Forbes India 15th Anniversary Special

Ecommerce: What the past 10 years mean for the future

The past decade has seen the emergence of ecommerce unicorns, big-ticket acquisitions, and deep-pocketed global investors. The final draft of the ecommerce policy will determine who holds the edge in the next decade

Naini Thaker
Published: May 14, 2019 10:56:45 AM IST
Updated: May 15, 2019 11:28:43 PM IST

Ecommerce: What the past 10 years mean for the futureIllustration: Chaitanya Dinesh Surpur

It was in 2000, when the Internet bubble was just about to burst, that two Harvard Business School graduates, Avnish Bajaj and Suvir Sujan, decided to explore the ecommerce market space in India. This was at a time when ecommerce was but a gleam in most entrepreneurs’ eyes, almost a decade before Flipkart would go on to become an urban household name. It was also a time when Internet access was a privilege and smartphones were still alien not just to Indians but to most of the world. Bajaj and Sujan set up, an online auction service based on the eBay model. “For our employees back then, being a part of the dotcom was seen with a lot of pity, because it was not doing too well back then,” says Bajaj, currently founder and managing director at Matrix Partners India, an early stage venture capital fund.

In 2004, eBay acquired Baazee in a deal valued at $55 million. Bajaj adds, “In those days we had to educate people about the workings of the Internet. But, today, user acceptance, focus on convenience and willingness to pay has gone up. There was barely any infrastructure around ecommerce back then; we even had to build our own payment system at the time.”

Cut to 2007. Two IIT Delhi graduates, Sachin Bansal and Binny Bansal, who were working for Amazon at the time, decided to set up an online bookstore. They called it Flipkart. They had big ambitions but little did they know how their journey would unfold over the next decade; that the company that began life in a two-bedroom apartment in Koramangala, Bengaluru, would turn into one of India’s most formidable players in ecommerce; that it would expand into online shopping categories such as electronics, fashion, health, personal care and stationery; and that it would be acquired by American retail giant Walmart for a cool $16 billion in what was the world’s largest ever ecommerce transaction.

Baazee may have been a maverick pioneer, but it was Flipkart that set the stage for what would be a veritable explosion in Indian ecommerce. And it may only have just begun. According to a report titled ‘Unravelling the Indian Consumer’ by Deloitte India and Retail Association of India, ecommerce is expected to be worth $84 billion (₹5.88 lakh crore) by 2021 from $24 billion (₹1.59 lakh crore) in 2017. “We are anticipating ecommerce in India to grow at a 34 percent compound annual rate. But currently ecommerce is still less than 5 percent of total retail trade in India,” says Anil Talreja, partner at Deloitte. According to the report, the overall retail market was valued at $795 billion (₹52.88 lakh crore) in 2017 and it is expected to grow to about $1.2 trillion (₹84 lakh crore) by 2021.


While ecommerce really took off post 2007, the period between 2005 and 2010 may well have been the first phase of ecommerce in India with the arrival of essential service-driven websites such as IRCTC, MakeMyTrip, Yatra, Naukri and a few matrimonial websites. “Services such as ticketing, travel and matrimony thrived, where the additional costs of delivery and logistics did not matter,” points out Karthik Reddy, co-founder of Blume Ventures. Most of the companies in this phase were still in the offline/online model. “The shift [from selling services online to selling products online] happened because the market found that this thing [ecommerce] works. Things started falling into place: Selling the right products with a predictable delivery time to consumers,” says Sudhir Sethi, founder and chairman of Chiratae Ventures India Advisors (formerly IDG Ventures India).

The Second Phase

According to Sethi, from 2010 to 2015 entrepreneurs started exploring newer areas. “Inefficient areas on the brick-and-mortar side [of business] were explored and these new players started plugging inefficiencies through ecommerce models. Companies such as Flyrobe (handcrafted ethnic wear), RentoMojo (furniture rentals), NestAway (home rentals) were launched,” adds Sethi.

In 2018, seven ecommerce startups became ‘unicorns’, including some of the companies that started at around the same time as Flipkart such as Zomato (2008), PolicyBazaar (2008), Paytm (2010) and Freshworks (2010). The billion dollar-plus valuations have been fuelled by deep-pocketed global investors like Alibaba, Tencent and SoftBank.

As per a recent Ernst & Young report on Indian ecommerce, in 2018, ecommerce and consumer Internet companies raised over $7 billion in PE/VC capital (including venture debt) spread over 200 deals. Some $5.9 billion was early stage capital and $1.3 billion invested as expansion/growth capital. Comparing the situation to 10-12 years back, Vikram Gupta, founder and managing partner at IvyCap Ventures, says, “There were hardly any angel and VCs in India then. In fact, every fund in India (whether VC or PE or real estate or infrastructure) was registered as a VCF (Venture Capital Fund) until May 2013.” But, clearly, things have changed. Gupta believes there are 200 registered funds in India, of which 25 are highly active and investing in early to growth stage companies.

While Indian funds are becoming more active, it’s the foreign investors calling the big shots: Alibaba has  investments in Bigbasket and Paytm, Tencent in Dream11, Naspers in Byju’s and Swiggy, and Walmart has acquired Flipkart. Does this mean the global giants will dictate who succeeds in Indian ecommerce? Sid Talwar, partner at Lightbox Ventures, doesn’t think so. “I am a big believer that there are very few parts of ecommerce where money alone is going to be the moat that leads to success. And so just because someone raises money from Alibaba or Tencent or any foreign player doesn’t mean they have won the game for themselves.”

