The Internet savvy customer; Increase in demand
Over the last 5 years, E-commerce in India has transitioned from being a curious experiment to a full-fledged business reality and opportunity. The rise of the power of the internet, a younger population with increasing disposable incomes looking for ways to improve their lifestyles, rapidly growing mobile penetration along with technology advancements, increase in the demand for comfort and convenience whilst shopping, rising consumers’ inclination towards purchases against their future earnings, mounting real estate costs and retailers’ willingness to use the internet as a channel for nationwide sales reach have all converged and given rise to the e-commerce revolution in India. With over 125 million internet users, estimated to grow to 370 million in the next two years, India is one of the fastest growing markets for digital commerce in the world with a digital audience, which will be larger than the US and second only to China. (Source: Report by ASSOCHAM & Comscore).
Abundance in supply but clogged with bottlenecks
Only 5% of the $600 billion Indian retail industry is organized (Source: The Indian Kaleidoscope: Emerging trends in Retail by PwC) - this unorganized and fragmented nature of this industry lends itself to unique issues such as reach and marketing for businesses that want to sell their products nationally. India is home to 50 million small and medium business (SMB) units in India, accounting for more than one-third of the country’s GDP but only 10 million of them being technology ready (Source: Zinnov). In order to sustain their business in this increasingly competitive world, it is now becoming extremely critical for these SMBs to move out of their comfort zone and reach out to a wider audience of consumers. Some of their biggest challenges in doing so include lack of proper logistics and retail infrastructure, limited computer expertise (only about four million SMBs in the country are using PCs in India!), inadequate working capital, low marketing expertise, and geographic bottlenecks.
Welcome to the online bazaar
Digital commerce through an online marketplace provides a way out. By providing low cost yet effective solutions, online marketplaces in India can help out a multitude of Indian retailers who don’t have the resources or the know-how on how to most effectively market their products and services. It might not be the ultimate panacea to Indian retailers’ most common barriers or issues but it is nevertheless the most cost effective as well as most accessible irrespective of the infrastructural and logistics complexities of this heterogeneous and diverse nation. These complexities however, provide a unique testing ground; a destination of choice for digital commerce. Creating an online marketplace the likes of which have never been seen, is a goal that has become far more accessible to India’s digital players who have much to gain from creating digital marketplaces which bring the vibrancy of the bazaars of yore to the internet.
The marketplace model is indeed a more profitable and scalable form of commerce for digital players in India. It offers significantly higher competitive advantages to players in the digital commerce space as compared to the conventional inventory based e-tailing model. The marketplace model being inventory light allows the players to not only expand the range of their product offerings beyond a fixed set of brands/ merchants but also significantly cuts down the customer acquisition cost. Success in this model solely depends on how effective the platform is in
a) Reaching out to the target audience (building demand)
b) Bringing the best of sellers and their products onto the platform (creating supply)
Hence, the network effects of creating an infinite supply-demand loop which becomes self-sustaining with time.
To conclude, India has seen the emergence of multiple schools of thought on how digital commerce should be taken forward. However, as with most new concepts, some approaches are better than others. Digital marketplace is the natural successor to the diversity that is characteristic to India's physical marketplaces in the offline retail world. It is not merely about cost effectiveness but far more critically, about sustainability. A digital marketplace based model is far more sustainable in the long run as it is inherently adaptable to changing trends. In a world that is in the grip of a wide ranging economic turbulence, it is the creation of life changes experiences for the ecosystem through solving real needs of addressing the supply-demand chasm, that lend a digital marketplace to be the long-term, sustainable model for India’s retail commerce.