2012

ARRAY CONSULTANCY SERVICES 264 Shanti Pally, Kolkata West Bengal, India 700042 Satish Kr. Goenka Jindal Global Business School O. P. Jindal Global University Sonipat, NCR of Delhi

[E-COMMERCE A CASE FROM INDIAN PERSPECTIVE]

An overview of Indian E-Commerce with a detailed case on RedBus.in

Table of Contents
Disclaimer ............................................................................................................................................... 3 Acknowledgement................................................................................................................................... 4 Electronic Commerce .............................................................................................................................. 5 Major divisions of E-commerce ............................................................................................................ 5 Business Application ............................................................................................................................ 5 Global Trend of E-Commerce ............................................................................................................... 6 Impact on Markets & Retailers ............................................................................................................ 6 E-Commerce in India ............................................................................................................................... 7 Market Size & Growth ......................................................................................................................... 7 Facts of Indian E-Commerce ................................................................................................................ 8 Capital to Play Differentiator ............................................................................................................... 8 Key Drivers to Success of E-Commerce in India .................................................................................... 9 Reduced operational cost ................................................................................................................ 9 Easy to compare: ............................................................................................................................. 9 Safe & secure ................................................................................................................................... 9 Increased reach for the merchant .................................................................................................... 9 Shopping 247 ............................................................................................................................... 10 Social media trend ......................................................................................................................... 10 Others ........................................................................................................................................... 10 Top Five Challenges of Indian E-Commerce Market............................................................................ 10 High Customer Acquisition Cost ..................................................................................................... 11 High Churn/ Low Loyalty ................................................................................................................ 11 Cash on Delivery ............................................................................................................................ 11 High Cash Burn Rate ...................................................................................................................... 12 High Inventory/ Poor Supply Chains ............................................................................................... 12 E-Commerce in the Non-Metros ........................................................................................................ 12 Successful E-Commerce ventures in India .............................................................................................. 13 Redbus.in .......................................................................................................................................... 13 Revenue Model ............................................................................................................................. 15 Flipkart.com ...................................................................................................................................... 15 Acquisition of Letsbuy .................................................................................................................... 16

Revenue of Flip Kart....................................................................................................................... 16 Snapdeal.com .................................................................................................................................... 17 Business Model.............................................................................................................................. 18 Secret behind Success .................................................................................................................... 18 RedBus.in A Detailed Case .................................................................................................................. 21

Disclaimer This project report / dissertation have been prepared by the author as an intern under the Internship Program of Array Consultancy Services for academic purposes only. The views expressed in the report are personal of the intern and do not reflect the view of the firm or any of its staff or personnel and do not bind the firm in any manner. This report is the intellectual property of Array Consultancy Services and the same or any part thereof may not be used in any manner whatsoever, without the express permission of the Firm.

Acknowledgement I am thankful to Array Consultancy Services for accepting me as an intern and providing me with the appropriate guidance and material to convert my synopsis into this paper. I am fortunate to be provided with an opportunity to write my paper under the guidance of Mr. Sumit Sureka. This paper would not have been possible without his valuable inputs, honest remarks and earnest effort to guide me throughout the drafting of the paper. I am grateful to Mr. Arnab Ray, CEO, Array Consultancy Services and Mr. Saubhik Banerjee, COO, Array Consultancy Services, for guiding me in the organization of this project and enthusiastically helping me to steer the troubled waters in the time of need. I would also like to extend my sincere thanks to my other colleagues Rohit and Shreyans for their constant review and honest remarks.

Electronic Commerce 1
Electronic commerce, commonly known as E-commerce or E-comm, refers to the buying and selling of products or services over electronic systems such as the Internet and other computer networks. Electronic commerce draws on such technologies as electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at one point in the transaction's life-cycle, although it may encompass a wider range of technologies such as e-mail, mobile devices and telephones as well.

Major divisions of E-commerce

E-tailing or "virtual storefronts" on Web sites with online catalogs, sometimes gathered into a "virtual mall". The gathering and use of demographic data through Web contacts. Electronic Data Interchange (EDI), the business-to-business exchange of data. E-mail and fax and their use as media for reaching prospects and established customers (for example, with newsletters). Business-to-business buying and selling. The security of business transactions.

Business Application
Some common applications related to electronic commerce are the following:

Document automation in supply chain and logistics Domestic and international payment systems Enterprise content management Group buying Automated online assistants Instant messaging Newsgroups Online shopping and order tracking Online banking Online office suites Shopping cart software Teleconferencing Electronic tickets

http://en.wikipedia.org/wiki/Electronic_commerce

Global Trend of E-Commerce

Business models across the world also continue to change drastically with the advent of E-Commerce and this change is not just restricted to USA. Other countries are also contributing to the growth of ECommerce. For example, the United Kingdom has the biggest e-commerce market in the world when measured by the amount spent per capita, even higher than the USA. The internet economy in UK is likely to grow by 10% between 2010 and 2015. This has led to changing dynamics for the advertising industry. Amongst emerging economies, China's E-Commerce presence continues to expand. With 384 million internet users, Chinas online shopping sales rose to $36.6 billion in 2009 and one of the reasons behind the huge growth has been the improved trust level for shoppers. The Chinese retailers have been able to help consumers feel more comfortable shopping online. E-Commerce is also expanding across the Middle East. Having recorded the worlds fastest growth in internet usage between 2000 and 2009, the region is now home to more than 60 million internet users. Retail, travel and gaming are the regions top E-Commerce segments, in spite of difficulties such as the lack of region-wide legal frameworks and logistical problems in cross-border transportation. E-Commerce has become an important tool for businesses worldwide not only to sell to customers but also to engage them.

