E-Commerce

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Table of Contents
• Online Retailing
Ø Business Models
Ø Size and Growth
Ø Segmental Analysis
Ø Traditional vs Online Retailers
Ø Payment Mode
Ø Business Models
Ø Growth Phases
Ø Margins, Costs and Investments
• Internet Advertising
ØOverview
ØSegmentation
ØPricing Models
•Online Classifieds
•Online Travel

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Table of Contents
• Online Retailing
Ø Business Models
Ø Size and Growth
Ø Segmental Analysis
Ø Traditional vs Online Retailers
Ø Payment Mode
Ø Business Models
Ø Growth Phases
Ø Margins, Costs and Investments
• Internet Advertising
ØOverview
ØSegmentation
ØPricing Models
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 Online Retailing: Overview

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 E-Commerce

On-line Internet Online

OTA
Retailing Advertising Classifieds

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BUSINESS MODELS
•There are three business models that use internet as a sales channel.
•One is the market place model used by 'eBay' where the retailer provides an online
platform that connects the buyers with the sellers. The revenues earned are in the
form commissions received from each completed transaction.
•Another is the group-buying or deals model used by 'groupon'. In this model, the
retailer acts as an aggregator of services such as restaurants and spas for the buyers
and negotiates with the sellers for deals on bulk purchases. Revenues earned are in
the form of commission received for every deal executed.
•The third model is the online retailing model wherein the player, a traditional
retailer, sells products to customers using the internet and also takes ownership of
the delivery of those products either through his own network or through a third-
party.
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NON-STORE RETAILING FORMATS

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Online retailing (excluding marketplaces and group buying) is expected to grow
to Rs. 100 bn in 2014-15.

ONLINE RETAILING : SIZE AND GROWTH

Growth Drivers

• Increasing internet
penetration
• Aggressive growth plans
of existing players
• Increase in the comfort
levels of customers in
carrying out online
transactions.

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ONLINE RETAILING : GROWTH DRIVERS
•Internet penetration and 3G mobile service penetration in India to increase at a
compounded rate of over 60 per cent between 2011-12 and 2014-15, allowing 180
million people to access online retail.
•Further, the strong growth witnessed in travel ecommerce (online bookings for
airline and railway tickets) has helped Indians become familiar and comfortable
with online transactions.
•Online retailers are trying to overcome the most inhibiting factor for a customer
for transacting online - the fear of fraud in online monetary transaction by using
enablers like 'Cash on Delivery'.
•Increasing aspirations and brand consciousness among the youth in smaller cities
where organised retail is not well developed will fuel the growth.
•Online retailers, funded mainly through the private equity/venture capital
channel in have chalked out aggressive growth plans to tap this opportunity.
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Though growing fast, the share of online retailing is expected to reach only to
3.4% of organized retail by 2014-15.

ONLINE RETAILING : SHARE IN OVERALL RETAILING

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 Online Retailing: Segmental
Analysis

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Electronics goods constitute the largest category to be sold online.

SHARE OF CATEGORIES IN ONLINE RETAILING (2011-12)

•As online retail is still nascent in

India, it is currently dominated by
categories that are brand driven, have
lower ticket size and areeasy to
transport.
•The average ticket size, which is low
at around Rs 1,500, indicates that
consumers are not yet comfortable in
making high value purchases online.
•Books was the first and initially the
largest category to be sold online.
•However, it has been replaced by
electronics which was the largest in
2011-12 at about Rs 19-20 billion

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Mobiles and Cameras constitute 60% of the online electronics retail and the
average ticket size is about Rs. 1500 – Rs. 3000.

ELECTRONICS

•Mobiles are the most popular category sold online followed by cameras, which
together account for over 60 per cent of the online electronics retail.
•Other fast selling categories under electronics are IT accessories, memory products
( like hard disks, pen drives) and small kitchen appliances.
•The average ticket size for electronics is around Rs 1,500- 3,000.
• This is much lower than the average ticket size in organized brick and mortar
stores, which is around Rs 12,000- 15,000 reflecting the products retailed online are
low value items.
•Moreover, products which are bulky (like the refrigerators, washing machines) are
not preferred by online retailers on account of the logistics involved.
• The gross margins in this segment are on the lower side at around 4-10 per cent.
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Online retailers are making lot of efforts to sell lifestyle products as they have
very high gross margins.

