Info-tech

An impressive run enabled by net penetration, sustained funding

K.Venkatasubramanian | Updated on December 31, 2018 Published on December 31, 2018

A lot has been said about the scorching pace of growth in the domestic e-commerce space and how it is all set to become a $100-billion market, going by reports from IT industry body Nasscom and PwC India. But factors that enabled the emergence of India as an e-commerce powerhouse have not been highlighted adequately.

The astounding pace of 4G internet penetration across the country, innovative payment methods to ease cashflows for customers and the persistent funding of losses (discounts) by investors into e-commerce apps and portals have held sway over the cost-conscious Indian online shopper.

Massive internet reach

Thanks largely to Reliance Jio, and the advent of low-cost data, mobile internet penetration has soared in the last couple of years. The number of mobile internet users (through phones and dongles) increased 51 per cent in the last one year to nearly 463 million as of September 2018. The internet penetration levels have more than doubled from September 2016. Thus there are 260 million new users of high-speed data just in the last couple of years, which clearly is a big enabler for e-commerce firms looking for increased traffic and purchases. This trend is only set to strengthen as all the top operators are looking to expand their rural reach as well, where data penetration levels are still relatively low.

The next enabler for e-commerce firms has been innovation in payments. There were offers from Amazon and Flipkart with no-cost EMIs. Credit card EMIs have been around for a while, but with payments allowed in instalments even on debit cards, many more users found it easier to buy from these e-tailing companies.

Big discounting

Flipkart India’s losses widened nine-fold in FY18 to ₹2,065 crore on sales of ₹21,658 crore. Yet, Walmart was willing to acquire a majority stake in it, at a valuation of over $20 billion, nearly 50 per cent more than its valuation the previous year. Even in the other categories, the likes of Ola, Swiggy and Paytm continue to report losses. But investors are willing to pump in cash at higher valuations. As new and existing private equity and other investors come on board, these e-commerce companies are able to offer steep discounts to customers.

One key reason for investors willing to put in the big bucks has been the consolidation in many categories. That is, two or three players have managed to capture almost the entire addressable market in most categories. Flipkart-Amazon, Swiggy-Zomato-Uber Eats and Ola-Uber are some such examples.

For now, it appears that the customer is king.

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Published on December 31, 2018
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