Major Types of eCommerce

Ecommerce is the process of selling products and services electronically, which can happen via
the Internet or mobile phone. With significant increases in technology, ecommerce has
revolutionized the way people do business. Ecommerce allows business transactions to flow easily
between countries. There are several types of ecommerce activities that transactions fall under.

Business to Business, B2B

Business to business, B2B, ecommerce transactions happen between two companies. B2B activity
is not new, but the Internet has changed how everything is transacted. An example of B2B is a
company that outsources its bookkeeping activities to another company. Another example includes
a business that buys its products from a wholesale company. B2B transactions are usually handled
with lines of credit and companies often times have long-lasting relationships with one another.
The seller has responsibility of determining the buyer's creditworthiness.

Business to Consumer, B2C

Business to consumer, B2C, transactions deal with customers purchasing products and services
from companies through the Internet. Online shopping has increased significantly in recent years.
Many companies take extreme security measures to protect the sensitive financial information of
consumers. B2C ecommerce transactions are not strictly bound to retail shopping. Many customers
purchase health insurance, auto insurance and similar products online. One reason for the
popularity of B2C ecommerce is consumers enjoy the convenience of purchasing products and
services online.
Consumer to Consumer, C2C

Consumer to Consumer, C2C, ecommerce activity is more recent, and usually requires a business
to play the middleman. Companies like ebay and Amazon have made C2C more popular. The way
it works is companies that have products to sell list them through a third-party site. Consumers
looking to purchase products visit the site and search the available products. The consumer
purchases the product and the seller is responsible for delivering the product. The business that
plays the middleman usually requires a transaction fee from either the seller or buyer.

Consumer to Business, B2C

Consumer to business, B2C, transactions occur when a company places a job online and businesses
bid on the project. For example, a consumer that needs a website designed will place the details of
the job on a bidding site along with his budget. Companies with experience in web design will
submit bid proposals to the consumer. The consumer chooses a company, submits the agreed upon
payment to the business and waits for the delivery of the website. Bidding companies act as the
middleman verifying that payment and service are delivered.

Mobile Commerce

Mobile commerce deals with business transactions that happen through mobile phones. Many
companies now offer mobile applications that customers can download to their phones. The
applications are typically a condensed version of the full version of the site. Many retail stores
offer mobile software applications to purchase items and have them shipped. Another common
mobile commerce transaction is mobile banking. Consumers can check account balances, transfer
funds and look at bank activity while mobile.

Features of eCommerce
From early and humble beginnings where the amount traded was very modest and a company
having a website was rare, now e-commerce sees billions traded annually and no large company
of any commercial presence can afford to be without a website. Indeed, for many companies, their
presence on the Internet is their window to the world and they are total e-commerce businesses.

Ubiquity and Global Reach and Universal Standards

There are seven basic features of e-commerce. The first three relate to the global nature of the e-
commerce environment. Ubiquity means that the commercial transaction or activity is available at
anytime from anywhere in the world. Global reach is the number of potential consumers a business
can reach; this means high levels of global Internet connectivity. Universal standards means that
e-commerce operates on standard platforms with agreed methods and systems.

Richness and Interactivity

Richness and interactivity refer to the content available on the e-commerce platform and how it
used by the consumer. Richness means the commercial activity and experience is conducted
through a variety of messages and means, such as videos, text, pictures, sound, links, SMS and
more. Interactivity is the relationship a consumer has with this richness -- similar to a face-to-face
customer meeting in a traditional business.

Information Density

Information density relates to the technological capabilities of e-commerce, in that vast amounts
of information can be stored and made accessible very cheaply and without the need for bulky
storage. In e-commerce banking, a customer can have access to a vast array of personal records
and the bank can store huge amounts of information as well.
Personalization

e-commerce takes personalized selling and marketing to a new level because of the level of
information-gathering and interaction and engagement a consumer has online. Products and
messages can be personally targeted in a much more efficient way, saving a lot of wasted time and
boosting the potential for sales.

How E-Commerce Works

E-commerce Basics

E-commerce or electronic commerce works like conventional commerce with the same process of
selling and purchasing goods or services for a price. The difference is that goods and services in
e-commerce are bought and sold over the Internet using a credit card. Transactions can be done
globally 24 hours a day and 7 days a week, unlike conventional commerce. There are no weekly
holidays or closing time as with conventional stores.

The Process

The merchant showcases the products intended to be sold on a website and specifies the price of
each product. The customer logs on to the website, chooses products and adds them to a shopping
cart. The customer connects to the transaction server and gives credit card details to purchase the
goods. The merchant's transaction server then connects to the credit card processing server to check
if the customer has the required funds to pay for the goods and services purchased.

