The Indian e-commerce sector is estimated at $10 billion and is expected to grow four times by 2018, according to a Nomura study. Some other studies too give various estimates regarding the size of the Indian e-commerce sector, but they all agree that the sector is growing at a rapid pace. In fact, India is currently estimated to be one of the fastest growing e-commerce markets in the Asia-Pacific region.
The key macroeconomic drivers of this growth are a young demographic supported by rising income levels, internet penetration and smartphone sales. In addition, at an individual level, convenience and greater access to a wide range of products (especially beyond the major cities), supported by the emphasis on the cash-on-delivery payment model have been the key e-commerce adoption triggers.
However, unlike many global markets, India is evolving into a ‘mobile first’ market. On an average, more than 50% of e-commerce traffic for major players comes through mobiles and this proportion is growing rapidly, making India the largest m-commerce market in the world, after China. Today, India has around 210 million wireless internet subscribers and only 20 million wired subscribers. As a result, while globally desktop access for e-commerce matured before mobile access, India leapfrogged the desktop evolution and is leveraging its large mobile telecom base to drive e-commerce.
A key e-commerce driver has been the evolution of online purchasing behaviour in the tier 2 and tier 3 cities due to access to products and services which were otherwise not available to these consumers. The share of traffic from tier 2 and tier 3 cities already averages over 50% for major players and is rapidly growing. However, limited countrywide personal computer and broadband penetration has necessitated the use of mobile phones as the primary means of internet access for many consumers beyond the major cities of India.
Growing smartphone adoption has also supported this evolution. There are around 116 million smartphone users in India, making the country the second-largest smartphone market after China.
The availability of cheaper and affordable smartphones possibly increased the penetration while larger screens (phablets and tablets), bigger memory, better browsing capabilities and the evolution of the mobile app economy has made mobile transactions efficient and convenient.
Further, affordable data plans and increasing 3G penetration in the country has also supported this growth. The rollout of 4G in the near term can provide an additional fillip to mobile commerce.
The emphasis on the cash-on-delivery model by Indian e-commerce companies has enabled them to overcome the initial resistance to online payments and the lack of credit card penetration. This has not only helped widen the reach of e-commerce but has also synced in well with mobile access—as it provides a convenient settlement mechanism especially in areas with lower internet speeds. As online, especially mobile-based payment models evolve and become robust, it is expected to increase the overall e-commerce traffic.
In addition, mobile commerce provides certain other advantages such as greater convenience, higher user engagement and retention, increased impulse buying and targeted marketing. However, a critical determinant is the quality of user experience. While mobile user engagement is noted to be higher, conversely poor user experience has a much higher adverse effect on return traffic.
Further, mobile commerce presents certain specific challenges such as limited screen real estate, still evolving mobile payment models, app discovery issues and speed constraints. In addition, there seems to be a high degree of competition for a customer’s mind share as it has been observed that mobile users typically use only around 6-7 apps on a regular basis.
As a result, e-commerce companies appear to be investing heavily with a focus on improving the mobile user experience. Connectivity issues are hoped to be tackled by developing lighter apps with low bandwidth requirements and also provide limited offline functionality.
App structures are being redesigned around customer preferences, usage patterns, etc, to move beyond the constraints of screen space and also leverage on certain advantages of the mobile ecosystem such as integration with GPS, camera, contacts, calendar, social media, etc. E-commerce companies are also looking to move beyond the cash-on-delivery model and provide additional payment options such as online wallets, internet banking, EMI facilities, etc, to make mobile payments more convenient and efficient. Today, e-commerce players are looking to capture mobile customer’s mind share through marketing, app usage discounts, pushing desktop customers towards app usage, etc.
Many e-commerce players are evaluating their user engagement models to develop a balance between the investment and efforts required in providing a high level of user experience across multiple platforms with the benefits and convenience of access across multiple platforms.
With the growing share of mobile traffic, companies are prioritising their platforms for user engagement to reduce pressure on costs. While the tradeoff between platforms may depend on the business model, customer base and future strategy, it appears likely that, going forward, m-commerce could be the dominant online commerce model in India.
(Girish Menon, director, KPMG in India, contributed to this article)
Jehil Thakkar is partner and head of media & entertainment practice, KPMG in India.
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