analysis of e-commerce

7/25/2019 Analysis of E-Commerce

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E-Commerce


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Table of Contents

Online Retailing Business Models Size and Growth Segmental Analysis Traditional vs Online Retailers Payment Mode Business Models Growth PhasesMargins, Costs and Investments

Internet AdvertisingOverviewSegmentationPricing Models

Online ClassifiedsOnline Travel


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Table of Contents

Online Retailing

Business Models

Size and Growth

Segmental Analysis

Traditional vs Online Retailers

Payment Mode

Business Models

Growth Phases

Margins, Costs and Investments

Internet AdvertisingOverview

Segmentation

Pricing Models


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Online Retailing: Overview


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E-Commerce

On-lineRetailing

InternetAdvertising

OnlineClassifieds

OTA


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BUSINESS MODELS

There are three business models that use internet as a sales channel.

One is the market place model used by 'eBay' where the retailer provides an online

platform that connects the buyers with the sellers. The revenues earned are in the

form commissions received from each completed transaction.

Another is the group-buying or deals model used by 'groupon'. In this model, the

retailer acts as an aggregator of services such as restaurants and spas for the buyers

and negotiates with the sellers for deals on bulk purchases. Revenues earned are in

the form of commission received for every deal executed.

The third model is the online retailing model wherein the player, a traditional

retailer, sells products to customers using the internet and also takes ownership of

the delivery of those products either through his own network or through a third-

party.


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NON-STORE RETAILING FORMATS


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ONLINE RETAILING : SIZE AND GROWTH

Online retailing (excluding marketplaces and group buying) is expected to growto Rs. 100 bn in 2014-15.

Growth Drivers

Increasing internet

penetration

Aggressive growth plansof existing players

Increase in the comfort

levels of customers in

carrying out onlinetransactions.


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ONLINE RETAILING : GROWTH DRIVERS

Internet penetration and 3G mobile service penetration in India to increase at a

compounded rate of over 60 per cent between 2011-12 and 2014-15, allowing 180

million people to access online retail.

Further, the strong growth witnessed in travel ecommerce (online bookings for

airline and railway tickets) has helped Indians become familiar and comfortable

with online transactions.

Online retailers are trying to overcome the most inhibiting factor for a customer

for transacting online - the fear of fraud in online monetary transaction by using

enablers like 'Cash on Delivery'.

Increasing aspirations and brand consciousness among the youth in smaller citieswhere organised retail is not well developed will fuel the growth.

Online retailers, funded mainly through the private equity/venture capital

channel in have chalked out aggressive growth plans to tap this opportunity.


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ONLINE RETAILING : SHARE IN OVERALL RETAILING

Though growing fast, the share of online retailing is expected to reach only to3.4% of organized retail by 2014-15.


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Online Retailing: SegmentalAnalysis


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SHARE OF CATEGORIES IN ONLINE RETAILING (2011-12)

Electronics goods constitute the largest category to be sold online.

As online retail is still nascent inIndia, it is currently dominated bycategories that are brand driven, havelower ticket size and areeasy totransport.

The average ticket size, which is lowat around Rs 1,500, indicates thatconsumers are not yet comfortable inmaking high value purchases online.Books was the first and initially thelargest category to be sold online.

However, it has been replaced byelectronics which was the largest in2011-12 at about Rs 19-20 billion


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ELECTRONICS

Mobiles and Cameras constitute 60% of the online electronics retail and theaverage ticket size is about Rs. 1500 Rs. 3000.

Mobiles are the most popular category sold online followed by cameras, which

together account for over 60 per cent of the online electronics retail.

Other fast selling categories under electronics are IT accessories, memory products

( like hard disks, pen drives) and small kitchen appliances.

The average ticket size for electronics is around Rs 1,500- 3,000.

This is much lower than the average ticket size in organized brick and mortar

stores, which is around Rs 12,000- 15,000 reflecting the products retailed online are

low value items.

Moreover, products which are bulky (like the refrigerators, washing machines) are

not preferred by online retailers on account of the logistics involved.

The gross margins in this segment are on the lower side at around 4-10 per cent.


