E-commerce a method of conducting business through electronic means rather than through conventional physical means. Such electronic means include ‘click & buy’ methods using computers as well as ‘m-commerce’ which make use of various mobile devices or smart phones. This term takes into account not just the act of purchasing goods and / or availing services through an online platform but also all other activities which are associated with any transaction such as.
- Payment facilitation,
- Supply chain and service management.
E-commerce has defied the traditional structure of businesses trading with consumers bringing to the fore various business models which has empowered consumers. Some of the common business models which are facilitated by e-commerce are as follows.
B2B: E-commerce has enabled various businesses to build new relationships with other businesses for efficiently managing several of their business functions. B2B e-commerce could comprise of various models, which may include distribution services, procurement services, digital / online marketplace like services etc. IndiaMART.com is one such B2B online marketplace which provides a platform for businesses to find other competitive suppliers.
B2C: Direct dealings between businesses and consumers have always existed; however with the emergence of e-commerce such transactions have gained further momentum. In a traditional B2C model, the distribution channel typically starts with the manufacturer and goes through a distributor / wholesaler to the retailer, who interacts with the end customer. However, in an online model one finds the manufacturer or the intermediary directly trading with the consumer.
Most sellers of products or services in the physical medium have begun providing their goods/ services on the internet as well and it is by virtue of this model that e-tailing has become very popular with internet users where a near virtual shop is created with images of products sold. This not only provides cost benefits to the sellers as brick and mortar types of investments are considerably reduced, but the seller is also able to provide benefits to the consumers in terms of discounts and free additions (such as free delivery).
C2C: Traditionally consumers have had dealings with other consumers, but only few of those activities were in a commercial sense. E-commerce has made it possible to bring together strangers and provide a platform for them to trade on. For example, portals such as eBay and Quikr enable consumers to transact with other consumers.
C2B: This relatively new model of commerce is a reverse of the traditional commerce models; here consumers (i.e. individuals) provide services/ goods to businesses and create value for the business. This type of transaction can be seen in internet forums where consumers provide product development ideas or in online platforms where consumers provide product reviews which are then used for advertisement purposes.
E-commerce has transformed the way business is done in India. The Indian E-commerce market is expected to grow to US$ 200 billion by 2026. Much of the growth for the industry has been triggered by an increase in internet and smartphone penetration. As of August 2020, the number of internet connections in India significantly increased to ~760 million, driven by the ‘Digital India’ programme. Out of the total internet connections, ~61% connections were in urban areas, of which 97% connections were wireless.
Propelled by rising smartphone penetration, launch of 4G network and increasing consumer wealth, the Indian E-commerce market is expected to grow to US$ 200 billion by 2026.
Investments and Industry developments
Some of the major developments in the Indian e-commerce sector are as follows:
- On October 23, 2020, Flipkart acquired a 7.8% stake in Aditya Birla Fashion and Retail, a subsidiary of the Aditya Birla Group, for Rs. 1,500 crore (US$ 203.8 million).
- Flipkart partnered with PayTM for its annual Big Billion Days Sale event in October 2020, offering customers the convenience of making payments directly through the latter’s application with the bonus of receiving PayTM cashbacks over and above Flipkart discounts.
- Infibeam Avenues signed a contract with Oman’s second-largest bank, the Bank of Muscat, to process the bank’s online card transactions of various payment networks through its digital payment solution—CCAvenue Payment Gateway Service in November 2020.
- In November 2020, Amazon India announced collaboration with Hindustan Petroleum Corporation Limited. Under this partnership, customers will be able to book and pay for their LPG cylinders until the delivery.
- In November 2020, Reliance Retail Ventures Ltd. (RRVL), a subsidiary of Reliance Industries (RIL), acquired a minority stake of Urban Ladder Home Decor Solutions Pvt. Ltd. for Rs. 182.12 crore (US$ 24.67 million).
- In November 2020, Flipkart acquired Scapic, an Augmented Reality (AR) firm, to boost user experience.
- In November 2020, Amazon India opened the ‘Made in India’ toy store, in line with the government’s ‘Atmanirbhar Bharat’ vision. The store will allow thousands of manufacturers and vendors to sell toys driven by the Indian culture, folk tales and toys that promote creative thinking and are locally crafted & manufactured.
- In October 2020, Amazon India collaborated with the Indian Railway Catering and Tourism Corporation (IRCTC) to enable users to book and reserve train tickets on Amazon.
- In October 2020, Flipkart acquired 140-acre land at Rs. 432 crore (US$ 58.87 million) to establish their largest fulfilling centre in Asia, in Manesar, Gurgaon, in a bid to scale their fulfilment infrastructure to cater to increased demand post COVID-19.