LIFESTYLE

•Apparel, footwear, jewellery, watches and perfumes in the lifestyle

category.
•This is a new category being explored by online retailers in recent years.
•This category is attractive for online retailers on account of the high gross
margins (25-30 per cent) that can be earned.
•The average transaction size is around Rs 1,000-1,500.
•As the touch-and-feel factor is high for this category, liberal refund and
return policies are offered by players.

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Books are the most suitable category for online retailing and were the first
category for online retail in India.

BOOKS

•Books were the first category to be introduced for online retail in India.
•This category is extremely suitable for selling online.
•Books are easy to transport and there is also no touch and feel involved.
• Also, the huge variety that is available makes it impossible for a brick
and mortar retailer to match the product range offered by online retailers.
(Long-tail)
•However, average transaction size is low as compared to other categories
at around Rs 400-500.

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Books are the most suitable category for online retailing and were the first
category for online retail in India.

NICHE PLAYERS

•Categories such as food and grocery, FMCG products, baby products, ayurvedic
products, gifts and flowers etc account for the balance 5 per cent of the online retail
market.
•The online food and grocery retailing model is difficult as the products are
perishable besides being widely available offline.
•Most online players in this category operate in select cities such as Mumbai,
Bangalore, NCR and Pune.
•Niche categories like baby products and FMCG (only wellness products ) are also
gaining popularity, following the success of international counterparts like
Diapers.com and Soaps.com.
•Non-availability of niche products through the traditional channels will b e t h e
main driver for their success on online retail.

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 Traditional vs Online Retailers

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Pure play online retailers dominate the market as the share of traditional
retailers in the online retail space is only 7-10%.

TYPE OF ONLINE RETAILERS •Traditional retailers as those

whose main business is selling

through physical stores ( or brick

and mortar retailing) but they also

have an online presence. (Ex:

Future Bazaar of Future Group)

•Pure play online retailers have

been defined as players whose

main focus is selling through the

internet. (Ex: Flipkart)

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Traditional retailers will have to mainly focus on their store-based retailing
which will ensure that Pure play online retailers will continue to dominate.

DOMINANCE OF PURE-PLAY ONLINE RETAILERS

•The share of traditional retailers in the online retail space is only 7-10 per cent.
• Although an increasing number of traditional retailers will have an online
presence, their share in online retail space is not expected to change significantly
over the next 2-3 years from the current levels.
•This is because the capabilities required for these two businesses ( online and
traditional retailing) are completely different.
•A traditional retailer, who wants to establish a significant online presence, will
have to make significant investments in technology and logistics .
•Currently, in India, where organised retail penetration is still only 6.5 per cent ,
retailers are more focused on increasing their store network and increasing their
market share in offline traditional retail and will be directing investments in that
space.
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 Payment Mode

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The share of cash on delivery mode of payments is the highest among all the
payment options for online retail in India.

SHARE OF ONLINE PAYMENT OPTION (2011-12)

•The cash on delivery method for online
payments is peculiar to India and certain
other Asian countries where there is a
greater preference for cash based
transactions .
•Poor network connectivity, credit/debit
card penetration and inhibitions about the
security of online transactions have made
online payments less popular in India.
• The cash on delivery mechanism has
helped Indian customers overcome these
inhibitions and has propelled the growth
of online retail in smaller cities where the
credit/debit card penetration is relatively
lower.
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The bottom-line is negatively impacted due to Cash on Delivery orders.

IMPACT OF COD

• Cash on Delivery require additional process, has longer payment

cycles, higher instances of returns.
•The bottom-line is impacted due to Cash on Delivery orders.
•These transactions add about 3% additional costs or an increase of at-
least Rs. 30 per transaction.
•The negative impact is higher in case of returns.

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 BUSINESS MODELS IN
ONLINE RETAILING

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There are 3 business models in online retailing : Drop shipping model,
On-demand sourcing model, Stocking model.