Once the processing server approves of the transaction and reports that the customer has funds, it
authorizes the transfer of funds from the customer's bank to the bank of the merchant. On receipt
of the money, the merchant's server confirms the sale to the customer and the products are
delivered to the customer by the merchant.

E-commerce Popularity

E-commerce became popular as a method of commerce because it is inexpensive and merchants

can avoid overhead costs like commercial space, staff and security systems. The customer avoids
the commute to the store and has the convenience of shopping for a variety of products at the click
of a mouse. E-commerce transactions are automated and accurate, unlike conventional transactions
which suffer the risk of human error. The customer can easily find products using the search option
on e-commerce websites.

Choice

Comparing prices of different brands of similar products is easy when a customer can access the
prices online. The customer can shop online for services as diverse as a car wash to insurance and
loans online. The Internet has many quote engines that make it easy for a customer to get a good
deal on the services provided by different companies or brands. E- Commerce gives the customer
a vast online catalog and the choices of available products and services available are almost
infinite.

The Problems with E-commerce

E-commerce may look easy because all it takes to set up shop is building a website and listing the
products and services on sale. However, the difficult part of e-commerce is attracting customers
to the website. The competition on the Internet is fiercer than in conventional commerce.

The Indian e-commerce wave is far from over

This year, with a correction underway in the start-up funding market, the story for e-commerce
has played out very differently

For nearly two years, investors of every hue—from venture capital firms to hedge funds to strategic
investors—scrambled to outdo each other in bankrolling the country’s e-commerce wave, very
often at valuations that are looking less and less defensible today.

Last year, e-commerce companies raised a record $3.9 billion in fresh funding from investors.
Flipkart and its New Delhi-based rival Snapdeal alone cornered $1.7 billion.

This year, with a correction underway in the start-up funding market, the story for e-commerce
has played out very differently.

In the nine months to September, the sector pulled in just $1.4 billion in fresh funding. Big-ticket
deals have become a thing of the past. Grocery e-tailer BigBasket, ticketing platform Bookmyshow
and eyewear e-tailer Lenskart were the only three firms that pulled in serious money. BigBasket
raised $150 million in March from an investor consortium led by Dubai’s Abraaj Group;
Bookmyshow closed a $81.5 million growth round in May from a group of investors led by New
York-based private equity firm Stripes Group, and Lenskart raised $60 million from International
Finance Corp., TPG Growth and other investors. Another potentially large deal this year was e-
commerce marketplace Shopclues’ growth round in January. The company didn’t disclose the size
of the round, but it is estimated at between $100 million and $140 million.

There haven’t been very many more deals over the last two months, and it is unlikely that the e-
commerce sector will muster much in what’s left of the current quarter. There’s an outside chance
that Flipkart may still score a funding round before December ends. The company, Mint reported
in October, is currently in the market to raise anywhere between $500 million and $1 billion.

Talks were reportedly initiated with Wal-Mart Stores Inc., the world’s largest retailer, but they
don’t seem to have headed anywhere productive yet. Last month, Mint reported that the e-
commerce company may now seek the assistance of investment banks, something it has not done
in years, to muster the next round of funds.

It may be argued that Flipkart alone doesn’t represent the e-commerce sector. However, given that
it accounts for nearly 20% of the $15-odd billion that India’s start-ups across sectors have raised
over the past decade, its ups and downs do have a bearing on the market and, especially, the e-
commerce sector. The frequent valuation markdowns it has had to take over the past 11 months by
mutual fund stakeholders, for instance, have impacted valuations across the consumer Internet
sector, not just e-commerce. And, the fact that the biggest investor in the company, New York-
based hedge fund Tiger Global Management, seems to have taken a back seat in its ongoing fund-
raising campaign doesn’t inspire much confidence either. In the past, Tiger Global, easily the most
aggressive investor in India’s consumer Internet market until late last year, has usually taken a lead
in pumping fresh capital into Flipkart.

A lot of Flipkart’s and the e-commerce sector’s woes are due to Tiger Global and the posse of
hedge funds that dominated the e-commerce funding market for the past two years. When China
devalued the yuan last year, leading to a turmoil in the global financial markets, hedge funds
quickly beat a retreat from India’s start-up market. Suddenly, the abundant supply of later-stage
private capital that was available to the e-commerce sector, often at inordinately high valuations,
vanished. For market leaders such as Flipkart and Snapdeal, this meant they now had to battle the
biggest threat to their turfs, Seattle-based Amazon, on the basis of execution and unit economics
rather than capital. Capital, of course, isn’t a constraint for Amazon. It announced a $2 billion
outlay for the Indian e-commerce market in 2014 and added another $3 billion in June this year.

