Once upon a time not so very long ago, online shopping was touted as the ‘Next Big Thing.’ Then along came the dot-com crash and separated the men from the boys. Shipra Arora reports

Zubin Kutar says after the dot-com fiasco players have now aggregated services and products that induce people to buy online

Despite being termed a non-starter around two years back with a sceptical audience not very confident of the deliverables, B2C (business to customer) e-commerce seems to have finally found its way into the Indian shopper’s wallet. A recent IDC study on the Indian e-commerce market suggests that 2002 has seen a growth of around 88 percent in B2C e-commerce spending over 2001, aggregating total revenues of Rs 238 crore. Going by the research agency’s estimates, the outlook continues to remain positive with this spending likely to cross the Rs 2,300 crore mark by 2006, thus growing at a CAGR of 79 percent. (IDC defines e-commerce as the process by which an order is placed or accepted via the Internet i.e, a buyer clicks an order button on the Internet, thereby representing a commitment for a transfer of funds in exchange for goods or services.)

Some might argue that the small base is the reason for such high growth numbers. However, as Avnish Bajaj, chief executive officer of baazee.com, one of the leading B2C e-commerce players, points out, with marketers constantly looking for means to increase points of contact with the consumer, and companies looking for cheaper means to get information and products to their users, the Internet market was bound to grow. He draws attention to the findings of the TNS worldwide survey to bring home the facts. According to this survey, the overall percentage of Indian Internet users who bought online during the past one month has doubled over last year’s corresponding figure.

Though a miniscule amount in the global context, the Indian online shoppers’ population is going to make its presence felt quite remarkably, at least within the APAC region. “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, making it the third most online-potential country after Korea (28 percent) and Australia (26 percent),” says Bajaj.

This is an indication of a growing breed of Indian consumers who are not only better equipped but also more confident of online transactions. The question that now arises is whether Indian businesses too have grown mature enough to move up the IT curve and consider B2C e-commerce a viable revenue model. The answer is yes, at least for the likes of baazee.com, indiatimes.com, rediff.com, indiamart.com, fabmart.com, traveljini.com and sifymall.com.

Take the case of indiamart.com, which has witnessed a growth of more than ten times in just two years in its online gifts domain. In the online travel domain, the company has been able to generate an average $8,000 worth of room bookings/month for its first client. Dinesh Agarwal of indiamart expects to touch $15-20,000/month/client by the year-end, which is over 100 percent growth. In his estimate, Ashish Kashyap, general manager for e-commerce at Times Internet, also pegs growth in the B2C online retailing space at over 100 percent for at least the next two years. However, for traveljini.com, the business growth this year stands at a modest 20 percent.

Brick-and-mortar businesses are also building up e-commerce revenues. This year Samsung India, the consumer electronics giant, recorded a 120 percent jump in online buying from its site over last year. Nirula’s, whose online B2C initiative, www.nirulas.com, has been declared the first Indian B2C portal by the Limca Book of Records, has witnessed more than double growth in its B2C e-commerce revenues. The company holds equally positive projections for the next one to two years.

Growth drivers
According to Zubin Kutar, manager of e-strategy at traveljini, the base for growth has been created by the e-mailing application. “In India, major players like rediff and indiatimes have expanded the market and online communities by advertising this application. The trick now lies in converting these users into bookers.”

The key factors which are bringing the transformation in the Indian market can be summed up as better availability of IT and telecom infrastructure to the average Indian middle class consumer; higher awareness levels; and most importantly, increased comfort levels and confidence in buying online. According to both Agarwal and Rajesh Chopra, deputy general manager for information systems at Samsung, the growing Internet user base is one of the prime reasons for the spread of B2C e-commerce. “As Internet penetration grows beyond the metros, it will bring with it more users with disposable incomes. As the use of technology becomes more widespread it is natural that relevant segments of consumers will migrate to buying and selling on the Internet,” explains Bajaj.

According to a Nasscom survey, from a 1.1 million active Internet subscriber base in March 2001, the number is likely to reach 7.7 million in 2004-05, with the user base growing to over 50 million; by then, PC penetration is also estimated to reach a ratio of 13 PCs per 1,000 persons.

Apart from infrastructure development, the growing maturity of the average Indian Internet user has also spurred the growth of the B2C e-commerce market. While infrastructure development is happening and will continue to happen, players have been striving to create awareness and increase comfort levels to move consumers up the IT value curve. In the last couple of years they have increasingly brought to public attention the existence of an alternative marketplace—the Internet—and highlighted the benefits of buying and selling online. Some key benefits which players have been talking about include discounts and deals, quality of goods, convenience, availability of standard guarantees similar to offline shopping, and the ability to make an informed purchase decision by comparing multiple sellers and checking product details and prices. Avijit Gupta, principal consultant at PriceWaterhouseCoopers says that convenience of buying is one of the most important reasons for buying on the Net.

Dinesh Agarwal expects indiamart room bookings/month to increase from $8,000 to $15-20,000 bookings/ month/client by the year-end

But what has really given a boost to the customer’s
confidence is the progress on the payment-mode front. One of the big barriers in the way of e-commerce has been the scepticism surrounding security aspects of e-commerce, which lowered confidence levels. Online sellers are now concentrating on factors which help in transforming the sceptical Indian consumer into someone who experiments with buying online. These include not only creating more payment options and payment gateways, but also strengthening transaction security to gradually build up confidence in online payment as well.