Drop Shipping Model

•In this model, the retailer ties up with different manufacturers to display their
products on its website.
•After the customer places an order on the website, the retailer intimates the
•manufacturer/supplier for that product and the products are shipped by the
manufacturer.
•The online retailer does not incur any inventory holding costs.
On-demand Sourcing Model
•In the on-demand sourcing model, the retailer, on receiving an order from the
customer, gets the products from the manufacturer to its packaging center.
•Here, a quality check on the products is done and the products are packaged
uniformly and shipped to the customer.
Stocking Model
•In the stocking model, the retailer maintains warehouses and stocks all the products
displayed on its website.
•On receiving orders, the products are shipped immediately to the customer.

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BUSINESS MODELS IN ONLINE RETAILING

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Service quality is poor in drop shipping and on-demand sourcing model
and the retailer do not have much control.

SERVICE QUALITY IN DROP SHIPPING AND ON-DEMAND SOURCING

•Investments required for the drop shipping model are minimal and made only for
developing an ecommerce website.
•However, in this retail format, the customer experience is the lowest as the online
retailer has no control over the quality of the products delivered or the delivery
timelines.
•Moreover, as multiple manufacturers involved, the customer may receive multiple
parcels for a single transaction, each packaged differently, which could lower the
quality of the customer's experience.
•In this model, the retailer would have to bear the risks of stock-outs or price
changes at the manufacturers end, which may not be reflected on the retailer's
website.
•The online retailer faces similar risks in the on-demand sourcing model also.
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Service quality and controllability are superior in the stocking model.

SERVICE QUALITY IN STOCKING MODEL

•For the customer, experience in terms of delivery timelines and assurance of

quality are superior in stocking model as compared to the drop shipping model.
• The stocking model ensures complete control over the supply chain and thus
delivers the best customer experience, albeit at the cost of huge investments in
supply chain and inventory.
•This model is highly scalable as the retailer can handle a large number of
transactions per day as compared to the other models.

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COMPARISON ACROSS BUSINESS MODELS

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Hybrid model balance the service quality and investment requirements.

HYBRID MODEL
•In the real world, online retailers follow hybrid models consisting of
stocking for fast moving products and on demand sourcing for the other
products.
•For instance, in the case of books, an online retailer will maintain an
inventory of best sellers .
•Although, obscure titles may be displayed on the website, the retailer
would source them from the distributor/publisher only when an order is
received.
•Hybrid models thus ensure a balance between the service quality offered
and the quantum of investments required.
•The retailer would increase the percentage of stocking to improve service
quality
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as the business grows.
 ONLINE RETAILERS : GROWTH
PHASES

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GROWTH PHASES OF ONLINE RETAILERS

•In the current scenario in India (with around 280-300 online retailers) ,
around 90-92 percent of the online retailers are in phase 1 and 7-9 percent in
phase 2 . Less than 1 percent of the players are in phase 3.
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PHASE 1: STARTING UP
•From starting the online retail business to gaining volumes of around 2000
transactions per day can take a player 2-4 years of time.
•Investments made in this phase are made primarily towards developing a
strong and robust IT infrastructure.
•The business model followed in the initial stages is typically on demand
sourcing; no significant investments are made in warehousing and logistics.
• Players in this phase typically operate in 1-2 product categories.
•The players focus on creating a brand name and may incur higher advertising
and marketing expenses in this phase.
•As customers are acquired through attractive discounts, gross margins tend to
be on the lower side.
•The failure rate for companies is extremely high in this phase. Only 1-2
companies out of 20 are likely to survive and move on to the next phase.
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PHASE 2: GROWTH

• In this phase players tend to focus on improving customer experience.

• Significant investments are made in warehousing and logistics.
• However, players would initially focus on stocking few fast selling
categories.
•They also tend to venture to newer product categories.
•While niche category retailers increase the depth of their coverage,
multi-product retailers would try multi-product retailers are likely to
move on to the next phase, to increase the breadth of their coverage.
•While niche category retailers will tend to remain in this phase.

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PHASE 3: LAST MILE

•Players in this phase have an already established web presence and

brand name.
•Having broad-based their presence, they would focus on expanding
the range of products offered in each category.
•Regional warehouse networks would be developed for stocking
products and investments made in the last mile delivery channels such
as courier service companies to improve the service quality in key
markets .