For venture capitalists, who were largely driven to the sidelines of the e-commerce sweepstakes
by hedge funds, the market correction hasn’t turned out to be such a bad thing. While funding in
the e-commerce sector has slowed, early-stage and some later-stage investors continue to back
companies. Niches or verticals have emerged as a theme for investments this year. At least three
business-to-business marketplaces—Udaan, Bizongo and Ninjacart—have raised funding worth
$16 million from early-stage investors such as Accel Partners, Inventus Capital Partners,
Lightspeed Venture Partners and IDG Ventures India. Power2Sme also raised fresh capital but
hasn’t disclosed the size of the round. Another recurring theme is marketplaces for rentals of used
products. Three start-ups—Zefo, Furlenco and Rentomojo—raised a combined $26 million from
investors such as Lightbox Ventures, Sequoia Capital and Helion Venture Partners.

The best sectors for starting an e-commerce business

Online retail is growing at a rapid rate across the board, but some sectors are growing faster than
others.

Bigcommerce published an infographic today about the industries that represent the best e-
commerce opportunities for small businesses.

It found that independent retailers in auto, jewelry, toys & games, and pet care are growing faster
than the corporate giants.

Bigcommerce helps small business owners create professional online stores. It analyzed nearly
50,000 of its clients’ stores over the past year and compared the results to Internet Retailer’s Top
1,000 to find the areas where small businesses are gaining ground.

Small automotive stores experienced 89% revenue growth per store, compared to 22% growth
from major retailers like AutoZone and O’Reilly. This demand was largely “fueled” by demand
for parts and accessories.
In the fashion world, revenue from independent jewelry and accessories vendors are outstripping
large corporations. However clothing vendors experienced a 4% decline in revenue, probably due
to the fact that apparel is an extremely competitive market.

Both large and small stores that sell books, music, and movies saw their sales fall.

Revolution Growth — an investment firm founded by former AOL execs Steve Case, Ted Leonsis,
and Donn Davis — recently led a hefty round of funding for Bigcommerce. Case has been vocal
about the “democratization of e-commerce,” which is happening as a result of technology
advancements that make it quick and easy to set up a store online.

As he put it, “the bar has been lowered, and now just about anyone can jump over it.”

“The dirty little secret is this first wave of e-commerce has been dominated by a handful of giants
— and, up until now, they’ve crowded out many of the independent merchants,” Case said. “The
dynamic to date has been the big have gotten bigger while most others have been marginalized.
The giants will continue to grow and be successful, but a big trend over the next decade will be
the emergence of a network of independent merchants.”

Fighting the ecommerce froth

In September this year, veteran investor Vinod Khosla, who had backed Google in its earlier days,
said 85 percent of Indian ecommerce firms (including Flipkart and Snapdeal) were over-valued.
Harsh as his words may have sounded, they were based on trends he had noticed in the American
market. And these have continued to play out. In November, fund manager Fidelity marked down
its stake in image-based messaging service Snapchat, a unicorn (loosely defined as a startup that
has crossed $1 billion in valuation), by 25 percent to $34.5 million. BlackRock had marked down
the value of its investment in file hosting service provider Dropbox, another unicorn, by 24 percent,
while Square, a financial and merchant services aggregator and mobile payment company, factored
in 33 percent discount in its pre-initial public offering (IPO) price to $11–$13 ($4 billion) from the
last private funding valuation of $15.46 ($6 billion).

These three are among the most highly valued tech startups in the US and their devaluations have
sent tremors of concern through the industry. India is obviously not untouched by the implications.
Consider that almost 90 percent of the investments in the Indian ecommerce story comes from the
US.
The sunshine industry seems to have found its clouds.

So much has changed in the last year-and-a-half: From 2014 to early 2015, it was a buoyant period
for the ecommerce industry; investors were trying to enter or stay in India’s consumer internet
space. It was the party you were willing to buy a very expensive ticket to.

Cut to 2015, and it seems that every one, from veteran investors like Khosla to venture capitalists
and hedge fund investors, is beginning to question the business model of ecommerce firms and if
they can sustain the high valuations they have garnered so far. It doesn’t help that a few firms saw
flat to negligibly higher valuations compared to last year.