Impact on Markets & Retailers

Economists have theorized that E-commerce ought to lead to intensified price competition, as it increases consumers' ability to gather information about products and prices. Research by four economists at the University of Chicago has found that the growth of online shopping has also affected industry structure in two areas that have seen significant growth in E-commerce, book shops and travel agencies. Generally, larger firms have grown at the expense of smaller ones, as they are able to use economies of scale and offer lower prices. The lone exception to this pattern has been the very smallest category of bookseller, shops with between one and four employees, which appear to have withstood the trend.

E-Commerce in India
India has an internet user base of over 100 million users. The penetration of e-commerce is low compared to markets like the United States and the United Kingdom but is growing at a much faster rate with a large number of new entrants. 2 The reach of Internet is continuously increasing with each day and mobiles just make the process even more convenient. Businesses in even the smallest towns and villages are becoming increasingly aware of e-commerce and are excited by the growth potential. Today, consumers across urban India are confident enough to make purchases that exceed Rs 20,00025,000. Earlier, the same shoppers stayed in the Rs 2,000-5,000 ranges. According to a study almost 57% of business for e-commerce product sites came from tier I, tier II and tier III cities while the eight metros accounted for the remainder 43%. The same pattern was visible in the service sites too, with tier I, tier II and tier III cities contributing 54% of revenue versus 46 % by the eight metros. With entry and operational costs being comparatively low, the second half of 2011 and the beginning of the current calendar have seen the launch of a good number of new e-commerce sites spanning across a variety of businesses womens fashion, mens fashion, shoes, followed by accessories, groceries, sports, toys, home furnishings, jewelry, automotive, bicycles, electronics and electrical equipment etc. According to a report by the IAMAI, the current e-commerce market in India is around US$ 10 billion. But with different levels of adoption, the market has the potential to grow anywhere between US$ 70 billion US$ 150 billion under one scenario and at another level it can grow between US$ 125 billion US$ 260 billion by 2024-25. With many venture capitalists funding numerous e-commerce start-ups, the situation is getting pretty confusing, no doubt but it also opens up new ways to reach the horizon. 3

Market Size & Growth

Indias E-commerce market was worth about $2.5 billion in 2009. About 75% of this is travel related (airline tickets, railway tickets, hotel bookings, online mobile recharge etc.). Online Retailing comprises about 12.5% ($300 Million as of 2009). India has close to 10 million online shoppers and is growing at an estimated 30% CAGR vis--vis a global growth rate of 8-10%. Electronics and Apparel are the biggest categories in terms of sales. 4
2 3

http://en.wikipedia.org/wiki/Ecommerce_in_India http://www.pluggd.in/e-commerce-trend-in-india-297/ 4 http://en.wikipedia.org/wiki/Ecommerce_in_India

Facts of Indian E-Commerce

The E-commerce market in India had clocked close to Rs 50,000 cores by the end of 2011. Even though there are less than 10 million internet users who are actually engaging in Ecommerce activities, there are about 150 million internet users in India or around 75 million households that are ready for E-commerce. 5

Capital to Play Differentiator

Harish Bahl, founder and chairman of the Smile Group, which owns such E-Commerce portals like Fashionandyou, FreeCultr, Dealsandyou and Bestylish, said companies that did not raise capital, or got some funding but do not have a well thought-out business model, and companies in very narrow niches are looking to be acquired. "This is a logical progression. Consolidation had to happen." Consolidation is also being hastened by the inability of smaller firms to raise money at the valuation levels they commanded even last year. Yebhi, a multiproduct retailer that raised Rs 40 crore (approximately $8 million ) from venture capital firms Catamaran and Nexus Venture Partners in July 2011, was in talks for a fund infusion earlier this year, according to a private equity investor. However, the venture firms valued the company at around $50 million, less than half the valuation the firm received in the previous round, according to the same private equity investor. Yebhi declined to divulge valuation details and did not confirm that it is planning to raise more money. Manmohan Agarwal, the co-founder and CEO, said in an email that the company was adequately capitalized to meet its growth plans. "It is a fundamentally robust industry. But there are too many players fighting for the same pie," said Deepak Srinath, director, Viedea Capital Advisors, an advisory firm that helps start-ups and small firms raise funds. Capital, in fact, will be the key differentiator. Without funding, an e-commerce company will find it difficult to survive, observed Raja Lahiri of Grant Thornton. Large brick-and-mortar retailers leveraging their retail expertise online, such as Future Group and Shoppers Stop, and older, established multiproduct e-commerce sites like Indiatimes.com, have the advantage of size and capital. In a capital-intensive segment like E-Commerce, these companies have the staying power and marketing muscle. Indiatimes Shopping, a Times group company that publishes The Economic Times, for example, has seen its revenues grow 100% from last year without raising any outside capital, the company said.
5

http://en.wikipedia.org/wiki/Ecommerce_in_India

"Larger players are well-positioned and have the capital. But smaller players have the agility and speed, which are important in this sector. If the larger players keep this in mind, they will do well," Lahiri said. Even Flipkart's valuation has been slipping, with an investment banker estimating that the company will be worth only around $550 million. Even its acquisition of Letsbuy, believed to be at the behest of the common investors, Tiger Global and Accel Partners, has done little to improve its valuation. The consensus among industry analysts is that venture capital investors will show more caution this year while continuing to invest. Capital will start concentrating in the hands of category leaders and many ventures will not be able to raise follow-on rounds of funding, said Aashish Bhinde, executive director at Avendus Capital. "This year capital will go to those ventures that can demonstrate they can reach profitability." 6