- In October 2020, Amazon India invested over Rs. 700 crore (US$ 95.40 million) into its payment unit, Amazon Pay.
Since 2014, the Government of India has announced various initiatives, namely Digital India, Make in India, Start-up India, Skill India and Innovation Fund. The timely and effective implementation of such programs will likely support growth of E-commerce in the country. Some of the major initiatives taken by the Government to promote E-commerce in India are as follows:
- In a bid to systematise the onboarding process of retailers on e-commerce platforms, the Department for Promotion of Industry and Internal Trade (DPIIT) is reportedly planning to utilise the Open Network for Digital Commerce (ONDC) to set protocols for cataloguing, vendor discovery and price discovery. The department aims to provide equal opportunities to all marketplace players to make optimum use of the e-commerce ecosystem in the larger interest of the country and its citizens.
- National Retail Policy: The government had identified five areas in its proposed national retail policy—ease of doing business, rationalisation of the licence process, digitisation of retail, focus on reforms and an open network for digital commerce—stating that offline retail and e-commerce need to be administered in an integral manner.
- The Consumer Protection (e-commerce) Rules 2020 notified by the Consumer Affairs Ministry in July directed e-commerce companies to display the country of origin alongside the product listings. In addition, the companies will also have to reveal parameters that go behind determining product listings on their platforms.
- Government e-Marketplace (GeM) signed a Memorandum of Understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system for an array of services in October 2019.
- Under the Digital India movement, the Government launched various initiatives like Umang, Start-up India Portal, Bharat Interface for Money (BHIM) etc. to boost digitisation.
- In October 2020, Minister of Commerce and Industry, Mr. Piyush Goyal invited start-ups to register at public procurement portal, GeM, and offer goods and services to government organisations and PSUs.
- In October 2020, amending the equalisation levy rules of 2016, the government mandated foreign companies operating e-commerce platforms in India to have permanent account numbers (PAN). It imposed a 2% tax in the FY21 budget on the sale of goods or delivery of services through a non-resident E-commerce operator.
- In order to increase the participation of foreign players in E-commerce, Indian Government hiked the limit of FDI in E-commerce marketplace model to up to 100% (in B2B models).
- Heavy investment made by the Government in rolling out fiber network for 5G will help boost E-commerce in India.
The E-commerce industry has been directly impacting micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well. Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest E-commerce market in the world by 2034. Technology enabled innovations like digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements will likely support the growth in the sector. The growth in the E-commerce sector will also boost employment, increase revenues from export, increase tax collection by ex-chequers, and provide better products and services to customers in the long-term. Rise in smartphone usage is expected to rise 84% to reach 859 million by 2022.
The E-retail market is expected to continue its strong growth – it registered a CAGR of over 35% to reach Rs. 1.8 trillion (US$ 25.75 billion) in FY20. Over the next five years, the Indian e-retail industry is projected to exceed ~300-350 million shoppers, propelling the online Gross Merchandise Value (GMV) to US$ 100-120 billion by 2025.
India’s Emerging Social Commerce
E-commerce transactions where buyers and sellers interact on social media platforms with each other before concluding a purchase is called ‘social commerce’. In conventional e-commerce, buyers browse through a digital catalogue, whereas in social commerce, buyers and sellers complete their transactions/purchases through their social media accounts by interacting on various social media platforms (such as Instagram, Facebook and Pinterest).
According to a Bain & Company report, social commerce in India (in terms of gross merchandise value) was estimated at ~ US$ 2 billion in 2020 and is projected to reach US$ 16-20 billion by 2025 and US$ 60-70 billion by 2030. Share of social commerce in India’s e-commerce market (US$ 38 billion in 2020) is expected to increase from the existing 1-2% to 4-5% of the projected US$ 140 billion market by 2025.
Increasing preference for online shopping
According to Forrester Research, Indian e-commerce sales increased by 7-8% in 2020. Also, the e-commerce sectorrecorded growth as most consumers shifted to online shopping as opposed to stepping outside due to lockdown restrictions.
Rising number of online shoppers
The number of online shoppers in India is expected to reach >250 million by 2022, according to RedSeer. Owing to a high level of social media engagement among people, social commerce is expected to play a significant role in expanding e-commerce.
The industry is witnessing increasing investments from key global players. For example, in 2020, Facebook invested Rs. 43,574 crore (US$ 5.7 billion) in Reliance Jio and Google put in US$ 4.5 billion in Jio Platforms.