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 Margins, Costs and Investments

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Online retailers offer discounts on the products they sell to attract customers.
Hence their gross margins are typically lower than those of traditional retailers.

MARGIN COMPARISON
Category Gross margins
Online Retailers (Net Brick and Mortar
of Discounts) Retailers
Books 5-10% 25-30%
Electronics – Mobiles 4-6% 5-9%
Electronics – Others 8-12% 10-14%
Lifestyle 25-30% 30-45%
FMCG 10-12% 10-12%
Overall 14-18% 20-22%

These gross margins are indicative and could vary depending on the
growth phase and the business model of the online retailer. Gross margins
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improve with greater scale and bargaining power.
Online retail requires only one-sixth the capital needed for traditional
retail.

CAPITAL INVESTMENT : ONLINE RETAIL

CAPITAL INVESTMENT : TRADITIONAL RETAIL

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Online retail requires only one-sixth the capital needed for traditional
retail.

CAPITAL INVESTMENT : COMPARISON

Online Retailers
•The major areas of fixed capital expenditure for an online retailer are
technology and supply chain.
•In phase 1, most of the investment requirements are for technology
•In phase 2 and 3, the majority of the investments go for supply chain.

Traditional Retailers
•In comparison, traditional retailers who would wish to achieve similar sales
would have to invest around 6 times more in phases 2 and 3.
•While a traditional retailer would have to replicate inventory in every outlet,
the online retailer enjoys the advantages of stocking centrally, which brings
down the inventory carrying cost.
•Moreover, online retailers have the advantages of selling items which may not
be in stock through on-demand sourcing.

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Gross margins of a retailer tend to improve with increase in the scale of operations.
While certain cost heads such as logistics have a more direct correlation to sales,
employee costs tend to decline with increase in transactions..
COST STRUCTURE : ONLINE RETAILERS

Note: All cost break-ups and margins are expressed as a percentage of revenues
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 Internet Advertising

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 Internet Advertising : Overview

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OVERALL ADVERTISING MIX

Note:
1. Others include Internet
and Films

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Though Internet advertising constitute a small proportion of overall advertising,
it is growing at a much faster rate.

INTERNET ADVERTISING : OVERVIEW

•The Internet advertising market is estimated to be Rs 15 billion in 2013 and
accounted for around 3 per cent of the overall advertising spend in India.
•While advertising spend in other media like print, television and radio grew at a
muted 3-4 per cent, Internet advertising spend grew at a robust 28-30 per cent in the
recent years on the back of search advertisements (Internet advertising encompasses
search, display and social networking).
•This growth was driven by the accountability and measurability features of
Internet advertising.
•Globally, Internet advertising is estimated to account for about 10-12 per cent of
total advertising spends.
•This number varies across countries depending on the maturity of the economy. In
India, it accounts for only 3 per cent of the overall advertising spend.
•However, this medium is fast gaining traction among advertisers and media
planners.
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Television and print media has much higher addressable population.

POPULARITY OF PRINT AND TELEVISION ADVERTISING

•Print and television together accounted for about 87 per cent of the total
advertising spend in 2009.
•This popularity of the traditional mediums is attributable to the vast reach of
print and television advertising.
•While print medium catered to about 231 million readers in 2009, television
viewership during the time was at about 285-290 million viewers.
•Even though the Internet currently accounts for just 3 per cent of the total
advertising spends pie, the medium holds great potential considering it helps
advertisers generate customer driven advertisements and is highly accountable
and measurable.
•However, its low penetration, at about 9-10 per cent of addressable population,
acts as a major growth inhibitor.

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The major advantage of internet media is its target customer group and the
trackability.
INTERNET VS OTHER MEDIA

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Growth of Internet advertising will be enhanced by key growth drivers.

GROWTH DRIVERS
•Internet subscriber base is projected to surge to 135-140 million in 2014-15 from
just 18 million in 2009-10
•Average time spent on Internet is expected to increase with the availability of
richer content
•Greater accountability of the medium in terms of ability to measure and generate
leads will lure advertisers
•Focussed or targeted advertisements based on IP address will attract local
advertisers
•Increased popularity of social networking sites will lead to innovative
engagement models and greater brand affiliation
•With established ad agencies being present in the Internet advertising space,
advertising on the Internet is likely to see increased focus, leading to greater ad
budget being spent on Internet advertising
•Growth in e-commerce would result in higher advertisement spends apportioned
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digital media.
Internet subscriber base is expected to increase by about 800% between 2009-10
and 2014-15.

