India's Online Shopping Spree.
(2 of 3)
The money is already pouring in. More than $230 million has been pumped into India's dotcom market this year alone, with additional funds coming down the pipeline from eager local and global investors. The bulk of the funding is going to e-tailers, which are raking in buckets of cash from India's rising consumer class, which, at 160 million people, is roughly the same size as China's. Snapdeal, a daily-discount site similar to Groupon, expects to pull in $29 million in profit this year compared with practically nothing a year ago. This year it secured $40 million in the largest-ever capital injection into an Indian Internet company. Flipkart, the Amazon.com of India--which sells books, music and gadgets online--may soon win $150 million in funding, according to venture-capital intelligencer VCCircle, which would put its value at $1 billion after a mere four years in business.
Deals like those still pale in comparison with tech investments in China, where online retailer Jingdong Mall has raised $1.5 billion from a group of high-profile investors like Digital Sky Technologies, which also invested in Facebook and Groupon, and Robin Li, the boss of Chinese Internet giant Baidu. But even India's smaller money rush is raising questions about whether its e-boom is a bubble. Indian e-tailers argue, not surprisingly, that the growth is real, chiefly because of the country's dramatic rise in Internet users, which is coming later and with less hype than China's. And since many investors have been in the market for over a decade, they have the benefit of hindsight, which means, says Snapdeal CEO Kunal Bahl, that "no one gives any free lunches now."
They'll have plenty of competition from outsiders. Savvier foreign investors have better access to India's e-market than they did a decade ago. A new law that will allow foreign retailers to become majority shareholders in Indian businesses has opened the floodgates to large foreign deals. The biggest player on the scene is Amazon, which is rumored to be scouting India's business community for senior executives and staffing up in Hyderabad, Bangalore and Chennai (formerly Madras). "Amazon didn't become the market leader in China, which is why it's looking to get an aggressive head start in India," says Boston Consulting Group's Agrawal.
But ramping up its e-commerce business in India will be harder than recruiting. Internet companies like Facebook and Google have been successful in India, but their businesses don't require much local knowledge. E-tail, by contrast, demands on-the-ground logistics and a shrewd sense of local tastes in areas like jobs, matchmaking and travel. That's what hurt Amazon in China: "It got outsmarted by the Chinese local guy," says Agrawal.
Catering to the Indian pocketbook will be critical for any e-commerce start-up. Unlike consumers in the U.S., many Indians aren't yet comfortable with shopping on the Web and handing over their credit-card numbers online. "India's mass market still responds to cash upon delivery," says Vani Kola, co-founder of venture-capital firm NEA-IndoUS Ventures. And there's the matter of India's sluggish infrastructure. "In the U.S., you'd just FedEx a parcel back if you weren't satisfied with the product," says Ishita Swarup, founder of online retailer 99labels. "That's very difficult to do in India."