Key Drivers to Success of E-Commerce in India

Reduced operational cost Since the entire business can be moved online, the need for physical stores has become obsolete. Less infrastructural investment and associated labor costs drives up the profit margin. The seller can then transfer this benefit to the customer in the form of discounted pricing which boosts the appeal of online shopping. Easy to compare: It is far easier and quicker to compare prices of goods online, equipping the customer with the information to decide the right price or terms for themselves. Safe & secure With services like COD, customers can trust the process of going online and purchasing. Increased reach for the merchant Market penetration also becomes far more achievable with e-commerce; it is possible for a merchant in Mumbai to extend his reach to north-eastern cities or even rural villages that are now connected by the online network.

http://articles.timesofindia.indiatimes.com/2012-02-21/services-apps/31082650_1_e-commerce-consolidationventure-capital

Shopping 247 E-commerce facilitates shopping anytime, anywhere and for almost anything desired. Busy consumers prefer this to the restrictions of when a mall/shop is open and the need to physically travel to a shop. Online business takes shopping a step further by taking itself to the customer creating conveniences of shopping anywhere and at any time. Social media trend In India, with the increasing propensity of social media, businesses have now begun to engage their customers on social networking portals such as Facebook, Twitter etc. These are likely to be rapidly developing marketing channels for the future. 7 Others Increasing broadband Internet (growing at 20% MoM) and 3G penetration. Rising standards of living and a burgeoning, upwardly mobile middle class with high disposable incomes. Availability of much wider product range (including long tail and Direct Imports) compared to what is available at brick and mortar retailers. Busy lifestyles, urban traffic congestion and lack of time for offline shopping. Lower prices compared to brick and mortar retail driven by disintermediation and reduced inventory and real estate costs. 8

Top Five Challenges of Indian E-Commerce Market9

In 2011, there had been 87 private equity/venture capital deals in the Internet/mobile Internet space worth $750 million, double the amount in 2010. One would expect the party to continue but recently when in a seminar on E-Commerce, the venture capitalists were almost absent (or represented by junior employees) and the mood was much more somber and realistic. The issues that were being discussed were not about the size of opportunity but were about profitable growth which is much more grounded. It is believed that the opportunity is large (larger than what analysts currently project!!!) but there are issues that require urgent attention. The top five concerns of the E-Commerce market in India are as follows:

7 8

http://www.pluggd.in/e-commerce-trend-in-india-297/ http://en.wikipedia.org/wiki/Ecommerce_in_India 9 http://www.telecomcircle.com/2012/03/challenges-in-indian-ecommerce-market/

High Customer Acquisition Cost One area that most of the entrepreneurs consistently underestimate in their business plans is the cost of acquiring a customer. Most business plan assumes heavy reliance on social media and internet advertising. The general myth is that the cost of acquisition on internet is very low. However, it is even higher than that of television advertising. Today cost per click is around Rs 15 and if the conversion rate (buyers to visitors) on the site is 1-2%, the cost of customer acquisition comes out to be Rs 750-1500. This is very high and requires repetitive purchases from the customer to recover the cost. Another way of validating the customer acquisition cost is the sops being doled out by existing sites on the member get member schemes. Overtime, when the customers start coming directly to the site, the cost of customer acquisition falls significantly but till that time, the business owners need to cover the cost. High Churn/ Low Loyalty I have heard multiple times that the Indian market is very large and we have just hit the tip of the iceberg in terms of customer adoption. I have no doubts on the size of Indian market but the problem is low loyalty. The big brands are yet to be created on the internet and hence the brand loyalty is very low. Consumers are currently bargain hunters on the internet. In the high acquisition cost scenario, it is important to retain the customers for a long time. If the average ticket size on the internet is Rs 1000 with 10% margin, then the customer needs to buy at least 15 times to recover the cost of acquisition (assumed to be Rs 1500). Currently this is not happening. Most of the sites are getting high number of new customers every month camouflaging the high churn. The E-Commerce companies are measuring the gross profitability and not the customer lifetime value. The moment the new customer addition drops, the profitability goes for a toss. This is what has struck the group buying sites like Snapdeal which saw fast adoption in the past. This is not limited to group buying sites and other E-Commerce formats are also witnessing the high churn and low loyalty problems. Cash on Delivery Cash on Delivery (COD) has been touted as the innovation to counter the low credit card penetration and payment security issues on the internet. COD is a substantial proportion of the sales today contributing to anywhere between 11% (for pepperfry.com) to 60% in most of the cases. The COD is unsustainable as it pushes up the cost of transaction by Rs 30-60 per transaction. Given the low profitability and small ticket size on E-Commerce sites, the entire gross margin gets erased by COD. On top of this the problem is that of high returns as the consumers often change their mind by the time the goods arrive. The returns are as high as 40-45% of all the COD shipments. COD also poses scalability issues for the E-Commerce sites in the long term as the logistics companies would find it hard to scale to the required levels. The other problems associated with COD are long lead times before the revenue can be booked, fraud risks and higher working capital requirements.