Homegrown ecommerce numero uno Flipkart had a small increase of 1.3-6.7 percent in its
valuation in its latest round of funding in July, from $15 billion to $15.2-16 billion. In the round
prior to this one, in May, Flipkart’s valuation rose by 36.7 percent. Last year, its valuation saw a
57 percent jump across two rounds, according to CB Insights data. Snapdeal also saw a similar
trend. In 2014, its valuation tripled across its two rounds of funding. This year, in its latest round,
its valuation remained flat to marginally higher, said sources.

While valuations are a way to gauge a company’s worth, they tend to go through cycles, sometimes
swayed heavily by investor sentiment. The appetite for the Indian ecommerce industry was so
strong last year that Japan’s telecom giant SoftBank Group Corp invested nearly $1 billion in India
in less than 30 days. This, for instance, explains Snapdeal’s spiralling valuation during that time.

It isn’t that money has suddenly dried up. It still needs to be deployed. But what has changed is
the filter employed by investors.

“Today, it’s not about growth; it’s about profitable and sustainable growth. The cash burning
scenario is gone. Investors want to know if businesses can scale up in a sustainable manner
showing a clear path to profitability and exit for them. As a consequence, valuations have taken a
hit because multiples have come down,” says Sanjith Kumar, director at advisory firm Ambit
Holdings.
Growing Caution

The amount of new capital coming into the ecommerce industry is less than what it was six months
ago and is reflected in the dwindling number of Series B and C deals in India. According to
estimates by investors, if 75 companies are trying to raise funds in the range of $20 million to $40
million today, only about five will succeed. Also, hedge funds, the deep-pocketed alpha-returns-
seeking set of investors world over, are in a difficult spot. According to Bloomberg, 417 hedge
funds closed down in the first half of 2015 alone, indicating uncertain markets. And the Indian
ecommerce industry has been powered by several hedge funds including Steadview Capital and
LionRock Capital, both from Hong Kong.

The capital flow from those who were once very bullish on India is also slowing down. SoftBank
invested nearly $1 billion across three deals in India last year. This year so far, it has invested
$150.2 million across five transactions here. While Tiger Global’s number of transactions are on
a rise, according to VCCEdge’s estimates, its investment value has gone down this year. It has
invested in 37 deals worth $229.3 million so far this year compared to 17 deals worth $512.4
million last year.
The fast-growing Indian ecommerce industry, probably for the first time, is seeing questions being
raised about its sustainability. Not surprising, also considering that it has seen several deaths. Firms
like online merchandise portal BlueGape, eshopping platform KoolKart, online toy store Wopshop
and electronics etailer Timtara have shut shop. The mortality is, however, neither at the scale nor
with the attributes of the dotcom bust of 2000.

But there are several worrisome similarities. When the dotcom boom started in the 1990s, those
companies, much like the ecommerce firms in the country today, were riding high on the
enthusiasm of being the ‘new economy’, and investors backed them with millions of dollars, often
over-valuing them.

A majority of those internet companies did not have very clear revenues models and never made
much money. For example, in 1998, Pets.com started as an enterprise selling pet supplies to retail
customers. Its advertisements struck a chord with customers and brought it massive orders but the
company lacked a workable business plan and lost money on nearly every sale. It was offering
huge discounts to lure customers, selling merchandise for nearly one-third of their cost price. It
went public and was liquated in 268 days. On the day of liquidation, its stock price had tanked to
$0.19 per share from an IPO price of $11 per share.

The dotcom bubble bust started in 2000, triggered by overvaluation and several other factors like
corporate corruption, resulting in a loss of almost $8 trillion of wealth.

But Indian ecommerce companies are unlisted (for now). The industry has been created with the
customers’ approval, making these businesses more viable. Experts say a shake-up, if at all, would
impact investors, promoters and employees to a much greater extent than the market at large as
these are private companies.

The overall economy wouldn’t be decimated, certainly not like what the internet bust did to the
US. Also, unlike the internet companies of the 1990s, ecommerce companies today possess a
definite value and service through their sale of products and services. There is a transactional
element that offers a practical value to the user. The firms are also constantly using analytical and
intelligence tools that offer insights to gauge customer behaviour and improve services. Further,
one of the major causes of the last dotcom bubble was that companies didn’t utilise comprehensive
business plans or implement revenue structures. The focus in India right now is to improve unit
economics and increase margins—and, ultimately, a listing for the top players.