GROWTH INTERNET SUBSCRIBER BASE

2009-10 2014-15

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Internet advertising is expected to grow at 34% CAGR between 2009 and 2014
to reach Rs. 28 bn.

GROWTH RATE

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WHICH SECTORS ARE ADOPTING INTERNET ADVERTISING?

•Of the total Internet advertising spends, the BFSI, telecom, travel and
hospitality sectors along with the Internet companies (matrimonial
websites, job portals, travel websites, etc) account for about 65 per cent
share.
•While these verticals were the early adopters of Internet advertising
because of the sheer nature of the business and the target audience, sectors
like FMCG, consumer goods, education and others have also been
increasingly adopting this medium to reach their target audience.
•Another unique feature of the Internet space is the presence of numerous
small advertisers who restrict their ad spends only to Internet.
•As per the industry estimates, 35-40 per cent of the advertisers in the
Internet space do not advertise on any other medium.
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 Internet Advertising : Segmentation

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INTERNET ADVERTISING : SEGMENTATION

Internet advertising industry in India encompasses the following formats:

Search advertisements:
These are advertisements displayed on search engine’s website after a user runs
a query.
For example, advertisements of budget hotels in Goa will be displayed when a
user runs a related search on Google.
Display advertisements:
This format of Internet advertisement includes banners, photos, logos and
images on websites/portals
Social networking advertisements:
Advertisements on social networking sites like Facebook, Myspace, etc
Search advertisements have become the most popular form of internet
advertising overtaking Display advertising.

INTERNET ADVERTISING MIX

2006-07 2011-12
Search advertising is highly focused and target the specific prospective
customers.

ADVANTAGES OF SEARCH ADVERTISING

Search advertisements are the most prevalent form of Internet advertising in India.
What makes search advertisements popular among advertisers is its inherent
quality of being customer centric.
A search advertisement displays advertisements specific to the
Internet user’s search subject.
For example, if an Internet user is looking for a budget hotel in Goa, all the relevant
lodging and boarding related advertisements in Goa will be displayed by the search
engine.
Due to this USP, revenues from search advertisements grew at a CAGR of 74 per
cent between 2005-06 and 2009-10.
Consequently, the share of search advertisements doubled from 31 per cent in 2006-
07 to 62 per cent in 2009-10.
Display advertisements is expected to grow at a slower pace due to it’s
inherent disadvantages over search adevertising.

DISADVANTAGES OF DISPLAY ADVERTISING

•Display advertisements grew at a meagre 5 per cent CAGR between

2005-06 and 2009-10.
•Their share has declined significantly from 67 per cent in 2006-07 to
about 35 per cent in 2009.
•This can be attributed to the growing trend of advertisers preferring
search advertisements over display advertisements due to their ability to
deliver better return on investments (RoI).
•Display advertisements, encompassing banners, photos, logos or
images as a format, are not customer driven and are similar in nature to a
display advertisement in a newspaper.
•Search advertisements and social networking advertisements will
continue to grow at a faster pace and eat into display advertisements
share.
 INTERNET ADVERTISING :
PRICING MODELS

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PRICING MODELS IN INTERNET ADVERTISING

•Cost per thousand impression (CPM) –

•Cost per click (CPC)
•CPA (cost per action) or (cost per acquisition) –
•Cost per engagement (CPE) –

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Cost per thousand impression (CPM) –
•As per this model, advertisers pay for exposure of their message or
impression delivered to a specific audience.
•Websites typically sell the number of impressions in unit of
thousands.

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Cost per click (CPC) –

• As per this model, publisher charge advertisers each time a user clicks

on the advertisement or on the listing and is redirected to the advertiser’s

website.

•Most of the times, advertisers use this metric to gauge the effectiveness

of their advertisement.

•The benchmark click through rate is 0.5 per cent and has remained more

or less constant over the last 3 years.