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LIFESTYLE

Online retailers are making lot of efforts to sell lifestyle products as they havevery high gross margins.

Apparel, footwear, jewellery, watches and perfumes in the lifestyle

category.

This is a new category being explored by online retailers in recent years.

This category is attractive for online retailers on account of the high gross

margins (25-30 per cent) that can be earned.

The average transaction size is around Rs 1,000-1,500.

As the touch-and-feel factor is high for this category, liberal refund and

return policies are offered by players.


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BOOKS

Books are the most suitable category for online retailing and were the firstcategory for online retail in India.

Books were the first category to be introduced for online retail in India.

This category is extremely suitable for selling online.

Books are easy to transport and there is also no touch and feel involved.

Also, the huge variety that is available makes it impossible for a brickand mortar retailer to match the product range offered by online retailers.

(Long-tail)

However, average transaction size is low as compared to other categories

at around Rs 400-500.


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NICHE PLAYERS

Books are the most suitable category for online retailing and were the firstcategory for online retail in India.

Categories such as food and grocery, FMCG products, baby products, ayurvedicproducts, gifts and flowers etc account for the balance 5 per cent of the online retailmarket.The online food and grocery retailing model is difficult as the products areperishable besides being widely available offline.Most online players in this category operate in select cities such as Mumbai,Bangalore, NCR and Pune.Niche categories like baby products and FMCG (only wellness products ) are alsogaining popularity, following the success of international counterparts likeDiapers.com and Soaps.com.Non-availability of niche products through the traditional channels will b e t h emain driver for their success on online retail.


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Traditional vs Online Retailers


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TYPE OF ONLINE RETAILERS Traditional retailers as those

whose main business is selling

through physical stores ( or brick

and mortar retailing) but they also

have an online presence. (Ex:

Future Bazaar of Future Group)

Pure play online retailers have

been defined as players whose

main focus is selling through the

internet. (Ex: Flipkart)

Pure play online retailers dominate the market as the share of traditionalretailers in the online retail space is only 7-10%.


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DOMINANCE OF PURE-PLAY ONLINE RETAILERS

Traditional retailers will have to mainly focus on their store-based retailingwhich will ensure that Pure play online retailers will continue to dominate.

The share of traditional retailers in the online retail space is only 7-10 per cent.

Although an increasing number of traditional retailers will have an online

presence, their share in online retail space is not expected to change significantly

over the next 2-3 years from the current levels.

This is because the capabilities required for these two businesses ( online and

traditional retailing) are completely different.

A traditional retailer, who wants to establish a significant online presence, will

have to make significant investments in technology and logistics .

Currently, in India, where organised retail penetration is still only 6.5 per cent ,retailers are more focused on increasing their store network and increasing their

market share in offline traditional retail and will be directing investments in that

space.


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Payment Mode


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SHARE OF ONLINE PAYMENT OPTION (2011-12)

The share of cash on delivery mode of payments is the highest among all thepayment options for online retail in India.

The cash on delivery method for online

payments is peculiar to India and certain

other Asian countries where there is a

greater preference for cash based

transactions .

Poor network connectivity, credit/debit

card penetration and inhibitions about the

security of online transactions have made

online payments less popular in India.

The cash on delivery mechanism has

helped Indian customers overcome these

inhibitions and has propelled the growthof online retail in smaller cities where the

credit/debit card penetration is relatively

lower.


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IMPACT OF COD

The bottom-line is negatively impacted due to Cash on Delivery orders.

Cash on Delivery require additional process, has longer payment

cycles, higher instances of returns.

The bottom-line is impacted due to Cash on Delivery orders.

These transactions add about 3% additional costs or an increase of at-

least Rs. 30 per transaction.

The negative impact is higher in case of returns.


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BUSINESS MODELS INONLINE RETAILING


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Drop Shipping ModelIn this model, the retailer ties up with different manufacturers to display theirproducts on its website.After the customer places an order on the website, the retailer intimates themanufacturer/supplier for that product and the products are shipped by themanufacturer.The online retailer does not incur any inventory holding costs.On-demand Sourcing ModelIn the on-demand sourcing model, the retailer, on receiving an order from thecustomer, gets the products from the manufacturer to its packaging center.Here, a quality check on the products is done and the products are packageduniformly and shipped to the customer.Stocking Model

In the stocking model, the retailer maintains warehouses and stocks all the productsdisplayed on its website.On receiving orders, the products are shipped immediately to the customer.