What is amazing is the fact that there is no incentive for the customers to use electronic payment on sites like Flipkart. Why would one take any risk with electronic payment if he can get cash on delivery at the same price? High Cash Burn Rate The capital requirement for any E-Commerce venture is very high contrary to the popular belief that it is easy to set up an electronic shop. It has been said by a venture capitalist that a niche vertical ECommerce venture needs $50 million of funding over time while a horizontal player would need $300400 million funds. Leaders in the E-Commerce space (ones that have raised money, have large teams and are aggressively pursuing growth) are spending $1-2 million (Rs 5-10 crore) a month, including on marketing, overheads and salaries. At this rate of burn, smaller firms with scant capital are unable to cope. As per calculations, a company would need to spend at least Rs 1 million per month in the first six months of existence even if it is bootstrapping. Therefore it is important to raise money early in the game. High Inventory/ Poor Supply Chains Most of the E-Commerce ventures are complaining of the excess inventory and absence of liquidation market in India. The poor supply chain compounds inventory problems due to unpredictability of the supply. The cost of carrying the inventory is very high and successful ventures would need to tackle the supply chain issues if they really want to run a scale business. The other problem is in unpredictability of delivery to the customers leading to higher returns.

E-Commerce in the Non-Metros10

Chances are good that as an entrepreneur you are looking at the online space to make your fortune, and why not, there is no better time than now to make money with an ecommerce venture in India. Billion dollar valuations, multiple funded ventures and overall encouraging sales numbers; the recipe is perfect. With over 120 million internet users and as many as 10 million of them transacting online, the opportunity for E-Commerce is huge. You cant get a better sense of how deep the online retail buzz in India is, until your neighbor who is a manufacturer of textile utilities (B2B play) talks about setting up an online shop. The concept of buying and selling online is going mainstream and it is perhaps the right time to explore niches. Back in 2002, the market was a lot different. There were no payment gateways, logistics was lot more difficult and internet penetration was low, however sales did happen. And you wonder who bought
10

http://yourstory.in/2012/05/if-you-are-in-online-retail-do-not-ignore-non-metros/

majority of the stuff? Tier II and Tier III cities. The logic for this was very simple back then and it remains the same now. For a metro buyer, the accessibility to quality stores offline and availability of technology products is lot easier than the Tier II / III cities. In fact several orders for low-end mobile phones from small towns in South India, Orissa and UP used to take place way back in 2005. It wasnt uncommon to receive cheques, for an E-Commerce venture with long hand-written letters that bestowed them with trust and pleaded to send the product, as if they have little hope of actually receiving the product. Any commerce is driven by value and the clear value that one can deliver is making available something that isnt easy to get in the local market. The demand exists, for these shoppers, online is at times the only medium. Thats exactly what is happening. E-Bay India today revealed that as many as 57% of its transactions for gadgets (smartphones, laptops, cameras and accessories) are coming from non-metros. Thats a very useful insight for entrepreneurs. Figure the demand for accessories, mobile gadgets and other technology products in remote areas and make them available online. Internet and mobile have spread far, but traditional distribution channels for many product lines havent. There is a gap to be explored! There is a lot to be done, by studying where logistics companies are shipping most of the products, planning your approach, talking to consumers and finding the right products to sell. If you are in online retail, you cant ignore the non-metros!

Successful E-Commerce ventures in India

Redbus.in
Like all innovative businesses, RedBus too has a very interesting story behind it. It was formed by three friends, who were together in college but worked for different companies subsequently. During the festival of Diwali, one of them wanted to go to his home-town and since he didn't know his schedule till the end, taking a bus was the only choice. He ran around town hunting for a ticket, but all tickets were sold out minutes before he reached the travel agents. That's when he thought of the possibility of providing consumers the convenience of booking a bus ticket over the internet. The objective was two-fold - to ensure that customers don't have to leave the confines of their home to book a ticket, and to help them get a ticket when they need it the most.

