E commerce business models in India challenges and road ahead

Abstract

Online commerce has been witnessing explosive growth in India in the past six to seven years, both in terms of revenues and venture capitalist investments. Consumers are increasingly turning to online stores to buy products ranging from electronics, books, and airline tickets to apparels and accessories. The success of Amazon in the US in the early 2000 s triggered widespread interest in replicating the model in India and many e-commerce companies started operations with the backing from venture capitalists. This increased the intensity of competition and the need for differentiation in the online space to attract and retain customers. Major players likeFlipkart.com, Myntra.com etc. spent heavily to build the brand and awareness. However, the year 2012 saw many e-commerce ventures folding up or getting acquired by bigger players triggering a wave of consolidations in the industry. Many acquisitions are driven by common investors who want to contain burn rate. Investors have become very uncomfortable and very selective in their investments as none of the e-commerce ventures in the B2C segment is making profits. Even well-known players like Flipkart are finding it difficult to raise money to fund their expansion. With international governments and global e-commerce firms clamouring to get a piece of the Indian e-commerce pie, the Indian government is under pressure to allow FDI in online multibrand retail similar to the recent approval in physical retail. The entry of global firms appears imminent and Indian firms need to prepare themselves for this eventuality. The objective of this study is to understand the dynamics of the B2C and B2B e-commerce business models in India focussing on the delivery of products to consumers and businesses, and factors that impact profitability and growth. The study also compares and contrasts the industry economics with the matured markets like US, analyses the variations that arise due to contextual differences between India and the US to draw conclusions and recommendations.