There are 3 business models in online retailing : Drop shipping model,On-demand sourcing model, Stocking model.


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BUSINESS MODELS IN ONLINE RETAILING


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SERVICE QUALITY IN DROP SHIPPING AND ON-DEMAND SOURCING

Investments required for the drop shipping model are minimal and made only for

developing an ecommerce website.

However, in this retail format, the customer experience is the lowest as the online

retailer has no control over the quality of the products delivered or the delivery

timelines.Moreover, as multiple manufacturers involved, the customer may receive multiple

parcels for a single transaction, each packaged differently, which could lower the

quality of the customer's experience.

In this model, the retailer would have to bear the risks of stock-outs or price

changes at the manufacturers end, which may not be reflected on the retailer's

website.

The online retailer faces similar risks in the on-demand sourcing model also.

Service quality is poor in drop shipping and on-demand sourcing modeland the retailer do not have much control.


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SERVICE QUALITY IN STOCKING MODEL

For the customer, experience in terms of delivery timelines and assurance of

quality are superior in stocking model as compared to the drop shipping model.

The stocking model ensures complete control over the supply chain and thus

delivers the best customer experience, albeit at the cost of huge investments insupply chain and inventory.

This model is highly scalable as the retailer can handle a large number of

transactions per day as compared to the other models.

Service quality and controllability are superior in the stocking model.


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COMPARISON ACROSS BUSINESS MODELS


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HYBRID MODEL

In the real world, online retailers follow hybrid models consisting of

stocking for fast moving products and on demand sourcing for the other

products.

For instance, in the case of books, an online retailer will maintain an

inventory of best sellers .

Although, obscure titles may be displayed on the website, the retailer

would source them from the distributor/publisher only when an order is

received.

Hybrid models thus ensure a balance between the service quality offeredand the quantum of investments required.

The retailer would increase the percentage of stocking to improve service

quality as the business grows.

Hybrid model balance the service quality and investment requirements.


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ONLINE RETAILERS : GROWTHPHASES


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GROWTH PHASES OF ONLINE RETAILERS

In the current scenario in India (with around 280-300 online retailers) ,around 90-92 percent of the online retailers are in phase 1 and 7-9 percent inphase 2 . Less than 1 percent of the players are in phase 3.


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PHASE 1: STARTING UP

From starting the online retail business to gaining volumes of around 2000

transactions per day can take a player 2-4 years of time.

Investments made in this phase are made primarily towards developing a

strong and robust IT infrastructure.

The business model followed in the initial stages is typically on demandsourcing; no significant investments are made in warehousing and logistics.

Players in this phase typically operate in 1-2 product categories.

The players focus on creating a brand name and may incur higher advertising

and marketing expenses in this phase.

As customers are acquired through attractive discounts, gross margins tend tobe on the lower side.

The failure rate for companies is extremely high in this phase. Only 1-2

companies out of 20 are likely to survive and move on to the next phase.


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PHASE 2: GROWTH

In this phase players tend to focus on improving customer experience.

Significant investments are made in warehousing and logistics.

However, players would initially focus on stocking few fast selling

categories.

They also tend to venture to newer product categories.

While niche category retailers increase the depth of their coverage,

multi-product retailers would try multi-product retailers are likely to

move on to the next phase, to increase the breadth of their coverage.

While niche category retailers will tend to remain in this phase.


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PHASE 3: LAST MILE

Players in this phase have an already established web presence and

brand name.

Having broad-based their presence, they would focus on expanding

the range of products offered in each category.

Regional warehouse networks would be developed for stocking

products and investments made in the last mile delivery channels such

as courier service companies to improve the service quality in key

markets .


