Amazon India And Flipkart Are Betting Big On India eCommerce Growth

www.forbes.com/sites/forrester/2014/08/07/amazon-india-and-flipkart-are-betting-big-on-india-ecommerce-growth/

By Jitender Miglani

Last week, two news items captured the front-page headlines of the Indian financial newspapers. The first was an announcement by Flipkart on July 29 that it has raised fresh capital of $1 billion in one of the largest funding rounds. The second was an announcement by Amazon on July 30 that it will invest another $2 billion in India. These numbers appeared large to us when seen in the context of overall online retail sales in India. As per the Forrester Asia Pacific online retail forecast published in early October 2013, India’s online retail spending was expected to reach $2 billion by the end of 2013. We believe that the pace of eCommerce in India picked up faster than our expectations during the past 12 months and these companies would have witnessed very strong growth. According to Amazon, at current scale and growth rates, India is on track to become the fastest country ever to reach $1 billion in gross sales. It is important to note that Amazon launched India operations in June 2013 only.
These events raised many interesting research questions for us. We will try to address them as we work toward updating our APAC online retail forecast for the years 2014 to 2019. The two most important questions relate to the number of online buyers in India and the mobile commerce opportunity in India.
Number of online buyers in India. In its announcement, Flipkart reported that it has 22 million registered users, of which 4 million visit daily. According to Forrester’s Asia Pacific online retail forecast for the years 2013 to 2018, the number of online buyers in India will reach 39 million by the end of 2014 and 128 million by the end of 2018. Forrester believes that the majority of the online buyers were from metropolitan or tier one cities few years back. Now, companies are seeing increasing sales from tier two and tier three cities, as well. It is important to note that only 31% of the total Indian population lives in urban India whereas 69% of the population lives in rural India (see figure 1). An important question is how many online buyers will come from rural India in the future.

India Population Analysis

The mobile commerce opportunity. Flipkart and Snapdeal recently reported fast uptake intransactions from mobile devices. While mobile transactions as a percentage of total online transactions was in the single digits 12 to 18 months ago, several companies have recently reported 40% to 50% of their transactions coming from mobile. Forrester had also expected online spending retail growth to come from mobile. This is because of “mobile-only” Internet users. According to theForrester global online population forecast for 2014 to 2019, of the total 206 million Indian online users in 2013, nearly half are mobile-only Internet users. This number will only increase in the future as more people in rural India experience Internet through their mobile devices first.

In our report on the India online retail forecast for 2013 to 2018, we noted that India eCommerce is still in a nascent stage. This is because online buyer penetration has yet to reach 25%. India’s online retail industry has lot of demand-side potential. India had a total population of 1.28 billion in 2013, nearly 16% (or one in six) of whom are online. Of all Indian online users, just 14% currently purchase online. These numbers have lot of headroom for growth. Flipkart and Amazon realize this, and that’s why they are planning big investments for the future. The race to capture mind share and market share has begun.
Jitender Miglani is a Forecast Manager at Forrester Research.