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CPA (cost per action) or (cost per acquisition) –
•This is a performance based model.
•Under this payment scheme, the publisher bears the entire risk of
running the ad, and the advertiser pays only for the number of users who
complete a transaction, such as a purchase or sign-up.
Cost per engagement (CPE) –
•This model is a form of cost per action pricing.
•Differing from cost-per-impression or cost-per-click models, a CPE
model offers advertising impressions for free and advertisers pay only
when a user engages with their specific ad unit.
•Engagement is the process of a user interacting with an ad in a defined
way agreed by both the parties, such as, playing a game, taking a product
tour, etc.
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 ONLINE CLASSIFIEDS

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The major sources of revenues for the online classifieds segment depend
on the segment but the major source is the subscription revenues.

ONLINE CLASSIFIEDS : REVENUE SOURCES

Subscription revenues in the online classified segment constitute the bulk of

the revenues generated by these players, while revenues from value-added
services (VAS) form a minuscule portion. Companies in this space are expected
to increase their revenue share from VAS.
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Online classifieds has grown at about 30% CAGR between 2008-2013 to
reach $450 mn.

ONLINE CLASSIFIEDS : MARKET SIZE (US $ MILLION)

450

360

2012 2013

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Online classifieds has surpassed offline classifieds in 2012 due to it’s
superior features and low costs.

CLASSIFIED MARKETS TRANSITION

•The classifieds segment in India
was the earliest to go online.
• It has been around for more than
a decade.
•The classifieds segment was
dominant in the print medium, but
there has been a clear shift to the
online medium in the space.
•The main advantage of online
classifieds are:
•Easy to use and superior
search functionalities
•Low Cost
•Growing internet population

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Online recruitment is the biggest category with a share of 63% of the total
online classifieds

ONLINE CLASSIFIEDS : SHARE OF DIFFERENT SEGMENTS

14%
Online
Recruitment

Online
23% Matrimonial

63% Online Real

estate and auto
classifieds

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Online recruitment is the largest category in the online classifieds
segment, followed by online matrimonial.

ONLINE CLASSIFIEDS : OVERVIEW

•Subscription revenues constitute the main source of revenues for the online
classifieds segment.
•Online recruitment is the largest category in the online classifieds segment,
followed by online matrimonial.
• Online recruitment players are increasing their focus on providing enhanced
search functionalities and value-added services.
• The “big fat” Indian wedding industry is providing new sources of revenues to
online matrimonial companies.
•Real estate and automobile classifieds are in the nascent stage
•The primary target audience of the classifieds segment is restricted to urban
areas due to the concentration of companies, real estate players and automobile
players (willing to advertise online)

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ONLINE RECRUITMENT CLASSIFIEDS
•The online recruitment or e-recruitment segment is the largest category in the
online classifieds segment in India, with 62.5% share of the online classifieds
market.
•Expected growth of jobs in India bodes well for the segment
•The number of jobs is expected to increase across sectors in India.
•This holds promise for the growth of the online recruitment classifieds
segment, since players have only scratched the surface of the job market and
the full potential of the sector is yet to be realized.
•Online recruitment classifieds benefiting employers and offline
recruitment agencies
•The segment offers various benefits, including reduced
advertisement costs, wider geographical reach and easy search
options, to companies.
•Employers are increasing their budgets for online recruitment,
realizing the convenience and efficacy of the mode.
•Online recruitment classifieds are also proving beneficial for the
growth of offline recruitment agencies, which are using online portals
66 to build databases of candidates and jobs.
ONLINE RECRUITMENT CLASSIFIEDS
Increased focus on providing enhanced search options
•Online recruitment classified players are increasing their investment on
search functionalities, since providing enhanced search options is high on their
list of priorities.
• Furthermore, they are developing separate portals to cater to varying
verticals such as financial services, technology and BPO to enable focused
searches..
Focus on Value Added Services
•From providing databases of jobs and candidates, online classified players
have moved to offering VAS such as short-listing profiles, screening resumes
for recruiters and developing resumes for job seekers.
•They are also offering new services, whereby job seekers can send salient
details through their mobile phones.
•This doubles up as an initial screening process in sectors including BPO,
where voice and idea articulation are the main criteria for judging candidates

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ONLINE MATRIMONIAL CLASSIFIEDS
•It is the second-largest category in India’s online classifieds segment.
•There are more than 100 matrimonial sites in the country, with small and
niche players catering to multiple communities and segments.
• The market is, however, dominated by a few large players.