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Margins, Costs and Investments


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20-22%14-18%Overall

10-12%10-12%FMCG

30-45%25-30%Lifestyle

10-14%8-12%Electronics Others5-9%4-6%Electronics Mobiles

25-30%5-10%Books

Brick and MortarRetailers

Online Retailers (Netof Discounts)

Gross marginsCategory

MARGIN COMPARISON

Online retailers offer discounts on the products they sell to attract customers.Hence their gross margins are typically lower than those of traditional retailers.

These gross margins are indicative and could vary depending on thegrowth phase and the business model of the online retailer. Gross margins

improve with greater scale and bargaining power.


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CAPITAL INVESTMENT : ONLINE RETAIL

CAPITAL INVESTMENT : TRADITIONAL RETAIL

Online retail requires only one-sixth the capital needed for traditionalretail.


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CAPITAL INVESTMENT : COMPARISON

Online retail requires only one-sixth the capital needed for traditionalretail.

Online RetailersThe major areas of fixed capital expenditure for an online retailer aretechnology and supply chain.In phase 1, most of the investment requirements are for technologyIn phase 2 and 3, the majority of the investments go for supply chain.

Traditional RetailersIn comparison, traditional retailers who would wish to achieve similar saleswould have to invest around 6 times more in phases 2 and 3.While a traditional retailer would have to replicate inventory in every outlet,the online retailer enjoys the advantages of stocking centrally, which bringsdown the inventory carrying cost.

Moreover, online retailers have the advantages of selling items which may notbe in stock through on-demand sourcing.


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COST STRUCTURE : ONLINE RETAILERS

Gross margins of a retailer tend to improve with increase in the scale of operations.While certain cost heads such as logistics have a more direct correlation to sales,employee costs tend to decline with increase in transactions..

Note: All cost break-ups and margins are expressed as a percentage of revenues


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Internet Advertising


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Internet Advertising : Overview


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OVERALL ADVERTISING MIX

Note:

1. Others include Internetand Films


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INTERNET ADVERTISING : OVERVIEW

The Internet advertising market is estimated to be Rs 15 billion in 2013 andaccounted for around 3 per cent of the overall advertising spend in India.

While advertising spend in other media like print, television and radio grew at a

muted 3-4 per cent, Internet advertising spend grew at a robust 28-30 per cent in the

recent years on the back of search advertisements (Internet advertising encompasses

search, display and social networking).This growth was driven by the accountability and measurability features of

Internet advertising.

Globally, Internet advertising is estimated to account for about 10-12 per cent of

total advertising spends.

This number varies across countries depending on the maturity of the economy. In

India, it accounts for only 3 per cent of the overall advertising spend.

However, this medium is fast gaining traction among advertisers and media

planners.

Though Internet advertising constitute a small proportion of overall advertising,it is growing at a much faster rate.


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POPULARITY OF PRINT AND TELEVISION ADVERTISING

Television and print media has much higher addressable population.

Print and television together accounted for about 87 per cent of the total

advertising spend in 2009.

This popularity of the traditional mediums is attributable to the vast reach of

print and television advertising.

While print medium catered to about 231 million readers in 2009, television

viewership during the time was at about 285-290 million viewers.

Even though the Internet currently accounts for just 3 per cent of the total

advertising spends pie, the medium holds great potential considering it helps

advertisers generate customer driven advertisements and is highly accountable

and measurable.However, its low penetration, at about 9-10 per cent of addressable population,

acts as a major growth inhibitor.


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INTERNET VS OTHER MEDIA

The major advantage of internet media is its target customer group and thetrackability.


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GROWTH DRIVERS

Growth of Internet advertising will be enhanced by key growth drivers.

Internet subscriber base is projected to surge to 135-140 million in 2014-15 fromjust 18 million in 2009-10

Average time spent on Internet is expected to increase with the availability of

richer content

Greater accountability of the medium in terms of ability to measure and generate

leads will lure advertisers

Focussed or targeted advertisements based on IP address will attract local

advertisers

Increased popularity of social networking sites will lead to innovative

engagement models and greater brand affiliation

With established ad agencies being present in the Internet advertising space,

advertising on the Internet is likely to see increased focus, leading to greater ad

budget being spent on Internet advertising

Growth in e-commerce would result in higher advertisement spends apportioned

to digital media.


