Is that e-commerce? You gotta be kidding me!

Nevermind the temporary drying up of funding for e-commerce companies. e-commerce in India is a hot topic amongst entrepreneurs, has attracted several hundred millions in investment and will attract more in the next decade as this story gets played out. The gold rush has been fueled by the increase in the number of internet users in the country, poor retail infrastructure and other factors. However, if you look a bit closer, you will see that it is really a charade.

In the West, e-commerce stands for a business transaction conducted on the internet and embodies reduction in retail prices due to greater efficiencies and grander scale. In India, it is entirely something else. The main culprit for changing the game is Cash on Delivery (CoD). Estimates vary but we have heard that CoD constitutes more than 50% of all the online orders in India. In this, a customer chooses a product online and pays at the time of delivery. The payment happens if the customer chooses to take the delivery which happens completely at her terms.

Why the Kolaveri about e-commerce or e-catalog?

Why is it important to have this distinction clear in the mind? From the brick and mortar world analogy the difference is the same that a business owner has to consider if he is operating a mall or a retail outlet. For entrepreneurs it is important to understand the difference as it has impact on business model and overall business focus. Once you start analyzing these two business separately, the whole dynamics of supply chain, revenue models, marketing, branding and order fulfillment changes.

e-commerce e-catalog with CoD
Working capital Negative Positive
Onus of delivery Customer e-cataloger
Who owns the inventory e-retailer and supplier    Supplier
Branding e-retailer e-cataloger
Who does order fulfillment e-retailer Supplier
Maximum market size e-retail revenue SG&A of supplier
Who pays for your business Consumer Supplier

Let’s redo the numbers

Re-analyzing the market numbers under the correct categories is important as it helps to understand customer behavior and the actual market trends. The real picture of e-commerce in India is different from what is portrayed. As per IAMAI e-retailing in 2011 was $600M (6%) of total internet based spend. We assumed 50% of total $600M was CoD. If we were to reclassify the market numbers for 2011 considering CoD business as part of other-classified category instead of e-commerce, then in 2011 e-retailing was only $300M (3%) whereas other other-classified category was $780M (8%). So it seems that classified market is the one that will cross the $1Bn mark faster than e-commerce while everyone in the ecosystem lives under the illusion of championing the cause of e-commerce.

Pluggd.in readers : Name your favorite e-commerce company and let us know why wouldn’t you call it an e-catalog firm?

[About the authors: Ali and Yamin are trying to innovate in the India digital content space they have background in finance, analytics, content, sales and marketing. They are graduates from IIT Kharagpur and have MBA from Universities of Chicago and Santa Clara. ]