The “big fat” Indian wedding industry

•Marriages are expensive in India, with the average spend in middle class
weddings averaging INR0.5–1.5 million.
•This contributes to the growth of the already-huge wedding industry, which
was estimated at US$55 billion in 2011

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ONLINE MATRIMONIAL CLASSIFIEDS
Online classified players augmenting traditional sources of revenue by
widening their umbrella of services
•Matrimonial websites provide relationship counseling, horoscope matching, chat
services, as well as 24/7 customer support.
•Premium members are provided dedicated relationship managers, who assist in
their search for life partners.
•The country’s marriage industry has led to demand for a new set of professionals
including wedding planners, video makers, photographers, set designers and
relationship counselors.
•Companies in the online matrimonial segment may look at providing such services
through partnerships, so that their websites become a one-stop shop offering
services from match making to wedding ceremonies.
•They may also look to provide wedding planning, catering and cards distribution
services.
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ONLINE REAL ESTATE CLASSIFIEDS

•The online real estate classifieds segment has seen slow growth due to real
estate agents being largely computer illiterate.
•According to a leading online real estate classified player, 80% of its brokers
do not have computers.
•However, larger real estate developers have an online presence and are using
online classifieds to advertise new properties.
•The growth of the real estate classifieds market is dependent on players’
ability to piggyback on the real estate growth.
•Currently, these portals only serve as information directories.
•Considering the value of real estate transactions, the success achieved by
these players depends on their ability to capture a significant share of this
transaction value.
•To accomplish this, they need to provide users a rich experience, e.g.,
through virtual tours of properties and the ability to finalize deals on the
online platform.
ONLINE AUTO CLASSIFIEDS
•The online auto classifieds segment is a recent entrant in the second wave of e-
Commerce in India.
•Rising disposable incomes have increased the buying power of people. This has
led to many more people aspiring to own cars and, consequently, to the
emergence of online automobile classifieds players that connect car buyers and
sellers.
•Many first-time buyers opt for used cars before buying new ones.
•Therefore, ensuring genuine vehicle listing is critical.
•Segment leaders are likely to be those who provide quality assurance, e.g.,
leading offline used car dealers.
•However, the majority of car buyers or sellers prefer to buy or sell cars through
used car dealers and personal contacts.
•The establishment of used-car dealerships by leading automobile brands has led
buyers to rely on the offline rather than on the online medium.
•As a result, India’s online auto classifieds market is still at its nascent stage.
CHALLENGES IN ONLINE CLASSIFIEDS
 ONLINE TRAVEL

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ONLINE TRAVEL : OVERVIEW

• Growth in India’s travel and tourism industry is the second fastest

worldwide.
•India is poised to feature among the top five civil aviation markets in the
world over the next decade.
•Ticketing accounts for the largest share of the online travel market.
•Domestic air tickets are driving the online ticketing market.
•OTAs are shifting their focus to hotel reservations and packages.
•Players need to acquire new competencies to succeed in hotel
reservations, as they previously limited their scope to ticketing.

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Airline passenger traffic rose rapidly from 59.3 million in FY05 to 162.3
million in FY12

INDIA’S AIR PASSENGER TRAFFIC

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The online travel market grew rapidly at a CAGR of 51.8% from US$1.5 billion in
2007 to US$12 billion in 2012.

ONLINE TRAVEL MARKET SIZE

12.0

2012

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KEY SERVICES

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Ticketing is the big brother of the online travel market due to its
standardized nature

SHARE OF DIFFERENT SERVICES BY VALUE

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Online ticketing is so popular due to it’s standardized nature, no need for
touch and feel and comparative features.

Why online ticketing is so popular?

•The ticketing segment currently represents nearly 90% of the overall online travel
market in India (by value of transactions).
• About 59% of internet users searched for or bought travel products online.
•Apart from the convenience offered by online purchasing, the limited need to
touch and feel the product enabled this segment to grow faster than others in the
industry.
•Price, schedule and choice of airline are the only parameters to be considered
while buying a ticket online.

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Though online railway ticketing has high volume, it’s value share is low due to
low average price of the tickets.