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GROWTH INTERNET SUBSCRIBER BASE

2009-10 2014-15

Internet subscriber base is expected to increase by about 800% between 2009-10and 2014-15.


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GROWTH RATE

Internet advertising is expected to grow at 34% CAGR between 2009 and 2014to reach Rs. 28 bn.


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WHICH SECTORS ARE ADOPTING INTERNET ADVERTISING?

Of the total Internet advertising spends, the BFSI, telecom, travel and

hospitality sectors along with the Internet companies (matrimonial

websites, job portals, travel websites, etc) account for about 65 per cent

share.

While these verticals were the early adopters of Internet advertisingbecause of the sheer nature of the business and the target audience, sectors

like FMCG, consumer goods, education and others have also been

increasingly adopting this medium to reach their target audience.

Another unique feature of the Internet space is the presence of numerous

small advertisers who restrict their ad spends only to Internet.

As per the industry estimates, 35-40 per cent of the advertisers in the

Internet space do not advertise on any other medium.


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Internet Advertising : Segmentation


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INTERNET ADVERTISING : SEGMENTATION

Internet advertising industry in India encompasses the following formats:

Search advertisements:

These are advertisements displayed on search engines website after a user runs

a query.

For example, advertisements of budget hotels in Goa will be displayed when a

user runs a related search on Google.

Display advertisements:

This format of Internet advertisement includes banners, photos, logos and

images on websites/portals

Social networking advertisements:

Advertisements on social networking sites like Facebook, Myspace, etc


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INTERNET ADVERTISING MIX

2006-07 2011-12

Search advertisements have become the most popular form of internetadvertising overtaking Display advertising.


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ADVANTAGES OF SEARCH ADVERTISING

Search advertising is highly focused and target the specific prospectivecustomers.

Search advertisements are the most prevalent form of Internet advertising in India.

What makes search advertisements popular among advertisers is its inherent

quality of being customer centric.

A search advertisement displays advertisements specific to the

Internet users search subject.

For example, if an Internet user is looking for a budget hotel in Goa, all the relevant

lodging and boarding related advertisements in Goa will be displayed by the search

engine.

Due to this USP, revenues from search advertisements grew at a CAGR of 74 per

cent between 2005-06 and 2009-10.Consequently, the share of search advertisements doubled from 31 per cent in 2006-

07 to 62 per cent in 2009-10.


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DISADVANTAGES OF DISPLAY ADVERTISING

Display advertisements grew at a meagre 5 per cent CAGR between2005-06 and 2009-10.Their share has declined significantly from 67 per cent in 2006-07 toabout 35 per cent in 2009.This can be attributed to the growing trend of advertisers preferring

search advertisements over display advertisements due to their ability todeliver better return on investments (RoI).Display advertisements, encompassing banners, photos, logos orimages as a format, are not customer driven and are similar in nature to adisplay advertisement in a newspaper.Search advertisements and social networking advertisements willcontinue to grow at a faster pace and eat into display advertisementsshare.

Display advertisements is expected to grow at a slower pace due to itsinherent disadvantages over search adevertising.


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INTERNET ADVERTISING :PRICING MODELS


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Cost per thousand impression (CPM)

Cost per click (CPC)

CPA (cost per action) or (cost per acquisition)

Cost per engagement (CPE)

PRICING MODELS IN INTERNET ADVERTISING


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Cost per thousand impression (CPM) As per this model, advertisers pay for exposure of their message or

impression delivered to a specific audience.

Websites typically sell the number of impressions in unit of

thousands.


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Cost per click (CPC)

As per this model, publisher charge advertisers each time a user clicks

on the advertisement or on the listing and is redirected to the advertisers

website.

Most of the times, advertisers use this metric to gauge the effectiveness

of their advertisement.

The benchmark click through rate is 0.5 per cent and has remained more

or less constant over the last 3 years.


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CPA (cost per action) or (cost per acquisition)

This is a performance based model.

Under this payment scheme, the publisher bears the entire risk of

running the ad, and the advertiser pays only for the number of users who

complete a transaction, such as a purchase or sign-up.

Cost per engagement (CPE) This model is a form of cost per action pricing.

