A dot-com boom in India is attracting major venture capitalists and other investors from the U.S. and Europe. Modeled on companies like Amazon, Groupon, eBay and Netflix, the Indian firms are overcoming infrastructural constraints such as low Internet penetration to generate impressive revenues and expand their customer bases. It’s a matter of time before e-commerce picks up speed in India, according to Wharton faculty and some dot-com entrepreneurs.
Among the high fliers is Kunal Bahl, 29, founder and CEO of Delhi-based Jasper, better known by its ecommerce site SnapDeal.com. The online retailer sells discounted “perishable distressed inventory” of products and services such as holiday getaways, beauty parlor and gym coupons, sunglasses and watches. A 2006 graduate from Wharton’s management and technology program, Bahl founded SnapDeal in February 2010. It is growing its subscriber base of four million by a million new users each month, and expects to have revenues of $20 million this year.
Bahl recently met with venture capitalists, private equity investors and hedge funds among others in the U.S. and Europe. “They are falling over each other to invest,” he says. SnapDeal three months ago raised $12 million from investors, enough to keep it going for the next two years.
Bangalore-based Flipkart.com, an online books retailer modeled on Amazon.com, is also attracting “a lot of interest from investors,” says its CEO, Sachin Bansal, 29. He co-founded the firm with Binny Bansal (not related) in 2007, after they quit their jobs as software engineers with Amazon’s Indian operations in Bangalore. Venture capital firms Tiger Global and Accel Partners India have invested in Flipkart.
What could India’s new dot-com startups learn from other, successful firms in the west? “The main lesson from companies like Amazon is the need to develop survival instincts during the early days of e-commerce,” says Kartik Hosanagar, a professor of operations and information management at Wharton and an expert on Internet commerce. A majority of e-commerce ventures that started alongside Amazon disappeared during the dot-com bust, he points out. “The key was that Amazon survived those early days and was positioned well when consumer adoption of e-commerce hit an inflection point.” For every Flipkart or SnapDeal, there will be “hundreds of casualties during these early days of ecommerce in India,” he predicts.
Few online ventures in India have succeeded over the years. Prominent among them are travel services firm MakeMyTrip.com, matchmaking sites BharatMatrimony.com and Shaadi.com and job portal Naukri.com. Newer ventures include Delhi-based LetsBuy.com, an online retailer of communications, electronics and computer equipment; online library Librarywala.com of Mumbai and movie rental firm Seventymm.com of Bangalore.
To be sure, the new dot-com entrepreneurs face hurdles. For one thing, India has between 80 and 100 million Internet users, or a little more than 5% of its population, compared with 29% in China and Russia. But these numbers should grow to between 180 million and 200 million Internet users by 2015, or 18% of its population, according to a Wall Street Journal report two weeks ago, citing a study by investment bank Caris & Co.
Bansal and Bahl believe the current Internet-enabled population is sizable and will explode with the third-generation mobile services being rolled out these days. Bahl also sees growing comfort with online purchases among nearly 250 million Indians with debit or credit cards.
The main infrastructure for e-commerce is made up of payment and shipping infrastructure, and broadband penetration, according to Hosanagar. “All three — payment, distribution and broadband — need to line up before e-commerce reaches its true potential in India,” he says. “It’s all a matter of time.” Increased banking transactions, mobile advertising, personalized services on mobile devices and greater rural adoption will be catalysts for growth, he adds.