RAILWAYS VS AIR TICKETING

•Railway tickets have been available online for close to 10 years now, though
this mode of purchase has been witnessing rising volumes only over the last
three to four years.
•Currently, the number of railway tickets sold online amount to nearly three
times that of airline tickets.
•The Indian Railways website is the most visited travel site in India.
•However, since the average price of a railway ticket is less than that of an
airline ticket, online booking of domestic air tickets has emerged as the largest
segment of the online travel industry

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Competitive and margin pressures are causing a shift in the revenue
mix of OTAs, which are looking at hotel reservations to enhance their
revenue stream.
Why the OTAs are focusing on Hotels and Tour packages?
•Low entry barriers in the online travel market have resulted in a number
of small players entering this space.
•Recent entrants are mainly competing on price to capture market share.
This has put pressure on the margins of players across the segment.
•Commission rates in the air tr avel segment are low (around 7%).
• Margins in the ticketing business for OTAs in India are expected to erode
further, with airlines increasingly raising their voice against giving
commissions to the former.
•The airline commission model has already been done away with in Japan.
•Leading international airlines flying to India have already decided to
adopt a zero-commission structure for travel agents.
•In January 2012, 17 international airlines had stopped paying commission
to travel agents..
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Margins are lowest in the air-travel ticketing segment and highest in
Hotels and tour packages.

ONLINE TRAVEL : MARGINS BY SEGMENT

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Online hotel and travel bookings require different competencies than
ticketing.

REQUIRED COMPETENCIES IN ONLINE HOTEL AND TRAVEL BOOKINGS

•Higher margins in the hotel reservation segment have lured many

OTAs.
•However, players need to be aware and step up to the competencies
required in the hotel reservation space in terms of:
•supplier partnerships management,
•operational requirements of workforce and
•information management.
•These requirements are different from those posed in the ticketing
segment.

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Managing a diverse supplier base
•Hotel reservations and tour packages entail higher customer engagement
as compared to the simpler business of selling air tickets.
•While the airline ticketing segment may involve managing relationships
with six players, the hotel segment requires a larger workforce to manage
relationships with thousands of hotels.
•This requires the hiring of a substantial workforce to manage relationship
with hotels, resolve disputes between customers and the hotels, and
provide regular updates of inventory in hotels.

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Overcoming technological constraints

•The fragmented nature of the hotel industry in India and low

technological investment made by hotels add to the challenges of

maintaining a large workforce.

•This poses problems in providing accurate updates on inventory

reserved for booking through OTAs.

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Customer experience

•While the customer experience provided by airlines is standardized and

lasts around two to three hours, engagements with hotel customers are of a

longer duration and can stretch to days.

•OTAs need to ensure that they deliver on the promises made to customers.

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Authenticity of information

•OTAs need to ensure that hotels provide accurate information on

services offered and tariffs charged.

•To address customers’ concerns about the validity of information

provided by hotels, OTAs could consider performing regular audits of

their hotel partners.

•User-generated content may also help alleviate such concerns.

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Grievance redressal

•OTAs should focus on providing call center services to customers

seeking information and grievance redressal.

• Since customer experience is a prime focus area for all e-Commerce

companies, OTAs need to invest in training customer care executives

to ensure an enhanced experience for customers.

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ONLINE PRESENCE : IMPACT ON HOTELS

•The online presence of hotels ensures higher visibility and generates

additional business even during off-season months.
•However, an online presence also entails the responsibility of servicing
clients.
•Hotel services are different from those provided by airlines, since
hotels need to deal with customers for a much longer period.
•Failure to deliver on promises or poor customer service may lead to
negative publicity from customers.
•With online reviews gaining popularity in India, a bad word about a
hotel may spread quickly and cause fatal damage.
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BUS TRAVEL: TECHNOLOGICAL CONSTRAINTS

•There is low penetration of the online bus ticketing services segment

in India.
•The online presence of bus operators would increase their visibility,
since it would enable easier access to information for tourists.
•Although there is significant scope for expansion, the low adoption of
technology by bus operators and the fragmented nature of the bus
industry hamper growth.
•Players need to, therefore, quickly invest in technology or risk losing
out on a significant share of potential customers.

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