Differing from cost-per-impression or cost-per-click models, a CPE

model offers advertising impressions for free and advertisers pay only

when a user engages with their specific ad unit.

Engagement is the process of a user interacting with an ad in a defined

way agreed by both the parties, such as, playing a game, taking a product

tour, etc.


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ONLINE CLASSIFIEDS

The major sources of revenues for the online classifieds segment depend


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ONLINE CLASSIFIEDS : REVENUE SOURCES

The major sources of revenues for the online classifieds segment dependon the segment but the major source is the subscription revenues.

Subscription revenues in the online classified segment constitute the bulk ofthe revenues generated by these players, while revenues from value-addedservices (VAS) form a minuscule portion. Companies in this space are expectedto increase their revenue share from VAS.

Online classifieds has grown at about 30% CAGR between 2008-2013 to


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ONLINE CLASSIFIEDS : MARKET SIZE (US $ MILLION)

Online classifieds has grown at about 30% CAGR between 2008-2013 toreach $450 mn.

360

450

2012 2013

Online classifieds has surpassed offline classifieds in 2012 due to its


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CLASSIFIED MARKETS TRANSITION

Online classifieds has surpassed offline classifieds in 2012 due to it ssuperior features and low costs.

The classifieds segment in Indiawas the earliest to go online. It has been around for more thana decade.The classifieds segment wasdominant in the print medium, but

there has been a clear shift to theonline medium in the space.The main advantage of onlineclassifieds are:

Easy to use and superiorsearch functionalitiesLow CostGrowing internet population

Online recruitment is the biggest category with a share of 63% of the total


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ONLINE CLASSIFIEDS : SHARE OF DIFFERENT SEGMENTS

63%

23%

14%

Online

Recruitment

Online

Matrimonial

Online Real

estate and auto

classifieds

Online recruitment is the biggest category with a share of 63% of the totalonline classifieds

Online recruitment is the largest category in the online classifieds


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ONLINE CLASSIFIEDS : OVERVIEW

Subscription revenues constitute the main source of revenues for the online

classifieds segment.

Online recruitment is the largest category in the online classifieds segment,

followed by online matrimonial.

Online recruitment players are increasing their focus on providing enhanced

search functionalities and value-added services.

The big fat Indian wedding industry is providing new sources of revenues to

online matrimonial companies.

Real estate and automobile classifieds are in the nascent stage

The primary target audience of the classifieds segment is restricted to urbanareas due to the concentration of companies, real estate players and automobile

players (willing to advertise online)

Online recruitment is the largest category in the online classifiedssegment, followed by online matrimonial.


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ONLINE RECRUITMENT CLASSIFIEDSThe online recruitment or e-recruitment segment is the largest category in theonline classifieds segment in India, with 62.5% share of the online classifiedsmarket.Expected growth of jobs in India bodes well for the segment

The number of jobs is expected to increase across sectors in India.This holds promise for the growth of the online recruitment classifiedssegment, since players have only scratched the surface of the job market and

the full potential of the sector is yet to be realized.Online recruitment classifieds benefiting employers and offlinerecruitment agencies

The segment offers various benefits, including reducedadvertisement costs, wider geographical reach and easy searchoptions, to companies.

Employers are increasing their budgets for online recruitment,realizing the convenience and efficacy of the mode.Online recruitment classifieds are also proving beneficial for thegrowth of offline recruitment agencies, which are using online portalsto build databases of candidates and jobs.


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Increased focus on providing enhanced search optionsOnline recruitment classified players are increasing their investment onsearch functionalities, since providing enhanced search options is high on theirlist of priorities. Furthermore, they are developing separate portals to cater to varyingverticals such as financial services, technology and BPO to enable focused

searches..Focus on Value Added ServicesFrom providing databases of jobs and candidates, online classified playershave moved to offering VAS such as short-listing profiles, screening resumesfor recruiters and developing resumes for job seekers.They are also offering new services, whereby job seekers can send salient

details through their mobile phones.This doubles up as an initial screening process in sectors including BPO,where voice and idea articulation are the main criteria for judging candidates

ONLINE RECRUITMENT CLASSIFIEDS


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ONLINE MATRIMONIAL CLASSIFIEDS

It is the second-largest category in Indias online classifieds segment.There are more than 100 matrimonial sites in the country, with small andniche players catering to multiple communities and segments. The market is, however, dominated by a few large players.