This was a new concept in India. People were used to online booking of flights and train tickets, but not buses. All three friends quit their well-paying, secure jobs and started RedBus. RedBus spends 75 % of its advertising budget on online medium, of which 90-95% is on Google AdWords. AdWords accounts for 25% of its website traffic, sending 1, 00,000- 1, 20,000 visitors to the site every month. RedBus has come a very long way from its early days. Today, it has the largest network of bus operators in its list (350 and growing). On offer are over 4500 (and growing) routes across the Indian map and the convenience of booking a RedBus ticket at any of its over 75,000 outlets. RedBus has also moved beyond providing value over the internet by reaching out to customers using all media that provide them convenience - be it the phone, home delivery, physical outlets or even SMS. It is of little surprise that RedBus has a growing base of happy and satisfied customers who keep coming back for more. 11 "The country's bus market today would be around Rs 15,000 crore," says Keyur Joshi, COO of travel portalMakemytrip.com, which acquired one of the first players in the sector, Ticketvala .com in 2010. "The market has a robust growth outlook, since buses play a dominant role in India's roadways segment, which transports more passengers per day than railways and air." The potential is there but so are the challenges. Primary among these is the dispersed and unorganized nature of the sector, which relies on a network of agents and sub-agents for bookings. This makes it difficult to bring the booking mechanism onto a seamlessly integrated platform. This is why, despite the mushrooming of ticketing sites, only a few have really tasted profits. The most successful of these, according to analysts, is the RedBus; the site has built up a database of almost 800 bus operators and has finished the last financial year with gross bookings of a little over Rs 300 crore. "A major reason for RedBuss success is that they have been consumer-centric and focused on sales rather than trying to automate the operations of bus operators," says Parag Dhol, Managing Director of Inventus Capital Partners, a venture capital firm that has invested in the site. Bus operators who have gone online are happy with the change, especially since the color of their balance sheets has changed as well - in many cases from red to black. They are now able to track the number of seats sold and get payments on time - a welcome change from the manual process when many of them were losing money because their agents and sub-agents were either not paying up or under-reporting the number of seats sold.

11

http://www.google.co.in/intl/en/adwords/select/success/redbus.html

Although the online market has started sprouting, it still accounts for only 10% of the bus tickets sold (according to industry estimates, 70% of the bookings happen through phone and the balance 20% are counter sales). There's a clear growth opportunity here for the net players. Plus, most of the online action is limited to Tier I cities, while Tier II and Tier III towns, with their limited internet penetration, are still to be tapped. The Indian bus market is estimated to be worth Rs 15,000 crore and growing at a rate of 25-30 %. Almost 2-3 lakh bus tickets are sold every day, of which an estimated 10% is booked, online. The online bus booking market is expected to increase significantly in the next five years. This would coincide with rising demand for bus travel, according to a study by CRISIL.12 Revenue Model For the tickets sold through its site, RedBus takes commission from bus operators. However, the company's business proposition doesn't stop with that. It also sells software solutions to bus operators and travel agents and gets paid subscription fees for that. The software sold to bus operators, named BOSS, helps them look at their seat inventory on a real-time basis and computerizes their complete operation. The software that is sold to travel agents, called Seat Seller', helps them use a single log-in to look up seat inventories with different bus operators.

Flipkart.com
Many Indians today are embracing e-retailing with enthusiasm. Popular portals such as Flipkart are spearheading the conversion of offline shoppers into online bargain hunters. It is being observed that Flipkart is the best option as the transaction was easy, and the variety of products was a bonus. For Flipkart, this means the unlocking of a vast audience waiting to experience the joys and comfort of shopping online. Sachin Bansal, CEO and one of the co-founders of Flipkart (the other being Binny Bansal), is an ardent believer in the merits of customer service. A simple desire to create a tailormade product for the Indian consumer has grown into something beyond what we imagined, Sachin muses. A quick glance at Flipkart's timeline shows it was to start as a price comparison platform, but there weren't enough e-commerce sites to
12

http://economictimes.indiatimes.com/news/news-by-industry/services/travel/online-ticketing-redbus-hasposted-a-staggering-growth-rs-300-cr-in-revenue-this-year/articleshow/13018101.cms?curpg=2

compare. So, both the Bansals, who were colleagues at IIT-Delhi, and then at Amazon.com, thought, why not start an E-Commerce site? That was the genesis of Flipkart. From an initial investment of $8,000, this humble seed of desire has germinated into a $100 million e-retailing favorite. The founders' passion for the consumer Internet space manifests itself in the brand, which is synonymous with customer service and satisfaction. Don't count your customers before they smile' is the company's operating mantra, and it's a mantra they're applying successfully alright.13 Acquisition of Letsbuy14 Flipkart, Indias most successful E-Commerce company and definitely the most talked about, reportedly worth $1 Billion, acquired one of its biggest competitors LetsBuy for a reported amount of $25 Million to $30 Million (Cash and Equity). Letsbuy, one of Indias top E-Commerce companies, with an approx topline of 15 Crore per month, was looking at raising another round of funding but could not. Flipkart has been funded to the tune of $ 150 Million and LetsBuy received around $6 Million. Both of them were funded by Multiple VCs. Tiger Global and Accel Partners were common VC firms. Flipkart, though known for its Books category, offers multiple categories and Letsbuy concentrates primarily on consumer electronics. This is Flipkarts 4th acquisition of a startup, but its first of a competitor.