However, the trillion-rupee question is that when Indian industrialists are flush with capital— there were 106 dollar billionaires, with a total net worth of $405.31 billion, according to the latest Forbes World’s Billionaire list—why is there a dearth of Indian conglomerates investing in this space? Reddy of Blume Ventures has an answer: “If they haven’t figured out modern retail themselves, where are they going to give money to online retailers? It’s not like they have cracked that model and they are thriving in cash flow. Large conglomerates putting money into a new business model is a function of when those businesses look like becoming cash cows.” Many investors also believe that large conglomerates in India have a lack of understanding of the workings of startups. Gupta of IvyCap believes, “Since traditional companies have grown profitably, these companies are not fully on board with the concept of negative cash flow companies commanding billion dollar valuations.”

Sethi feels there is a lot of Indian family wealth that is lying idle, and it should be encouraged to invest in digital India. “If Indian capital comes into the ecommerce space, you will find Indian companies growing and in the long run going public, rather than being sold to international giants only.” Talwar believes Mukesh Ambani’s Reliance Industries has already opened the doors. “Reliance has been buying out several businesses like logistics startup Grab, music app Saavn and chatbot maker Haptik. Although they have directly started buying out companies, they might get into investing as well.”

More recently, Ambani announced the launch of the world’s largest online-to-offline ecommerce platform. Reports suggest that Jio is currently working on a super app to create India’s WeChat, which will enable ecommerce, bookings and payments all in one application. The entry of Reliance in this space might prove to be a threat not only to Flipkart and Amazon India, but also make it harder for the smaller players to survive. But Sethi is positive about the degree of competition and feels it is healthy, “Large players at the top of the food chain are very healthy for the small players at the bottom of the food chain. The market will expand only if large and small players coexist.”

From the time eBay acquired Baazee to 2018, when Walmart bought Flipkart, consolidation has been a constant theme in Indian ecommerce. And the trend will only intensify. “The large players go horizontal, whereas vertical players go deeper. So wherever there is a specialisation like a Lenskart (eyewear) or a Firstcry (baby products), you will find very large companies emerging from India. And that is where the big boys will never come in,” says Sethi.


Meanwhile, offline retailers have little option but to jump onto the e-tailing bandwagon. As Sethi puts it, “They have no choice. For them it’s a survival issue.” More interestingly perhaps, e-tailers are also moving into brick-and-mortar stores. Consider fashion and lifestyle e-tailer Limeroad, which is setting up offline stores in Tier II and Tier III cities and towns. It opened its first store in Surat in March 2018 and then another in Panipat. Says Founder and CEO Suchi Mukherjee: “Logistics in India is totally broken. The offline network acts as a fulfillment center for Limeroad. The offline model is an experiential zone and becomes a touchpoint for the brand.”

Going forward, the industry is likely to see a growth of omni-channel commerce. “As the Indian consumer becomes more ‘connected’, winning in this digital age would require brands to go beyond the usual channels of engagement and the competition for a consumer’s time and money spent online would intensify,” says Sandeep Ladda, Partner, Global TMT Tax and India Technology Sector Leader, PwC India. That may also explain why Amazon bought a 5 percent stake in Shoppers Stop for ₹179.25 crore.

Swiggy, one of the largest players in the food tech space, is also trying to engage with its consumers offline and enter new markets through a recently launched programme ‘Launchpad’. “We have 20 million consumers living on various educational campuses. To engage with them, we created this model where we hand-pick students to get an internship experience with Swiggy by becoming campus CEOs. Since each student understands the unique challenges of each campus, they work with our operations and tech teams to then launch Swiggy within each campus,” explains Vivek Sunder, COO, Swiggy. The programme is currently active in over 50 campuses, including IIT Kharagpur and BITS Pilani.

It’s also the omni-channel approach that will help e-tailers seize the next big opportunity: In rural India. A recent EY report reckons there is immense under-tapped potential in Tier II and Tier III cities, and the rural ecommerce sector can be a $10-12 billion opportunity in four years. And companies are already tackling the challenges of rural markets like logistics and content, to name just two. Flipkart has been working on strengthening its infrastructure network and supply chain capabilities across the country. “In order to take ecommerce to the next 200 million to 300 million customers in India, the key will be to continue solving the challenges of vernacular/languages, affordability, selection and reach. The biggest driver of growth for ecommerce is increasingly going to be in Tier II/III & beyond markets,” states a Flipkart spokesperson.

Flipkart’s biggest competitor Amazon India has said that is has reached 50,000 local merchants in the last three years. The company’s strategy is to tackle India’s fragmented market by building region-specific interfaces to allow sellers to service customers effectively. These include programmes such as Seller Flex, Amazon Easy (an assisted shopping programme in rural and semi-urban areas) and a light shopping app Micron especially designed for low-end smartphones. “We are also increasing the adoption of machine learning technology in order to improve speed and accuracy of product deliveries, provide more relevant search results, and improve efficiency in other areas of our business,” states an Amazon spokesperson.

For its part, the government is doing its bit to help ecommerce players reach rural markets. The draft ecommerce policy, released in February 2019 (under-consultation), focuses on data privacy and protection, a domestic ecosystem and consumer protection. Foreign e-tailers, however, may not be too thrilled. “An ecommerce platform in which foreign investment has been made cannot exercise ownership or control over the inventory sold on its platform. In this manner, foreign investment is not seen as a threat by small offline retailers of multi-branded products,” states the draft policy. Traditional retailers who have opposed e-tail for its predatory pricing and violation of competition norms are likely to benefit.

The final ecommerce policy—expected in a couple of months after the new government comes in—will determine who is best placed to ride the e-tailing boom. For now, though, what’s clear is, as Sethi says, “The party is just getting started.” 

(This story appears in the 24 May, 2019 issue of Forbes India. To visit our Archives, click here.)

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  • mahesh dalvi

    Digital India helped to grow the e-commerce industry in India. if I am wrong

    on Oct 11, 2019