The big fat Indian wedding industry

Marriages are expensive in India, with the average spend in middle classweddings averaging INR0.51.5 million.This contributes to the growth of the already-huge wedding industry, whichwas estimated at US$55 billion in 2011


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ONLINE MATRIMONIAL CLASSIFIEDS

Online classified players augmenting traditional sources of revenue bywidening their umbrella of services

Matrimonial websites provide relationship counseling, horoscope matching, chat

services, as well as 24/7 customer support.

Premium members are provided dedicated relationship managers, who assist in

their search for life partners.The countrys marriage industry has led to demand for a new set of professionals

including wedding planners, video makers, photographers, set designers and

relationship counselors.

Companies in the online matrimonial segment may look at providing such services

through partnerships, so that their websites become a one-stop shop offeringservices from match making to wedding ceremonies.

They may also look to provide wedding planning, catering and cards distribution

services.


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ONLINE REAL ESTATE CLASSIFIEDS

The online real estate classifieds segment has seen slow growth due to realestate agents being largely computer illiterate.According to a leading online real estate classified player, 80% of its brokersdo not have computers.However, larger real estate developers have an online presence and are using

online classifieds to advertise new properties.The growth of the real estate classifieds market is dependent on playersability to piggyback on the real estate growth.Currently, these portals only serve as information directories.Considering the value of real estate transactions, the success achieved bythese players depends on their ability to capture a significant share of thistransaction value.To accomplish this, they need to provide users a rich experience, e.g.,through virtual tours of properties and the ability to finalize deals on theonline platform.


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ONLINE AUTO CLASSIFIEDS

The online auto classifieds segment is a recent entrant in the second wave of e-Commerce in India.Rising disposable incomes have increased the buying power of people. This hasled to many more people aspiring to own cars and, consequently, to theemergence of online automobile classifieds players that connect car buyers andsellers.Many first-time buyers opt for used cars before buying new ones.Therefore, ensuring genuine vehicle listing is critical.Segment leaders are likely to be those who provide quality assurance, e.g.,leading offline used car dealers.However, the majority of car buyers or sellers prefer to buy or sell cars throughused car dealers and personal contacts.

The establishment of used-car dealerships by leading automobile brands has ledbuyers to rely on the offline rather than on the online medium.As a result, Indias online auto classifieds market is still at its nascent stage.


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CHALLENGES IN ONLINE CLASSIFIEDS


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ONLINE TRAVEL


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ONLINE TRAVEL : OVERVIEW

Growth in Indias travel and tourism industry is the second fastest

worldwide.

India is poised to feature among the top five civil aviation markets in the

world over the next decade.

Ticketing accounts for the largest share of the online travel market.

Domestic air tickets are driving the online ticketing market.

OTAs are shifting their focus to hotel reservations and packages.

Players need to acquire new competencies to succeed in hotel

reservations, as they previously limited their scope to ticketing.

Airline passenger traffic rose rapidly from 59.3 million in FY05 to 162.3


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INDIAS AIR PASSENGER TRAFFIC

p g p ymillion in FY12

The online travel market grew rapidly at a CAGR of 51.8% from US$1.5 billion in


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ONLINE TRAVEL MARKET SIZE

g p y2007 to US$12 billion in 2012.

12.0

2012


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KEY SERVICES

Ticketing is the big brother of the online travel market due to its


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SHARE OF DIFFERENT SERVICES BY VALUE

g gstandardized nature

Online ticketing is so popular due to its standardized nature, no need for


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Why online ticketing is so popular?

The ticketing segment currently represents nearly 90% of the overall online travelmarket in India (by value of transactions).

About 59% of internet users searched for or bought travel products online.

Apart from the convenience offered by online purchasing, the limited need to

touch and feel the product enabled this segment to grow faster than others in the

industry.

Price, schedule and choice of airline are the only parameters to be considered

while buying a ticket online.

g p p ,touch and feel and comparative features.