Revenue of Flip Kart The concept of E-Commerce is downloading at a fairly rapid pace in the psyche of the Indian consumer. In the metros, shortage of time is a big driver for online shopping. On the other hand, accessibility to a variety of products makes audiences from smaller towns and cities opt for the online route. Major retailers face challenges in stocking their stores adequately. Often, customers are unable to purchase items of their choice, thus prompting them to resort to e-retailers. For books, I usually prefer shopping from physical stores, but so far, only Flipkart has managed to supply me with Manga, Japanese literature, that's otherwise difficult to find. Plus, it's often cheaper to buy online. I'm definitely going to be a regular on their site, enthuses Riddhima Toshniwal, a content writer from Raipur. Such experiences explain the growing popularity of Flipkart in the non-metro regions as well. We will close 2011-2012 with over $100 million in revenue. By 2015, we want to clock in $1billion, but looking at present trends, we may be able to do it sooner, states Binny, Flipkart's COO. This statement doesn't seem far-fetched; a quick overview of India's Internet penetration shows a user base of approximately 100 million. The Government's National Broadband Plan, pegged at $4.5 billion, proposes to connect nearly 160 million additional Internet users by 2014. The spread, and subsequent adoption of e13 14

http://www.thehindu.com/arts/magazine/article3290735.ece https://startupyapper.wordpress.com/2012/02/15/what-does-the-flipkart-acquisition-of-letsbuy-mean/

commerce, thus, only seems logical. With several reputed brick-and-mortar retailers also offering online services, it seems natural the trend of shopping remotely will scale up substantially. The value proposition in either formats of retailing, physical and online, is different. It's the experience of touchand-feel that makes physical shopping exciting. In the online context, convenience and comfort takes over. There's ample scope for both to grow, Sachin avers. 15

Snapdeal.com
Until January last year, Wharton graduate Kunal Bahl and his IIT batchmate Rohit Bansal could be spotted across restaurants and retail outlets in Delhi suburbs trying to sell discount coupons to both owners and their potential customers. At 25, Bahl had quit his cushy Microsoft job based in Seattle and even convinced his IIT Delhi alumni Bansal to take a leap of faith in 2007. "We used to wait for hours in the heat outside small restaurants, where we wouldn't have eaten even if we had to pay," says Bahl.16 SnapDeal.com is an innovative e-commerce consumer service that features a daily deal with discounts in the range of 50-80% off at leading restaurants, spas, dance classes, weekend getaways, and other forms of entertainment. Its a great discovery platform for people, who love to see, eat, do things and buy within ones city. Consumers can purchase this deal from SnapDeal.com only that one day, and then use it anytime in the next 3-6 months.17 Dataquest E-commerce Survey 2011 has rated Snapdeal as the top E-Commerce site in India. Investors in the company include Bessemer Venture Partners, IndoUS Ventures and Nexus Venture Partners. Snapdeal not only offer great deals but also promises to provide great experiences to its customers. 18

15 16

http://www.thehindu.com/arts/magazine/article3290735.ece http://articles.economictimes.indiatimes.com/2011-06-14/news/29656986_1_kunal-bahl-discount-india-sgroupon 17 http://www.digimouth.com/tete-a-tete/kunal-bahl-snapdeal.com.html 18 http://www.ecommerceforum.in/content/127-snap-deal

Business Model Snapdeal.com serves as an advertising platform for merchants and a discount platform for customers. For the merchants who partner with SnapDeal, it is a cost-effective channel for acquiring new customers. It also works as a risk-free alternate marketing channel. From the merchants standpoint, they are passing on the customer acquisition cost in the form of a discount offer. The company uses the term 'deals' to describe the discounts it offers. One deal varies from another in terms of its pricing structure. While the entire offer amount is collected upfront in some deals, other deals let customers pay a certain amount on the website and rest to the merchant. Unlike companies like Groupon that have group-buying models, SnapDeal does not have a threshold number of deals that must be bought before a deal can 'go live'. Even if one deal sells one voucher, it can be redeemed. The website features deals across its city-based pages every day.19

Secret behind Success The service is inherently viral in nature. SnapDeal firmly believes that if consumers see value in a service or product, and it can be absolutely anything, they will talk about it. This is how the Facebook community of SnapDeal www.facebook.com/snapdeal zoomed to 20,000+ in less than 60 days it is surely some sort of record. SnapDeal has engaged in certain strategic marketing activities which gave the initial momentum to the services awareness. The explosion took place thereafter. Various media channels reached out to SnapDeal because the customers sent them mails to write about SnapDeal it is an interesting phenomenon as well. A prominent journalist used the service as a customer to get an adventure sport deal for his family and was so pleased with the service that he insisted on doing a feature story on SnapDeal. It cant be selling a product or service 24/7 products need to sell themselves if they are to become good sized businesses quickly; it can just build the right foundations and help them on their way. 20

