BlackBerry users are not the only ones eagerly awaiting the final verdict on the data encryption issue between Research in Motion and the security agencies. The entire e-commerce segment is concerned. If BlackBerry services are banned, the security agencies could next target e-commerce applications in India, the majority of which involve money transfers and consequently, make use of complex data encryption systems. In fact, internet service providers have already been asked to reduce encryption from 128 bits to 40 bits.
For the Indian e-commerce industry, which has only recently started picking up pace, this could be a major setback. From making travel plans and paying credit card bills to undertaking job and matrimonial searches, Indian consumers are increasingly utilising the internet for their day-today transactions.
Venture capital funds are also becoming increasingly confident of the industry’s future growth potential. Sherpalo Ventures, for instance, has invested $70 million in 12 Indian companies including cleartrip.com, naukri.com and Pantaloon’s e-commerce portal. In March 2006, Bangalore-based start-up search engine Guruji.com received $7 million from the Indian arm of Sequoia Capital of California.
tele.net takes a closer look at the ecommerce industry in India, its present status and future growth potential…
Largely comprising online travel, e-tailing, online classifieds, paid content subscriptions and digital downloads, the ecommerce industry in India is expected to increase by 30 per cent from Rs 70.8 billion in financial year 2006-07 to Rs 92.1 billion by the end of 2007-08, according to a survey undertaken by the Internet and Mobile Association of India (IAMAI) and the Indian Market Research Bureau (IMRB).
While the online travel segment, accounting for 77 per cent of the e-commerce industry, was worth Rs 55 billion in financial year 2006-07, the online non-travel industry, comprising e-tailing, online job and marriage classifieds, digital downloads and paid content subscriptions was worth Rs 15.8 billion. The online travel industry is expected to grow by 30 per cent to reach Rs 70 billion by the end of 2007-08, while the online non-travel industry is slated to expand by around 40 per cent to Rs 22.1 billion in the same period.
Online travel industry
With the number of travellers slated to increase fivefold, from around 300,000 as of September 2007 to 1.5 million by the end of 2008, the online travel industry, consisting of travel aggregators, and airline, railway and hotel bookings, is expected to receive a significant boost.
Driven largely by the expansion of the low-cost carrier segment, online flight bookings comprise around 80 per cent of the online travel segment. Low-cost airlines like SpiceJet, GoAir and Air Deccan conduct over 70 per cent of their flight transactions online followed by carriers like Jet and Kingfisher.
The Indian Railways’ online ticketing website is one of the largest single product e-commerce sites in India. The number of users availing of the facility tripled from 2.5 million to 7 million over the period 2005-06 to 2006-07. Its transaction value more than doubled from Rs 3 billion to Rs 7 billion during this period and is expected to rise to Rs 15 billion in financial year 2007-08, according to IAMAI and IMRB estimates.
The key travel aggregators in India are makemytrip.com, yatra.com and cleartrip.com, which offer a wide assortment of services on one site including air ticket booking, tour packages and hotel reservations. The leading player in this segment is makemytrip.com, which planned over 1 million trips for 100,000 customers in 2006-07.
These travel aggregators are increasingly coming up with innovations to attract customers. For instance, cleartrip.com recently upgraded its payment system and started allowing customers to book airline tickets and hotel rooms using international MasterCard and Visa credit cards.
Hotel bookings are also fast becoming popular. While most five-star hotel groups like the Taj and the Sheraton already allow web booking, many smaller players like Lemon Tree Hotels have also adopted web-based reservations. Many hotels also enable customers to make reservations through travel aggregators.
However, the online hotel industry in India is yet to really take off since its target group is limited primarily to the more affluent Indians, NRIs and overseas travellers. In some cases again, the size of the online inventory is limited.
e-tailing
The e-tailing industry in India consists of online retailers and online auctions. The key players in the online auction segment are Indiatimes and e-Bay while those in the online retail section are Indiatimes, Rediff and Indiaplaza.