Though online railway ticketing has high volume, its value share is low due to


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RAILWAYS VS AIR TICKETING

g y g g ,low average price of the tickets.

Railway tickets have been available online for close to 10 years now, though

this mode of purchase has been witnessing rising volumes only over the last

three to four years.

Currently, the number of railway tickets sold online amount to nearly three

times that of airline tickets.The Indian Railways website is the most visited travel site in India.

However, since the average price of a railway ticket is less than that of an

airline ticket, online booking of domestic air tickets has emerged as the largest

segment of the online travel industry

Competitive and margin pressures are causing a shift in the revenue


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Why the OTAs are focusing on Hotels and Tour packages?

mix of OTAs, which are looking at hotel reservations to enhance theirrevenue stream.

Low entry barriers in the online travel market have resulted in a numberof small players entering this space.

Recent entrants are mainly competing on price to capture market share.

This has put pressure on the margins of players across the segment.

Commission rates in the air tr avel segment are low (around 7%).

Margins in the ticketing business for OTAs in India are expected to erodefurther, with airlines increasingly raising their voice against giving

commissions to the former.

The airline commission model has already been done away with in Japan.

Leading international airlines flying to India have already decided to

adopt a zero-commission structure for travel agents.In January 2012, 17 international airlines had stopped paying commission

to travel agents..

Margins are lowest in the air-travel ticketing segment and highest in


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ONLINE TRAVEL : MARGINS BY SEGMENT

Hotels and tour packages.

Online hotel and travel bookings require different competencies thank


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REQUIRED COMPETENCIES IN ONLINE HOTEL AND TRAVEL BOOKINGS

Higher margins in the hotel reservation segment have lured many

OTAs.

However, players need to be aware and step up to the competencies

required in the hotel reservation space in terms of:supplier partnerships management,

operational requirements of workforce and

information management.

These requirements are different from those posed in the ticketing

segment.

ticketing.


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Managing a diverse supplier base

Hotel reservations and tour packages entail higher customer engagement

as compared to the simpler business of selling air tickets.

While the airline ticketing segment may involve managing relationships

with six players, the hotel segment requires a larger workforce to managerelationships with thousands of hotels.

This requires the hiring of a substantial workforce to manage relationship

with hotels, resolve disputes between customers and the hotels, and

provide regular updates of inventory in hotels.


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Overcoming technological constraints

The fragmented nature of the hotel industry in India and low

technological investment made by hotels add to the challenges of

maintaining a large workforce.

This poses problems in providing accurate updates on inventory

reserved for booking through OTAs.


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Customer experience

While the customer experience provided by airlines is standardized and

lasts around two to three hours, engagements with hotel customers are of a

longer duration and can stretch to days.

OTAs need to ensure that they deliver on the promises made to customers.


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Authenticity of information

OTAs need to ensure that hotels provide accurate information on

services offered and tariffs charged.

To address customers concerns about the validity of information

provided by hotels, OTAs could consider performing regular audits of

their hotel partners.

User-generated content may also help alleviate such concerns.


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Grievance redressal

OTAs should focus on providing call center services to customers

seeking information and grievance redressal.

Since customer experience is a prime focus area for all e-Commerce

companies, OTAs need to invest in training customer care executives

to ensure an enhanced experience for customers.


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ONLINE PRESENCE : IMPACT ON HOTELS

The online presence of hotels ensures higher visibility and generates

additional business even during off-season months.

However, an online presence also entails the responsibility of servicing

clients.Hotel services are different from those provided by airlines, since

hotels need to deal with customers for a much longer period.

Failure to deliver on promises or poor customer service may lead to

negative publicity from customers.With online reviews gaining popularity in India, a bad word about a

hotel may spread quickly and cause fatal damage.


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BUS TRAVEL: TECHNOLOGICAL CONSTRAINTS

There is low penetration of the online bus ticketing services segment

in India.

The online presence of bus operators would increase their visibility,

since it would enable easier access to information for tourists.Although there is significant scope for expansion, the low adoption of

technology by bus operators and the fragmented nature of the bus

industry hamper growth.

Players need to, therefore, quickly invest in technology or risk losing

out on a significant share of potential customers.

analysis of e-commerce

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