Tips on how to make an Online Store better 21

A safe assumption can be made that the reason one visits your online store is because he/she has an intention to buy something from you. All that he/she needs from you is to help him/her find what he/she is looking for and then take him/her from point A (Product Page) to point B (checkout). One is ready to fork over his/her money if you show him/her a clear path. So it is up to you to decide how easy or difficult you want his/her journey to be. Here are few ideas to consider:
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Do not force the buyer to register during the checkout process. If one clicks on checkout that is usually a safe assumption that he/she has made a decision to purchase. Please get out of his/her way so that you can take his/her money as quickly as possible before he/she changes his/her mind. Dont present the buyer with unnecessary registration steps or other information that would slow him/her down. If you want to give an option to register after the checkout is complete, sure to be considered. Remember that Google is not your target customer the buyer is. Dont write your product descriptions or other content containing tons of SEO keywords with a sole purpose to please Google. Sure you need to focus on SEO but the product description has to make sense to customers first. At the end of the day, you might get a good ranking on Google but if consumers dont understand the content on your site, you will not win. Dont let the customer add something to the cart if later you will tell him/her that it is out of stock. If you already know that something is out of stock, please show that upfront on the product page so that the customer does not waste his/her time. If you have categories which do not have any products online, it is advisable to disable those categories so that the customer does not have to click those categories, just to find a No Products Found message. Just because you have a lot of promotions and products on your site, you dont have to show all of them on your homepage. Keep the homepage clean and focus only on few key promotional or merchandise messages that truly tell a compelling story. If you have more than 100 links on your homepage, you are trying too hard. It would be nice to know when the customer will receive an item not just when you plan to ship it. You know the customers zip code you know the delivery times with UPS and FedEx and other logistics, you know your processing time so it would be better if you can show the date when the customer should expect to see the item at his/her door instead of having him/her do all guesswork in his/her head. If the customer adds something to the shopping cart, please show him/her the cart before showing any other recommendations or offers that he/she might be interested in. Dont slow the customer down by showing 10 recommendations before he/she gets to the my cart page. The customers have a short attention span and if they get overwhelmed with too much unnecessary information, they might just leave. If you take the email address of the customer during checkout, make a good use of it. For example, if you can follow up few days later to check if the item arrived properly, and if the customer is interested in writing a review for the item. The customer would not mind writing an

honest review you just have to ask and remind the customer, which is a good seguing to the next point. If a customer writes a negative review about a product, dont go out of way to moderate the review to put a positive spin to the content. Because you have to remember that customer reviews are supposed to be unbiased and any attempt from your side to hide or suppress the negative reviews is a sure way to lose trust with your loyal customers. Dont make the customer wait until the final step in the checkout to show him/her the final price including the coupon discounts, taxes and shipping costs. The customer would like to know that information at the shopping cart page so there are no surprises during the final step. If you need the customers zip code in the shopping cart page to calculate these costs, just ask them and they would be happy to provide that information to you. This leads them to the next point. If the customer has given any information to you about himself/herself such as my zip code, please try to remember it. Dont make them re-enter that information at the time of checkout. There is a good probability that he/she will not change that information, but just give them an option to change it later if they need to. Dont try to hide your contact information just because you want to minimize the number of customer service calls. Display contact information prominently. Customers need to know upfront that there is an easy way to contact you if something goes wrong with their order. When a customer is providing his/her credit card information, you really dont have to ask them what type of credit card it is because you can figure it out from the credit card number. Just show them the credit card type for confirmation and they would let you know if there is a problem. While you are thinking about that checkout experience, can you also do something about that Captcha. It is nice to know that you are concerned about our security and want to make sure that the customer is a human. But dont make him/her decipher that 10 characters Captcha image. Just try to keep it simple. If you display any ads on your retail store, please turn those off. That sends a mixed message to the customers. If you are truly an online retailer, your focus should be on selling products, not making a few bucks from customers who accidentally click on those ads and end up somewhere else.

RedBus.in A Detailed Case 22

From just an idea three years ago, RedBus today has established a strong brand and is growing rapidly with 120 employees, operations in 15 states, and revenues approaching $7 million annually. In October 2005, Panindra Sharma (called Phani) simply wanted to go home for Diwali. Like thousands of young engineers who had moved to Bangalore to pursue job opportunities, he wanted to be with his family for the holiday, so he tried to book a bus ticket. The agent told him he had no seats available for Phanis destination, but suggested trying another agent. That struck Phani as a strange idea. If you try to book a flight or a rail ticket, an agent will tell you whether a given train or airplane is full, and if is it not, he can sell you a seat, he says. He wondered why you couldnt seem to do that with buses. Few would have predicted that a semiconductor designer would tackle such a problem, but Phani Sharma had long wanted to be an entrepreneur, and in Bangalores hothouse environment for startups, highly-trained engineers have started many different kinds of companies. Born in Andhra Pradesh, Phani was schooled in Hyderabad before he earned an electrical engineering degree from the Birla Institute of Technology and Science (BITS) in Pilani, Rajasthan. He had been an electrical engineering wannabe throughout his childhood, so he trained himself to design microchips. He initially joined ST Microsystems, but in order to return to southern India, he shifted to Texas Instruments and relocated to Bangalore, where he became one of the youngest team leads at the firm. I had an entrepreneurial drive in my mind to start a company, and do something on my own," Phani recalls. Consequently, he began attending all the events of Bangalores chapter of The Indus Entrepreneurs (TiE). That gave Phani insights into how companies are built and what was required, going beyond the engineering part of product development that he had learned already. I learned that ideas are born from needs, and that a small thing can start a big idea. I got confidence that a small need can be the foundation of a big idea. All the talks I attended at TiE and the orientation of the organization influenced me. Every fortnight they had a networking meeting, and company founders would tell us how they started, which gave me confidence, says Phani. Inspired by the lessons he learned through TiE, Phani began to investigate how bus ticketing in India worked. You need curiosity to question everything, and thats how you find a problem worth solving, he says. The 25 year old engineer went to three or four agents, asking how the system functioned and why one agent might have a bus seat available when another did not. He learned that across the whole of Bangalore, there are thousands of agents, but each represents just a few small operators, nobody aggregated all the tickets to a particular destination. As a result, you really curse yourself if you want to go home but you cant get a seat. You are never convinced that you have exhausted your options, because somewhere there might be an agent who can sell you a ticket even if dozens of others tell you they have nothing left. Consumers were spending so much time looking for seats and being unhappy,