2020 also witnessed significant developments of the domestic players. For example, the acquisition of Future Group by Reliance Retail to expand Ambani Group’s presence in the e-commerce space. In January 2021, Udaan, a B2B e-commerce platform, raised US$ 280 million (~Rs. 2,048 crore) in additional financing from new investors—Octahedron Capital and Moonstone Capital.
Also, there is a rising number of small and midsized sellers in India that are adopting e-commerce as their distribution channel. In December 2020, Amazon India reported that ~4,152 sellers on its marketplace surpassed the Rs. 1 crore (US$ 136.90 thousand) sales mark, while the number of sellers with >Rs. 1 crore sales increased by 29% YoY.
Widening social media influence
E-commerce is becoming the next-gen tool for Indian manufactures, with ~28% millennials buying products sparked by social media endorsements and while the remaining regularly track brands / trends on social media platforms to stay updated on brands and products. E-commerce players are making significant efforts to build their social media presence, adapt digitisation and promote products on these platforms to reach the younger generation.
Social commerce emerging as a new business model for small and midsized businesses
Social commerce is evolving as a new communication channel and transaction model for small and midsized companies, as it allows efficient online product discovery and easier conversation with brands.
Moreover, this model could empower >40 million businesses by offering a direct line of communication to customers and a niche market to every retailer because of India’s large consumer base.
With a combined reach of >400 million users, social media platforms such as WhatsApp, Facebook and Instagram allow companies to tap into potential customer base.
Key SMEs taking the lead
Key SMEs are leveraging social commerce to expand in India and worldwide and focusing on creating new business opportunities.
For example, in 2020, Jaipur-based Ms. Ritu Bhansali, Founder, Everything Mom Made, started her skin care brand on Instagram and the company acquired 2,300 followers in less than five months. Besides supplying bulk orders for weddings, and catering to a host of organisations, the company ships ~80 individual packages each month.
According to Ms. Kriti Tula, Creative Director and Co-owner, DOODLAGE (a fashion brand), with the help of social media sites such as Facebook and Instagram, DOODLAGE grew 3x compared with the pre-COVID levels and expanded footprint to markets including Australia, Dubai, Singapore and Europe.
In addition, various features on social media platforms—such as Instagram’s photo sharing, video calls and hosting polls—help sellers gain valuable insights on consumer preferences to boost sales and plan business strategies.
Evolving business models such as reselling and group buying
In addition to social media-led product discovery, business models such as reselling and group buying have also evolved in this space.
For example, Meesho, India-based social commerce platform, follows a reselling model, wherein suppliers list their product catalogue on the app and individual entrepreneurs/businesses connect with them via Facebook and WhatsApp for relevant purchases. In India, >50,000 suppliers and 8 million entrepreneurs run and manage their businesses using Meesho.
DealShare, a social e-commerce start-up based in Jaipur, sources wholesale goods from local producers and sells them to customers through the DealShare App. The company also offers deals/discounts on its WhatsApp group and each time, users refer/share items to their friends and relatives, they get discounts. It supports >10,000 small businesses.
Social commerce players vying for bigger market pie
Social commerce in India is witnessing two-sided value creation—from seamless customer social media shopping experience to the overall development of social commerce players. In line with their strategy to gain social media platform insights and enable brand development, social commerce players are focusing on creating employment opportunities for resellers and suppliers on their platform.
As per RedSeer Consulting, social commerce players are expected to grab ~5% of India’s e-commerce market (US$ 140 billion), at a CAGR of 65% between 2020 and 2025. For these players, ~25% consumers are estimated to be from tier I cities, ~20% from metros and the remaining from tier II and tier III cities.
The ‘Make in India’ Initiative
The ‘Aatmanirbhar Bharat’ initiative is bolstering the social commerce industry by allowing domestic producers to transform their business strategy and shift from in-store sales to online deliveries. Also, the ‘#VocalforLocal’ movement is encouraging technological innovations, making the country competitive and improving its global economic engagement.
The Indian social commerce industry is enabling users to shop instantly through AI-driven, brand-tagged user-generated content and creating employment opportunities, making it a win-win sector for India. The number of active social media users in India is expected to grow to ~448 million by 2023 from ~330 million in 2019; this in turn is expected to boost social commerce in the country.
In addition, the ‘Aatmanirbhar Bharat’ initiative caters to the ambitions of domestic producers by empowering them to establish their social commerce base, thereby accelerating the industry and its overall gains. Also, to meet the rising consumer demand, retailers and wholesalers are implementing omnichannel models.
Moreover, growth in social e-commerce would also drive allied industries such as logistics & warehouse, agri-tech and omnichannel sales.