E-Commerce In India To Ride The Wave Of Internet Growth

It is astonishing that with more than a 100 million internet users, the internet penetration in India hasn’t yet even touched the 10% mark. Well, of course, I am not thinking of our Seven Billionth baby Nargis who was born recently, as I make this statement. The 10% metric is a great indication of the potential internet holds in India. Exciting fact for all the bankers, VCs and PEs out there!

Back in 2005, the 100 million mark would have seemed impossible. With a small number of 25 million internet users in India (2.5% penetration) in 2005, we have seen a surge in the following years as the number jumped to 46 million in 2007 and 100 million in 2010 which is more than a 100% growth. The following table shows the YoY growth:

(Source:Google Public Data)

According to a Reuters, Google expects India's Internet users to triple (a whopping 300 million) by 2014. Now, what is it that will propel this huge growth? Here’s a Cisco forecast report on - Global Internet Traffic Projected to Quadruple by 2015

Rajan Anandan, who heads Google's India operations shared with The WSJ that - "The next 200 million new users will largely be mobile-first users and out of those, 100 million will be mobile-only users". This is mainly because telecom carriers have invested in high-speed wireless infrastructure and smartphones will become cheaper. Let’s see how that goes.

So what does this user growth mean for E-commerce in India? Online travel and movie ticket sales generate about $5 billion in revenue in India compared to a massive $80 billion in neighbouring China. It remains to be seen whether this growth in Internet penetration will translate into more number of users who will indulge in online purchasing. Anandan had also mentioned that, “Making money off that growing audience, though, is proving difficult thus far for Google and other Internet companies,". Also, Indian online ad spending is only about $200 million per year - a small fraction of the $80 billion global digital advertising industry. More insights into the uniqueness of Indian e-commerce space here.

Within the small percentage of people who buy online, the distribution is very one-sided. Online travel services with a market share of about 76% dominate the Indian online purchase space. This is followed by e-tailing with 8% share, financial services contributing 8%, digital downloads comprising 2% and other online services having 6%. Probably the major reason for the reluctance of people using Ecommerce is that the responsibility of something being misused is on the consumer in India while in the United States, it's on the credit card companies. In order to see real growth from the internet boom, this is the area that has to be worked upon. An entire new industry is about to take off if executed properly. The numbers could translate into real growth and then only can India have a bigger bite of the pie.

If you are a believer in e-commerce story like us, then do register now to attend e-Sparks 2011 – India’s premier e-commerce startup showcase, on 17th Dec at IIM Bangalore.

If you are an Indian e-commerce startup, then please do register now to be the e-Sparks 2011.

- Jubin Mehta