearly half the e-commerce firms set up in 2012 had shut by October.

Indian e-commerce is going through a rocky patch. Bigger firms have been merging with or buying up smaller ones. Those that have neither consolidated nor been acquired are struggling to survive. Yet eBay, which should know a thing or two about flogging goods online—and which has Indian operations—has enough confidence in the market to put money into a start-up. What is going on?

India’s online shopping market is worth about $10 billion, with most of that coming from travel bookings. By contrast, the market exceeds $200 billion in both China and America. But with only a tenth of the country online and less than 1% of commerce conducted on the internet, everybody agrees that e-commerce in India will, at some point, be hugely profitable. But even with 34% annual growth in Indian e-commerce, according to McKinsey, nobody seems quite sure when that will be.

The difficulties faced by Indian e-commerce are legion: poor logistics, skeptical shoppers and torturous payment mechanisms all contribute to the high mortality rate in the industry. But perhaps the biggest problem for e-commerce in India is slim margins.

The point of online shopping is to offer products at a lower cost but margins in India tend to be pretty low in any case, says Mukund Mohan, head of Microsoft’s accelerator program in Bangalore. Besides, dodgy supply chains mean that e-commerce firms must keep their warehouses full of inventory while market dynamics make them offer cash-on-delivery to customers. No matter which way you look at it, cash flow is a problem.

The arrests of two men for taking money from customers and supplying nothing in return can only make matters worse. Indians have traditionally been wary of online shopping, preferring to deal with humans with whom they can converse and bargain.

Yet the fact that there are some ventures that are not just growing but attracting funding in what has lately become a somewhat parched sector, suggests that not all the pessimism is warranted. Visiting India last month, Google’s Eric Schmidt said the internet in India felt a lot like America’s in the 1990s. The same could be said about online commerce in India, which would suggest that the only way to go from here is up.