“You can call it froth, not a bubble. A bubble is what bursts and nothing remains. Here you will
still find something. This market has got growth, it doesn’t have profit pools yet,” says Niren Shah,
managing director, NVP India, an investment firm that has invested in ventures like Pepperfry.com
and Fashionandyou.com.

While valuations are making these companies hit headlines, the good news is that they are no
longer overlooking the path to profitability now.

The macroeconomic pointers are favourable too. From 2000, the number of people using the
internet has grown considerably. India is expected to have over 500 million internet users by 2017,
up from over 350 million users as of June 2015, according to a new report by the Internet and
Mobile Association of India (IAMAI) and consultancy firm KPMG, released in August.

The high-speed 4G launch is also expected to further boost the online shopping experience by
improving user experience in terms of downloads, payments and visuals.

The ecommerce market is likely to grow tenfold in the next five years to $100 billion on the back
of increasing internet penetration, smartphones and the spread of the digital network in rural areas,
according to a report titled ‘Direct selling: Mapping the industry across Indian states’, released by
industry body Ficci and KPMG.

PATH TO PROFITABILITY

Ecommerce companies in India have generally focused on maximizing GMV (gross merchandise
value) in their bid to rake up valuations. They have been burning cash on customer acquisition,
strengthening the backend and infrastructure, technology and people. Access to capital from
venture capitalists, private equity and deep-pocketed hedge fund investors meant that these
companies could scale fast and offer heavy discounts in their bid to keep the customer hooked.

Over the last few months, most investors and companies have started talking about profitability.
Ventures like Myntra, Pepperfry, Flipkart, Snapdeal, BigBasket and Paytm want to be profitable
in the next two to three years. “At the peak of the current technology bull-run, investors were
focussed on traffic, market share and transaction volumes, with the belief that the economic model
would work itself out at scale. Large investors were pumping in money and companies continued
to focus on growth, with enough in cash balances to take care of rising expenses. Now, with
momentum withering, there is a pullback on capital across the chain,” says Mayank Singhal, who
led Temasek’s investment in Snapdeal early last year. “Early investors are concerned about follow-
on funding and more measured in their early bets.”

The concern is leading internet companies to create a culture of thinking about profitability to
bring more discipline into their approach and potentially take them to a space where public market
investors may start looking at them with interest, says a Morgan Stanley report called ‘India
Technology: India Internet: Path to Profitability’, released on November 3.

For instance, NVP India’s meetings with its portfolio company Pepperfry are increasingly about
improving margins and unit economics. NVP and Pepperfry are aligned in their belief that rapid
growth has to be accompanied with a route to profitability over the next 12 to 18 months. “Most
people are aware that, at current levels, companies won’t make profits,” says Shah of NVP India,
adding that the investment firm is not seeking an immediate profitability but an effort to better unit
economics. “Ecommerce is bigger than the industrial revolution. The market is resetting from
growth to unit economics. When the market feels good, people will go for growth. No one wants
profits overnight. It’s a game of owning a customer’s mindshare.”

The emphasis on better margins and unit economics seems to be working well for Pepperfry, for
instance. Co-founder Ashish Shah says they never lose money on their products and don’t discount
below cost price. Pepperfry is operationally profitable, including shipping, he adds. “In bad times,
one does not spend a rupee on marketing; all those levers are in my hand. There is a path to
everything. One cannot say that today I will grow and tomorrow I will make money. Both growth
and making money have to happen simultaneously,” he says. Pepperfry’s overall margins grew
significantly last year—10 percent more than a year ago. Shah asserts that in 18 months they will
be completely profitable.
India’s largest online fashion retailer Myntra says it should be completely Ebidta-positive in the
next 12 to 18 months. This year (till March 31, 2016), the Bengaluru-based fashion portal expects
to grow 70 percent year-on-year. “Our unit economics are way better than anybody else’s, and we
are able to sell more premium products and at lower discounts than anybody else in the industry.
Our logistics and operational costs are in much better control. All of these efforts are contributing
to the profitability roadmap that we have for ourselves. We are well on track for that,” Prasad
Kompalli, head, ecommerce platform, Myntra, told Forbes India in an unrelated interview.

Firms are adopting multiple steps to achieve profitability. Economies of scale are expected to bring
tonnes of benefits for large marketplaces like Flipkart and Snapdeal, through lower warehousing
and logistics costs. Several Indian ecommerce startups spend as much as 30 percent of their net
sales on logistics, according to retail consultancy firm Technopak, which is much higher than the
11.7 percent Amazon.com spends in the US. In China, Alibaba doesn’t bear any shipping costs.
Also, the average size of an online sale in India is around $20, compared with the global average
of around $100.