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that is where Phani thought Why not put in software to integrate things so that any agent knows if there is a seat from a bus leaving Bangalore? Further talks with bus operators persuaded Phani that a third party was needed to change the system. Each bus operator is so small that he cant build his own IT system, so Phani thought it would be a good idea to build a system for them. Phani was not from a software background, so he took the idea to two of his batchmates from BITS Pilani. Phani s two friends, Sudhakar Pasupunuri, a senior software engineer at IBM, and Charan Padmaraju, who was working with Honeywell, liked the idea and agreed to form a company together, Pilani Soft Labs Pvt. Ltd, to develop the idea into an enterprise . They focused on software and operations, while Phani concentrated on getting the bus operators together. However, they just called themselves cofounders, without giving much thought to formal roles. For ten months starting in October, 2005, the three continued working for their respective employers while building their entrepreneurial venture in their spare time. Phani and his partners moved forward before settling upon a business model. Phani recollects, Initially, I assumed a lot of things. I knew the industry was too fragmented for anyone to develop an IT system or trust another persons technology, so I figured a solution would help the operator, the agent, and the customer. I believed that operators would benefit because they were turning away customers they would have some chance of satisfying if they used our system. Most agents represented only two or three small operators, so I thought they would see the benefit of having more inventories. The founders traveled throughout Bangalore and beyond, to destinations such as Hyderabad, Chennai, Pune and Mumbai, meeting dozens of bus operators. The responses were mixed, some encouraging and some dismissive. Phani soon realized that most operators were small businessmen who were anything but technology-savvy; agents were even smaller and less technology-intensive. Getting operators to update their inventory online so that customers could see in real time how many seats were left would be an impossible task. Selling software to operators or agents seemed like an uphill battle. Fortunately, help was at hand. Phani was aware that for some time, the Bangalore chapter of TiE had operated an Entrepreneur Acceleration Program (EAP) for selected entrepreneurs. Sanjay Anandaram, a veteran venture capitalist who co-chaired the EAP at the time says, We send a call out to entrepreneurs who are part of our database or belong to other groups such as Proto or NASSCOM, inviting them to submit plans. We review them, create a shortlist, and then ask these founders to present their ideas to a group of TiE members who typically have venture investing experience. A few are selected to be mentored. The company graduates when it raises somewhere between $100,000 and $250,000 from venture funds or private individuals. Phani and his teammates participated because there were charter members of TiE who would have been willing to mentor them if they liked their plan. They had 15 minutes to pitch the idea. Afterward, Phani gave his card to everyone, but no one gave him a card until Kiranbir Nag, Vice President for SVB India Advisors, came out of the room. He said This is my card and your presentation was good, and he

invited them to follow up. They had three meetings with him before he and Ashok Yerneni agreed to work with them. Sanjay Anandaram also became a mentor. During their whole presentation Sanjay had played devils advocate, challenging them to prove their concept works, so Phani had become very upset initially, but Sanjay closely mentored Phani and his team every day and became a key advisor. The TiE mentors adopted the venture in July 2006, a month before the launch of the RedBus service. They made an immediate impact, according to Phani. We didnt even have an Excel spreadsheet at the time; everything was just conceptual, Phani says. However Kiranbir made them create one to make explicit our assumptions about the number of operators, number of travelers, amount of commission they might charge, and so on, and that was a big step forward. Their mentors made a commitment to meet them every week, and that meant a lot. These were the heads of companies in this country, and since they agreed to meet them for an hour every week, Phani did everything they wanted. If they wanted an Excel sheet, for example, Phani would make sure he had it at any cost when he showed up at the next meeting. Let us see why the innovators were behind RedBus selected for the Entrepreneur Accelerator Program. Anandaram says, I was involved after they were selected, but the two things that stood out for me were the passion of the team and the potential to scale. They were attacking a fragmented space. To me, this seemed similar to how online travel agents were working, but I felt that people were not focusing on this area, even though it was a much bigger market than most in travel. Although the entrepreneurs background was not from the industry, Anandaram also liked their understanding of the market. A lot of TiE members dont travel by bus, he says, but these people did, and they were really grounded in the experience. They understood the problem thoroughly from the standpoint of the customer. In addition, Anandaram admired the ability of the founders to attract high-quality talent. He saw their track record in getting good people to come on board as an excellent sign that they would be able to grow. As they were building up the idea, Phani, Sudhakar and Charan persuaded Abey Zacharia to join them as head of business development while Mayank Bidawata signed up to helm marketing. Both were MBAs, Zacharia from the University of Madras and Bidawata from the Asian Institute of Management. The head of marketing had worked in direct marketing at Lintas, and before that he had handled retail banking products at ICICI. There was a talented young guy with several years of experience who gave up a good job in Mumbai, relocated to Bangalore, and took a salary cut to become part of this new thing. The head of alliances, Aaditya Swaroop an MBA from IIM Kozikode, had worked in corporate strategy at Airtel in Delhi, and had also taken a salary cut and moved in order to join RedBus. The company was able to attract such people because everyone understood how the industry had functioned so inefficiently, and they realized the promise was so clear.