E-tailing had a slow start three years ago, when designers Ashish Soni, J.J. Valaya and Rajesh Pratap Singh ventured to sell fashion on the internet via www.bougan-villa.com. The venture floundered, but interest in e-tailing started picking up. Today, e-tailing is the largest online non-travel industry segment. In financial year 2006-07, the e-tailing industry was worth Rs 8.5 billion, and is slated to increase by 30 per cent to Rs 11.05 billion by the end of 2007-08, according to IAMAI and IMRB estimates.
Though internationally fashion stands second only to books for online consumption, according to a Nielsen global survey, in India, electronic products are among the most popular purchases online. According to industry sources, online shopping portals are witnessing a 200 per cent growth in consumer electronics sales every year. This is unlike earlier when music and books were the preferred choices.
Recently, companies like Metals Scrap Trading Corporation and National Mineral Development Corporation (NMDC) have also started undertaking e-commerce and e-procurement activities. For instance, in 2007, NMDC adopted e-auctions for selling iron ore, diamonds and scrap. It also carries out reverse e-auctions for procurement processes. Using the e-auction method, NMDC sold iron ore fines at a price of Rs 4,020 per tonne through mJunction, the e-commerce venture between Tata Steel and Steel Authority of India. This is much higher than the basic contract price which is reportedly Rs 3,188 per tonne.
Online classifieds
Online classifieds such as online job searches and matrimonials comprise the second largest non-travel segment. Online property searches are also gaining ground. IAMAI and IMRB expect the industry to increase by 52 per cent from Rs 5.4 billion in 2006-07 to Rs 8.2 billion in 2007-08.
The online job search market is slated to increase by about 50 per cent from Rs 4 billion in 2006-07 to Rs 6 billion in 200708, driven by the growth in the number of online job seekers, from 7.5 million in 2005-06 to 10 million in 2006-07. It is expected to expand further to reach 15 million job seekers in 2007-08.
The key players in this segment are naukri.com, timesjobs.com, jobstreet.com and monster.com. naukri.com is the leading player in the segment and has over 80,000 job listings and a 1.5 million-strong CV base. In 2006, it serviced over 27,000 corporate clients. The company has also partnered international job search companies such as the US-based careerbuilder.com.
Online job search portals have become increasingly more convenient and personalised. For instance, naukri.com revamped its website to allow users to make their own settings, messenger services, find out whether companies have visited their profiles, save jobs to apply to later, etc. Consequently, company registrations increased by 20 to 25 per cent. However, a key concern in the industry is that players are heavily dependent on advertising for revenue as they cannot charge subscribers for posting their resumes.
The online matrimonial services business in India is also growing rapidly. Worth around Rs 1 billion in financial year 2006-07, this segment is expected to increase by 40 per cent to Rs 1.4 billion in 2007-08. The number of online matrimonial service subscribers increased from 4 million in 2004-05 to 5.5 million in 200506 and to 7 million users in 2006-07. The figure is expected to increase to 9.5 million users in 2007-08.
The most recognised matrimonial web portals are shaadi.com, jeevansaathi.com and bharatmatrimony.com. Their business model involves users utilising the website’s interface to first create profiles and then pay for the service.
However, despite requiring a low investment of around Rs 3 million to start up, these portals often find it difficult to stay afloat. There are currently over a hundred such marriage portals. Only a few of them have mass visibility with most of them actually being in the investment phase. To counter this, portals like jain4jain.com, govtshaadi.com, mangliks.com and bposhaadi.com are targeting niche markets.
The road ahead
Despite registering significant growth rates, the e-commerce industry in India is at a nascent stage compared to other parts of the world. This is largely due to factors such as lack of faith among customers in making online payments, low PC penetration and low internet literacy rates.
Internet security is an important issue in the country, which is yet to be sufficiently addressed. Currently, India does not have a dedicated agency that monitors cyber frauds. Moreover, according to the Anti-Phishing Working Group (a global pan-industrial law enforcement association focused on eliminating fraud and identity theft due to phishing, pharming and e-mail spoofing of all types), India at 9.39 per cent ranks third in hosting phishing sites.
Portals are attempting to change this. Many portals such as StoreGuru.com and Indiatimes have started a system where the payment immediately goes to an encrypted payment gateway of the bank itself.
All in all, with internet and broadband penetration set to rise, the e-commerce industry in India is expected to grow significantly, while addressing customer concerns and needs better.