Diversifying into new, profitable categories could help generate better returns. In August, Flipkart
launched its furniture range, a category that can offer margins as high as 40 percent and is already
seeing a growth of 60 percent month-on-month.

Several startups are also rationalising their employee strength. For example, Zomato fired 300
employees, with an email by its founder Deepinder Goyal explaining that “the fact of the matter is
that our sales team is not firing on all cylinders”, indicating results are most crucial for sustenance
in a startup. TinyOwl and Housing.com fired over 160 and 600 employees respectively, to remain
lean.

Another significant move being cautiously taken is to rationalise discounts. The arrival of large
conglomerates like the Aditya Birla Group and the Tata Group into ecommerce will, in any case,
change how companies lure customers. In October, the Aditya Birla Group launched its online
fashion store called Abof.com. The Tata Group is also close to starting its ecommerce business.
“It is not a ‘winner takes it all’ market. Their presence would not fundamentally change the
business; there is enough room for all to grow. Online startups have a different DNA which may
not be easy to replicate. Going forward, existing players will not offer as many discounts. The
focus will be on innovation to augment customer experience,” says Kumar of Ambit Holdings.

According to the Morgan Stanley report, several companies are leveraging big data to intelligently
direct discounts to consumers who are sensitive to them. They believe this will potentially help
bring down the overall discounting practice at the company level and/or repurpose it to draw new
consumers into its net. Some companies have also increased the minimum transaction value for
free shipping.

One of the biggest expenses for ecommerce companies right now is marketing and advertising.

“You can curb these expenses,” says Mayank Singhal, adding that such initiatives can show an
almost immediate curb on cash burn, by as much as 40 percent. But these are steps that will yield
results in the future. And achieving higher margins and better unit economics is not as easy as it
seems. Better margins impede growth, and investors don’t want that. After all, it is growth that has
driven valuations.

RIDING THE TOUGH TIMES

India hasn’t offered any great exits in ecommerce investments and this fact is not helping the
industry. With no profits or cash flow to show, public offerings also seem to be a while away, for
at least two to three years. Early investors in companies such as Flipkart, like Accel Partners, are
sitting on alpha returns which are not yet realised. “The time is coming up where they [investors
in VCs] want to see the flow coming back. Their allocation for India is still very small, but they
all know that the day the money starts coming back, India will attract a lot more funds,” says
Shekhar Kirani, partner, Accel Partners, one of India’s most active investors.

The good news is people know that money can be made in ecommerce. American investment firm
Kleiner, Perkins Caufield & Byers, an early stage investor, scored returns of over 55,000 percent
in Amazon in 1999 at the peak of that stock. SoftBank made exceptional returns on Alibaba: In
2000, it started with a $20 million bet on Alibaba and its returns were estimated to be worth about
$58 billion last year.

That said, the ecommerce market structure in India is significantly different from that in China and
the US.

Competitiveness—be it the number of players (Amazon, Flipkart, Snapdeal) or investors from

early stage VCs to PEs to hedge funds—in India is significantly higher. A large country like China
has two big ecommerce players—Alibaba and JD.com. Amazon dominates the US market.

“Returns in India will be divided among many more players than in the US or China. In India, the
value will be divided amongst four or more players. There are multiple hands in that pie. You may
put more money but less returns will come,” says Mukul Singhal of SAIF Partners, which has
invested in firms like Urban Ladder, Firstcry.com, Just Dial, UrbanClap and Paytm.

Singhal says the pool of investors for India has to be broadbased. This will bring stability to the
sector. Indian ecommerce firms in the growth stage are often backed by investors from Russia,
Japan, Hong Kong and the US. Large private equity firms like KKR, Warburg Pincus and Apax
Partners, with offices in India and substantial offline investments, have stayed clear from betting
on them. “Indian private equity will do ecommerce, we will see some exits. Globally, value
investors are shifting from offline to online. They will do the same in India. It’s a question of time,
maybe two to three years,” says Singhal.

Ecommerce is a battlefield in India. Lured by the possibility of high returns, more investors may
come in and offer ammunition to promoters to win the game. But financial firepower will not be
enough. Not if the lessons from the West are any indication.

Challenges for the e-Commerce sector in India

The phenomenal growth of the e-Commerce sector is accompanied by certain challenges:

 Absence of e-Commerce laws

 Low entry barriers leading to reduced competitive advantages

 Rapidly changing business models

 Urban phenomenon

 Shortage of manpower

 Customer loyalty