The name ‘Alibaba’ has come into common parlance since the
giant e-commerce company’s NYSE IPO on September 19, 2014. BABA’s $231 billion
market value on its opening day may well have heralded the advent of Asian
e-commerce on the world-stage. Playing a
distant second-fiddle to China’s BABA is the nascent but improving e-commerce
stage in India: Playing Forty Thieves to China’s giant BABA.
Japan’s SoftBank is the latest to invest in India’s
fledgling e-commerce market. Plagued by weak
Internet penetration; red-tape; lack of band-width; a haphazard economic
strategy; widespread mistrust of e-commerce; weak penetration of credit-cards; and
general economic malaise, India has been a perennial also-ran in
e-commerce. But that is beginning to
change. With a new single-party majority
rule in Parliament under Prime minister Narendra Modi, India is beginning to
shrug off its shackles and turn the corner on virtual trade. Softbank recently
agreed to invest $627 million to become the largest shareholder to Jasper
Infortech, Pvt. Ltd., a Delhi e-commerce firm that owns Snapdeal.com. Softbank
is also said to have pledged $10 billion to India’s technology sector since the
ascendancy of Modi to prime minister.
Online retail currently constitutes only 0.4% of India’s
retail industry. With 1.3 billion people,
even if e-commerce takes 3% of the retail market in India by 2020 that would translate
to sales of $32 billion a year (e-commerce in the U.S., by way of comparison,
is expected to hit 10% of retail by 2017, and earned approximately $262 billion
in 2013). Snapdeal, India’s largest
e-retailing platform, and the closest thing to China’s Alibaba, has 50,000
retailers and earned approximately $1 billion in revenues to Alibaba’s 362,788
retailers and $8.6 billion in revenues last year. However, 99% of Alibaba’s retailers are based
in China itself, a profile that is eminently comparable to that of Snapdeal in
India. Furthermore, one of Snapdeal’s
investors, Temasek Holdings, the Singaporean sovereign wealth fund, was an also
an early investor in China’s Alibaba.
So, in many ways, India’s e-commerce trajectory is following that
defined by China a decade or so ago. But
it may not take India a decade to catch up.
Here’s why.
Exposure: Unlike China’s draconian censorship of both social
media and news channels, the spigots for information flow in India are
wide-open. For instance, India is
expected to have more Facebook users than any other country by
2015. According to Socialbakers, a
social media analytics firm in London, in 2012 India had close to 46,307,580
Facebook users. This made India the third-biggest Facebook market, behind the
U.S., then at 156,830,580 users, and Brazil, with 48,041,640. According to
Eleanor Armitage, a PR representative for Socialbakers, the number of Indian
Facebook users is growing 22 percent every six months, meaning that India will
edge out the U.S. toward the end of 2014, when both countries are expected to
have 170 million to 175 million members.
And remember, this is with only 17% Internet penetration in India
compared to 44% in China and 87% in the United States.
Mobile Users:
Facebook’s ad revenue in the third quarter of 2014 was nearly $3.4 billion, a
large share of which came from mobile ads.
As worldwide ad revenues grow for Facebook, so will revenues for
Facebook, India; and a large share of these ads will come from fledgling
e-commerce ventures. Furthermore,
younger age groups (18-34 year olds) represent a whopping 76% of Facebook users
in India. Since opening its first office
in Hyderabad, India, Facebook has actively targeted cell phone carriers as cell
phones are far more ubiquitous than computers and Indians have a propensity to
connect to anyone or anything that piques their interest on social media. Democracy and plurality can sometimes be a
bane to progress. In this case, though, while
consensus and compromise remain heady and dangerous concepts in China, freedom
of access brought about by principles of plurality and democracy in India are
paying huge dividends. Access yields
knowledge; knowledge fuels desire; desire leads to enterprise; enterprise
generates commerce; and Facebook,
Twitter, and such provide part of the platform for e-commerce in India. India’s e-commerce scenario is the
metaphorical forty thieves operating in guerilla-like fashion to China’s giant
Alibaba.
Smartphones:
Local smartphones sell for the equivalent of $70 in India. However, bandwidth is expensive. Thus, they are often used for no more than
basic phone calls and are seen more as status symbols for their potential to
connect to the Internet instead of the reality of making such connections. But that is beginning to change; and change
in the Indian context often follows a tsunami-like geometric progression. Just as India leap-frogged over a legacy
landline system that was a remnant of the British Raj to the ubiquity of modern-day
cell phones, the use of affordable smartphones and the coming band-width
expansion promise to change the Indian e-commerce landscape in the near
future. According to Anandan, a former
managing director of Microsoft - India, and now with Google, “The investments
we are making in India far exceed anything we can see for the next several
years. Everything we are doing is about
how we scale the internet to a larger number of Indians, and how do we make it
more useful. And then eventually monetisation will happen.” Google expects the
Indian e-market to explode with the growing popularity of YouTube; and a lot of
the YouTube videos may well be subscription-based and watched on smartphones in
India. Now imagine 750 million people
simultaneously watching a one-day cricket match on their phone screens. Imagine the mobile ads running at the bottom
of their smart screens. Now imagine the
remaining 350 million watching Bollywood’s productions on YouTube. More importantly, imagine a sizable number of
these people taking out paid subscriptions to specific channels. Were India to fix its bandwidth infrastructure
to satiate the coming demand, it may well leap-frog over both the United States
and China in its capacity to monetize and its volume of e-commerce. And it will do this not based on one or two
Baidus or Alibabas, but a whole slate of entrepreneurs and small businesses
that will find their own platforms on smartphones and tablets…playing forty
thieves to China’s giant BABA.
But it is not all rosy for the prospects of e-commerce in
India. Bandwidth infrastructural
weaknesses will continue to plague India for the foreseeable future unless Mr.
Modi’s government makes serious efforts to overcome the log-jam. But India has done it before. In my youth it took over twenty years to go
from ordering a landline telephone to actually getting a connected line. And then it often did not work. People ordered scooters in the names of
grandchildren yet to be born to children yet to marry. India, though, leap-frogged over these
infrastructural bottlenecks by strategically opening its economy to private and
foreign enterprise. It could do it again
to address its band-width woes and virtual infrastructural inadequacy. And it will need to do it soon, not only to
improve its connectivity to the world but because internet-related virtual infrastructure
is easier to address than physical infrastructure like roads, railways, flyovers,
etc. One of the ways that India can compensate
for its physical infrastructural limitations would be to have a strong virtual
infrastructure for the Internet. This
will not only aid in promoting B2B and B2C commerce; but will allow India to
get beyond its notorious license-Raj and make people-to-government
communications and enterprise easier.
There are already early signs of success in states like Gujarat, Modi’s
home state, where e-government is both commonplace and efficient. Now Modi and his party have to find ways to
replicate Gujarat’s successes to the rest of the nation.
Were India to leverage its open system of government and
principles of plurality and free enterprise, it may well catch-up to and even
surpass China in e-commerce over the next decade. The lack of censorship and the free flow of
information in and out of India will bring concomitant advantages in the form
of new ideas, new platforms for e-enterprise, and India will emerge a global
powerhouse of e-commerce with trillions of transactions offering a complement
to China’s equally burgeoning e-commerce platforms…offering up a full
complement of forty thieves and more to China’s giant Alibaba.
The next fifty years of commerce, E- or otherwise, belong to
Asia. That much we know. The question is which nation, on either side
of the mighty Himalayas, will dominate this new form of enterprise. Current money rides on China. But India may well prove the dark horse in
the marathon that has just come on. India playing forty thieves to China’s colossal BABA.
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