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Indian e-commerce is a dichotomous story. It is a story of rising valuations, the emergence of big unicorns with massive potentials as well as a story of frustratingly sluggish growth in sales. Today, Indian e-commerce accounts for just over 2% of the total Indian retail. This, despite having over 500Mn+ internet users in 2018. The real question is – why is the e-commerce market size so small, despite high internet penetration? What are India’s marketers, entrepreneurs, and investors missing here?

The Promise of India

Indian entrepreneurs and investors have been long aware of the promise of Indian e-commerce. India has been one of the fastest growing online commerce markets in the world. It experienced a CAGR (Compound Annual Growth Rate) of 70% during 2012-2017. To put this in context, China has grown at 35% (CAGR) at the same time (reference: Google-Omidyar report). India also has the second largest Internet user base with 500M+ internet users and 400M+ smartphone users in 2018. China tops the list with 800M internet users in 2018.

With the population-size similar to China and rapid growth in internet penetration, India is set to become the next China i.e. the biggest digital consumer market in the world. Flipkart, the largest Indian e-tailer, reportedly grew ~300% in 2015. Such promising trends led to the initial estimates of Indian e-commerce becoming $100B in size by 2020.

However, besides massive growth numbers and a theoretically high potential user base, is the picture really as rosy as it seems?

A Reality Check

The above numbers make India’s digital economy sound comparable to China’s already, but that’s far from the truth. For instance, India’s e-commerce sales stood at $20B in 2017, while China stood at a whopping $935B!  That’s almost 50x the size of Indian e-commerce sales.

You might say that China’s larger GDP could explain the vast disparity, but China’s per capita GDP is just 4.5x of India’s per capita GDP; it doesn’t explain the 50x larger size of e-commerce.

So why did the proverbial golden goose lay so few eggs?

True Picture Of Digital Commerce Adoption In India

The one factor that has largely remained in the background but has profoundly impacted India’s digital economy is ‘adoption’ of digital commerce. For context, out of China’s 800M internet population, 600M (75% adoption) are online shoppers by Dec 2018. On the other hand, the number of online shoppers in India is just around 120M ( 21% adoption), out of 566M internet users. (reference: Google-BCG report)

CountryInternet UsersOnline ShoppersAdoption of Digital commerce

This number ~120M (out of 566) is what no one talks about. Internet penetration means little for commerce if users do not transact online. In simpler terms, Internet access DOES NOT mean digital adoption.

But why haven’t the remaining 400 Mn+ internet users yet transacted online? Why such low adoption?

You might think that the low adoption of digital commerce could be because Indians, in general, are slow adopters of e-commerce. But that’s not true. India witnessed one of the fastest adoption rates of digital commerce during  2012-2015.

At their peak, GMV sales of India’s e-commerce websites were growing at over 100% to 200% YOY. That’s the reason for the initial estimates of a $100B e-commerce market by 2020. Had the growth rate continued, India would have been surely on course to fulfill the promise of being a $100Bn by 2020. But, in 2016, the new user growth stalled to a crawl. Consequently, the sales growth stalled as stated in this report by the economist  and in this insightful medium post by Santanu Bhattacharya here. It seemed as if we had hit a ceiling.

For the first time, we realized that the entire internet user base wasn’t adopting e-commerce at a similar rate. There seemed to be two fundamentally different segments which were adopting digital commerce at extremely different rates. Turns out, India is a highly non-homogenous internet market.

The Two Indias- India vs Bharat

  • India: English India (~ 100-150M)
    • Proficient in English
    • Mostly live in India’s biggest cities
    • Long prior exposure to the Digital World
    • Adopted digital commerce at a very high rate but now has reached a point of saturation.

Initially, this segment bolstered the growth figures of Indian e-commerce sites and is currently feeding most of the sales figures.

  • Bharat: Vernacular India (~ 80% of India’s internet population)
    • Not proficient in English
    • Lives in all, Tier I and Tier II/III cities and rural areas
    • Little to no exposure to the digital world
    • Is adopting digital commerce at a much slower rate but has a huge potential.

You might wonder- but what about all the boom stories such as ‘India is currently the largest user of Facebook’, and ‘Youtube has hit 265 million monthly active users in India’. It’s true that Indian internet consumption is booming, but what is truly exploding is ‘Content’ Consumption. But make no mistake, adoption of digital content does not equate to the adoption of digital commerce.

Over 80% of India’s internet user base still hasn’t bought a book or a pen drive online, planned travel, purchased entertainment tickets, or even ordered food or groceries. This user base is neither too poor nor uneducated. Yet they hold enough purchasing power collectively to trump English India (More on this when we Decode the Bharat segment user in depth in our next article).

Digital commerce is where the real value lies; the challenge is to bring the Bharat population into the fold of e-commerce transactors.

The Bharat Opportunity

The future growth in Indian e-commerce will come from two segments:

Existing users

The next growth wave would come from 300Mn current smartphone users who have not yet adopted digital commerce but have already gotten digital access.

New Users

By 2021, India is expected to cross 800M internet users. According to Google, 9 in 10 new internet users will be Indian language users (Bharat users) and 99% of them will come online through mobile devices. The second larger burst of growth would come from this growing base of India’s new internet users.

So what are the business implications? According to this study by Google and BCGBharat is a $100B opportunity! with apparel and consumer electronics expected to witness the biggest growth both in the size of the market as well as in the number of consumers.

The Key Take Aways

The most significant insights for marketers, entrepreneurs and investors are:

  1. The Indian e-commerce is still in nascent stages (both in terms of adoption and market size). There is a huge potential which is yet to be realized.
  2. The internet user base in India, unlike in China, is highly non-homogenous. It is important to understand the distinction between Bharat and India. Bharat has distinct needs and it requires distinct solutions.
  3. Ultimately, the one key factor which will determine whether The Giant Bharat Opportunity is realized or not is ‘adoption’ of digital commerce. But it wouldn’t happen by itself; it needs to be driven through innovation. Businesses that innovate to enable ‘adoption’ will win Bharat.

‘Adoption’ of digital commerce is the key to unlock the $100B Bharat opportunity. Businesses who innovate for Adoption will win Bharat.

So, how can you innovate for adoption in Bharat? Read our detailed break-down of the ‘Bharat barrier’ and what ‘Bharat’ needs.

Do you think Bharat is an opportunity for you as well? Would love to discuss and hear your thoughts on Bharat. Schedule a call with Jiny today

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