Net(ting) customers

The Indian e-commerce scene a decade ago was nothing worth writing home about. While brick and mortar retailers across the world watched the rise of online commerce industry warily, their Indian counterparts were at best, unperturbed.

Only a small fraction of the roughly 5 million Internet users in the late 1990’s even transacted online.

Faltering dial-up connections and text-only browsing made the purchasing process cumbersome. Credit card usage was limited to a few, and even fewer were ready to disclose their card details over the Web.

The economics of online commerce, however, have changed so much since then, that Rana Athreya is now attempting to cut the Gordian Knot of e-commerce — setting up an Internet pet food store.

In 2011, Mr. Athreya co-founded Dogspot.in, a Gurgaon-based start-up that shipped over 35,000 kg of dog food last year.

“A number of factors over the last decade have given us the chance to prove that the pet category can be successful online,” said the 30-year-old entrepreneur.

Dogspot.in hopes to break-even next month, ending the year with sales of Rs.3 crore.

Online pet stores are always mindful of the tale of Pets.com Inc, a publicly-traded firm in the U.S. that sold pet products online and then went onto become a popular victim of the dot-com bust over 10 years ago.

The California-start-up, founded in the late 1990’s, raised over a hundred million dollars and went public in 2000.

After spending millions on marketing, it burnt through most of its cash and laid off over 200 employees — eventually shutting down in late 2000.

Today, Dogspot has 10 employees compared to the 350 that Pets.com had and aims to become a $40 million company by 2015.

A combination of factors, including a better ecosystem, increased credit card penetration and a jump in Internet users has made this possible.

A new litter of online-only niche product stores, including groceries, women’s apparel and sporting goods have emerged over the last two years.

Backed by venture capital firms in some cases, these start-ups represent how the economics of selling merchandise over the Internet have evolved since the late 1990s. Over the last ten years, the cost of almost every aspect of launching an e-commerce website has plummeted.

Plummeting costs

A large part of dropping costs comes from the boom of a tech-ecosystem that takes care of website creation, site hosting and the servers that are required to create an e-commerce portal.

Overall, it is ten times easier to launch an online retail business than it was a decade ago, says Suneet Manchanda, former Business Development Head, SifyMall Ltd.

“Back when we were setting up SifyMall, the technology and people who could build a website were hard to find. Furthermore, the companies who could create it were expensive to source from, it was a costly nightmare,” he said.

The rise of businesses such as Amazon’s web services allows companies to rent computer power and storage, reducing the need for start-ups to buy their own servers.

Mr. Manchanda said it cost anywhere between Rs.20 lakh and Rs.25 lakh to start up SifyMall and took over six months before it could go live. Now, it would cost Rs.3 lakh and could be live in 10 days, eliminating the need for investors or loans. Mr. Manchanda, last year, founded an online luxury women’s apparel store (ladyblush.com).

Easier logistics

Another advantage is the growth of a cottage industry that helps in logistics, mainly storing and shipping of products. A common complaint of the Indian e-commerce industry is the huge damage and losses that companies incur in shipping while using India Post.

New shipping start-ups such as Delivery.in or Chhotu.in, however, offer logistics that are better tuned to the e-commerce industry by reducing damage losses to less than one per cent, calling customers before delivery and charging their clients only when they make a sale.

“Something that sets us apart from India Post or even major courier companies is that we are a straight business-to-business company. This allows us to reduce our capex, letting us charge much lesser rates.

“We are a natural logistics extension for e-commerce companies,” said Navneet Singh, CEO, Chhotu.in.

“Right now, close to half of our customers are start-ups. Our services complete this whole ecosystem that lets them really thrive,” he added.

According to Abraham Koshy, who founded an online sports goods store last year, it took less than Rs.3 lakh to launch the company, excluding buying inventory. He was able to hire outside software engineers to create the website, shopping-cart system and paid a few thousand rupees for Internet service. Setting up warehouses has also become relatively easier, with third-party companies charging a storage and per-shipment fee, allowing start-ups to reduce costs.

“It’s become increasingly easy to join the field without large investment. Take a simple thing like payment gateways for example. The (payment gateway) charges on customer credit card use have dropped from 6- 8 per cent to around 2 per cent over the last ten years or so,” said. Mr. Koshy, who left his job at Amazon Inc two years ago.

While competition has become increasingly fierce due to dropping costs, there are already signs of consolidation among the bigger players in the market.

Flipkart bought Letsbuy, a rival firm, for a reported Rs.100 crore. A few months later, Snapdeal bought online sports retailer Esportsbuy.com, for an undisclosed amount.

While a Zinnov consultancy report still places e-commerce at only 12 per cent of total retail sales in India, there is a lot of room for growth in an industry whose playing field is getting more level by the day.