How to develop an e-commerce strategy for your library: is there anything your library can sell online? If so, you can make a cash contribution to the … An article from: Information Outlook
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E-commerce India – is it Really Profitable??
Yesterday I was listening to Avril Lavigne’s song “Tomorrow is a different day” and certainly believe it will true when it comes to e-commerce industry in India.
No Doubt, Travel portals are outperforming in India. Travel alone constitutes 50% of Rs 4800 crore online market in 2007-08. Recently MakeMyTrip has touched whopping Rs1000 crores of turnover. It around 20% of total e-commerce market. It’s expected that travel portals will grow 65% annually. We are experiencing an exponential growth in this vertical. Are these companies making profit or able to break even? How much is the average cost of acquisition? Well these questions still lingers me. The average cost of acquisition in E-commerce industry is around Rs 1100. If the average order size on these travel portals is Rs 4000 and typical net margins are 6-7% (That too on the higher side), these portals will make only Rs 300 on average. That’s far below the cost of acquisition.
But the big question arises how the Non-Travel Portals are performing in India? Largest market of non-travel industry is electronics, digital and lifestyle products. Major players in this are old pros Indiatimes, Rediff shopping, homeshop18, eBay & some new kids on the block like Cafegadgets.in, Gadgetsguru and numerous startups. Average margin is 7-8% in electronic and lifestyle product. If we assume 35% as the share of these portals, then it’s worth Rs 1680 Crores and a bottom-line of Rs 135 Crores. When it comes to bottom line are we all fighting for a piece of cake?
Keeping in mind all these questions one must be forced to ask “Is E-Commerce Really Profitable in India??” Well that’s a million dollar question. And it’s surrounded by so many “Ifs and Buts”. Currently most of the e-commerce portals are striving to break even. Weak pc penetration, Low broadband usage, reluctant credit card users and high cost of acquisition are the major gray areas in this vertical. According to CLSA Internet Report 2007, India will have 55 million internet users by March 2008 growing at 30% over next three years. At this rate it will breach 100 million barriers in next two years. Similar growth trends are predicted for broadband subscribers. Considering the past this is quite optimistic. Majority of the online shoppers don’t hesitate in using credit cards online provided the transactions performed by them are safe. Internet security is also major concern in this arena. We can win the trust of the customer if we have certifications like Verisign, Hackers Safe or Thawte Seal.
Internet advertising expenditure is increasing by leaps and bounce. Most of the advertisers prefer to spend pay per click, pay per action or through publishers in affiliate network. Not everyone can afford to burn money by spending on advertising. Internet advertising is pure overhead. It’s a Catch22 situation. One has to adopt “aggression with precaution” strategy. Most of the companies end up spending millions of Rupees just to reach potential customers in a flash without foreseeing the repercussions on balance sheet.
If I have advertising budget of Rs X per month then I would prefer to spend X/2 and save rest of the amount for contingencies. Main stress should be strategic tie-ups which will provide me visibility and foot falls without spending anything. Cost of Acquisition is an overhead that should be minimized. In long run the direct traffic and traffic from referring sites should constitute the major chunk of the pie. Google Adwords and other PPC campaigns share should not be more than 15-20%. We can’t rely on pure internet revenue in India as the market is still in nascent phase. One has to take alternate ways to keep up the pace and make business model profitable. Diversification in sales channel like corporate sales, print media sales can boost the sales to considerable amount. For that business need to invest in human resources and such type of investment is directly proportional to sales.
All this strategies can bring renaissance in e-commerce market in India and certainly we can hope for a new dawn
Sachin Singhal is the authorised editor of Cafegadgets.in and working as a Business Manager IT in Axaan System private limited.
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