Is E-commerce industry at an inflection point?

Thu, Dec 31, 2015

In Focus

While the amount of funds raised by Indian e-commerce companies is huge, its market is barely 1 percent of the Chinese counterpart. Chinese e-commerce industry was in fact in the same position as India with respect to market, internet penetration, and acceptance of online marketplaces if we look 10 years back. Now, the Chinese e-commerce has surpassed $300 billion compared to the $4 billion of India, online travel booking forms a major chunk of it, roughly 70% and e-tailing is a minor portion. $9 billion of goods were sold by Alibaba on a single day. This should certainly put things in a perspective.

There are about 250 million internet users in India. However, only 3-4% of such users engage in online shopping, (around 8-10 million). To rephrase, the e-commerce industry does hold market share and they still have a long way to go in terms of “mind-share”. A Flipkart or an Amazon may have raised billions in terms of dollars but they are still at the nascent stage as far as their reach is concerned.

However, in terms of CAGR, Indian e-commerce is racing ahead with 30% growth rate which is three times than that of many developed economies. Every development in technology/business goes through the process of business cycle where we see a crest and a trough appearing from time to time. Moreover, as the technology progresses there is an advent of destructive innovation which replaces the existing technology (e.g. audio cassettes by CD, landline by mobile phones etc. ) Extrapolating the same line of thought to e-commerce sector we can safely assume that until a new destructive innovation/technology takes  over   we   will   see  a  rise  in  the  e-commerce sector.

Changes in the economy will continue to happen, market size will change, government policies will change, middle income group will continue to show growth in their spending power and it is up to the investors, entrepreneurs and companies to capitalize on the trend and hit the right notes to sustain as Amazon and Ebay did otherwise it might turn out to be a US dot com bubble burst for some.

By- Abhas Vyas

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