Players are working to create newer options for consumers. Baazee provides its users the option to pay either by cash-on-delivery, money transfer, cheques or demand drafts. The company also launched an end-to-end payment method wherein the buyer can choose to directly pay the seller online using a third party mechanism called PaisaPay. This is a service like PayPal (in the US) which is extremely popular among users of sites like eBay and Amazon. Traveljini accepts credit cards, and has arrangements with Sodexho Pass and billjunction.com, and the online bank gateways of ICICI and IDBI, with Centurion Bank, SCB and Citibank to be added in future. The company also invites users to walk into its offices and pay for the goods.

However, at present, offline payment modes like demand draft, cheque and payment-on- delivery are more popular than online modes like credit cards and debit cards; this is the experience of a majority of e-commerce players with a few exceptions like indiatimes. Shekhar Avasthy, head, Internet, communications & convergence research at IDC India, says risk averseness is the main reason why most users prefer the cash-on-delivery (CoD) mode, followed by credit card payments. “There is still a lot of inhibition. To a certain extent it is also true that sharing your credit card number over a non-secure Internet connection could at times be harmful,” he says.

Traveljini does only about 30 percent of its transactions online. But for indiatimes, approximately 70 percent of the payments are made using credit cards and debit cards, and about 25 percent are made using the COD option. The balance 5 percent is through other modes such as cheques and demand drafts. However, considering the rise in security initiatives, over a period of time online payments are expected to become the rule rather than the exception.

Meanwhile, there is a lot of activity in strengthening the security aspect of online transactions. On the technology front, Secure Socket Layer (SSL) has matured from 40-bit to 128-bit encryption to make online transactions more secure. 128-bit encryption by Verisign is the highest encryption mode and the safest for online transactions. Banks are also putting in stronger security and authentication systems. Indiatimes has its entire transactional platform on secure servers with certification from agencies such as Verisign and DNV. All these efforts are enabling greater trust in Internet usage for e-commerce. One of the fall-outs of greater security awareness has been that people only trust established and serious players. Post-consolidation, it’s the large players who continue to conduct this business. Smaller players who cannot ensure adequate security measures will tend to lose in the long run. But Avasthy points out that the real obstacle smaller players encounter is not always inadequacy of technology: “What matters most is not what the advancement has been but what the perception is.”

As the Indian market rises from the dot-com disaster, not only has the Internet user become more aware, but the players in the space have also grown wiser. Says Kutar, “After dot-coms crashed because they had no sustainable business models, people lost faith in dot-coms and the Net. However, that did not undermine the potential of the Internet as the mistakes committed earlier have been studied in great detail and sounder business models have emerged.” Having gained key insights, players have now aggregated services and products that induce people to buy online. “On reflection, the positive performance last year has surely been due to better understanding of online consumers, thereby bringing to the table ‘What he wants’ and not ‘What we want to give him,’” adds Kashyap.

Driving future growth, according to Gupta, will be factors like sanctity and legal validity of transactions, client service focus, reliable delivery infrastructure, building bonds of trust with customers, and an increasing level of PC penetration and Internet awareness.

Avnish Bajaj says 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

Emerging trends
Greater security awareness will continue to drive trends like AVS (Address Verification System), PIN for credit cards, smart cards, digital signatures, e-cards, and easier intra- and inter-bank transactions online. According to Kashyap, unlike the situation on the ground where the liability of a fraud rests with the bank and not with the merchant establishment, in the online world the liability rests with online retailing platform. But in the next one year he expects this liability also to shift to the bank. Some other trends include payment through mobile phones, and better service offerings for online payments by the banks. Although sophisticated online payment mechanisms will take some time given regulatory constraints, they will be an important facilitator of e-commerce. Moving in this direction, ICICI Bank recently introduced eCheques. Agarwal feels that in future there will be convergence of media, Internet, cable and satellite networks with mobile telephony. The ease of access to and use of these media will bring about an increase in the size of the market.

As far as market trends are concerned, players foresee accessibility to products hitherto unavailable as the largest contributor to the growth of online buying. Smaller towns and cities are expected to become big contributors to online shopping since purchasing power is increasing at a far higher rate than ease of access to the latest products. In metros, the need for convenience (owing to rapid changes in lifestyles) clubbed with easier access to the Internet will help sustain this growth. Further, communication will be getting more customised with segments addressed according to their particular needs. Kutar feels there will be a move to a holistic approach to catch the consumer (online, offline), greater focus on the consumer’s real needs, profiling of the consumer database for better interaction, and focused interaction.

Nevertheless, companies with traditional business models are still looking at e-commerce as something that’s complementary to traditional business models rather than as a serious business model in itself. “Since the traffic to our product section is very high we do know that it is being used as a referral site. Consumers browse at their leisure but they may end up buying from their nearby dealer,” explains Chopra. Indeed, though the increasing number of people transacting online is an indication of growing comfort levels, purchases are presently restricted to only certain product categories.

The day is still far off when online purchasing will become as common as offline, and when e-commerce players will become additional distribution channels and points of contact for marketers across brands and categories. Bajaj says that the barriers to online purchasing are ignorance and misconceptions. And its at this level where the fight is currently on.