What ails eCommerce in India?

The day started with me getting this lovely book from Flipkart, a day before they had promised it to me. A friend, who had also ordered a book by another eCommerce retailer was still waiting for his to arrive, even though he had ordered it way before I had. This prompted a discussion on why eCommerce companies in India, barring a few notable exceptions, still suck.

A few other friends also joined in and put in their own 2 cents to the debate (some opinions were actually worth 2 cents). In the end, while we had a rich and comprehensive discussion, we decided to move on. Partly because we were hungry and partly because we were really really hungry.

So I decided to take up this oft mentioned and widely written about hot topic of contention for customers, entrepreneurs, investors and the media, based on my observations and the comments of others who work with eCommerce startups very closely.

1. Cash on Delivery (COD)| Logistics – Apparently the saviour and great innovation of India’s eCommerce wave. It is so…but to an extent. Flipkart, Letsbuy, Yebhi, Fashion&You, Myntra etc (well funded big boys) have delivery teams in major cities like Bangalore, Mumbai and Delhi but don’t have those teams in smaller cities, towns and villages. Hence they tie up with national courier companies and even the Indian Postal service to deliver. Now, not only does the cost of delivery increase using these partners but the real loses happen with COD and return of unaccepted goods. Usually there is a separate Rs. 50 to Rs. 100 (sometimes Rs. 300) charge for the COD facility and a charge in case there is a return, which is between Rs. 100 to Rs. 300 (approx) and the return route charge, since they will now deliver the goods back to where they came from… the eCommerce company.

Considering that many companies now deliver up to 80% of all goods with COD payment and that the Return rate may sometimes be as high as 15% of total goods, the bottom line (if any exists) gets squeezed or is brought into the red real quick.

Logistics Partner Delivery + [(COD Charge) or (Return Back Charges)] 

This is not sustainable in the long term and needs to be rectified.

2. Non-Aligned Logistics – Lets be clear, apart from exceptions like Chottu (The Delhi based logistics startup) most local and regional players have shown only token interest in eCommerce. Most of them just aren’t willing to change or create plans for eCommerce Startups. Most National players also have the same approach though notable examples like Blue Dart, have a formal approach to it, but like their rep told me, small volumes just don’t matter for them. This is unfortunately true and if you are a great eCommerce company delivering only socks (great idea) you will bleed since you don’t have the volumes or the value of transactions to make it worthwhile for any of them. Till the time relationship driven, local and regional players don’t become active, at least in Tier 2 and 3 cities, eCommerce will be a money losing proposition for a large chunk of eCommerce products and penetration into the underserviced markets of India will either be prohibitively expensive or just relegated to a few categories. 

3. Culture | Touch and Feel – This one is fairly simple. As a nation we just don’t trust stuff which we haven’t held in our hands, before buying it. Such is our culture. An emergent younger generation does trust brands and is fairly comfortable with branded products on eCommerce. But new brands will still face this cultural and physcological wall. The theory behind eCommerce is that it can help brands and people take advantage of the long tail in retail. But if people don’t know the product manufacturers and names on the site, then these eCommerce sites will have to develop their own brand and hence develop trust.

And trust is something that most eCommerce sites are screwing around with. If you don’t believe in this theory, ask yourself how many times you or your friends have gone to Chroma or Staples, just to look at that computer accessory/smartphone, before buying it online.  

4. Focus on Discounts – Most eCommerce sites don’t know it yet, but this will kill a number of them eventually. With not enough buyers leverage, their focus on cost by cutting down on their own margins and mostly selling at cost or at a loss, was never going to be sustainable. They all came in thinking ‘Hey! let’s give them a great deal and if we make a loss right now, it’s cool, we will call it Customer Acquisition Cost and then when we reach scales of efficiency, due to logistics and buying power, we will hit profitability’. 

Well it hasn’t happened yet. Logistics is an issue for eCommerce sites (though by setting up logistics teams in the main cities they have been able to reduce costs) and buying power is still a fraction of what it needs to be.  And then to top it off, the next thing happened.

5. Junglee.com – This point is fairly predictive in nature and only a few people will agree with me. Junglee.com is the Amazon.com venture in India. Though Amazon.com is an eCommerce company, in India Junglee.com is a marketplace. Which means, they don’t really aim to sell (though they do put up their own Amazon prices) but want to let the customer know, who is the cheapest seller of the product they are looking for, out of over 500 selected online sellers.

They are doing this because 1. They need to be ready when Amazon finally launches in India, probably after 100% FDI is allowed in retail. 2. They want to build up their logistics infrastructure for India. 

Since 100% FDI is allowed in Logistics, Amazon will probably start offering delivery services to other eCommerce players thereby making money from eCommerce, whether the sellers do… or don’t. 

Also a number of uncompetitive sites will start getting killed off due to intense price competition on the site (see how discounts is working against them) and prospective acquisition targets can be easily identified and bought.

6. Shitty Sites – My biggest grouse. Most sites are just bad looking and people can’t find their products, make multiple shopping cart choices, get good product suggestions, check out reviews etc . More than looks, their GUI (graphical user interface) functionality makes some sites very difficult to deal with. Ads, notices, offers, distractions leads to the kind of clutter which retailers have been trying to get rid off in their stores for decades. Site designers would do well to follow their lead and not just cut copy paste from existing templates. So not only does the sit look bad, it works badly, distracts and puts a customer off from shopping. Reminds me of one of those Subhiksha stores during the last few months of the company.

7. Trust & Broken Promises – The fact that most eCommerce players can’t commit to time or even the right product, gives a bad name to eCommerce sites and eCommerce in general. If players can’t establish trust by sticking to what they mean, then deep discounts won’t really create any customer loyalty. Ask the average buyer why he buys from Flipkart and most will state great service as one of the top 3 reasons. 

8. Language – Sites, emails, messages and customer service in languages other than Hindi and English will lead to higher adoption of eCommerce services across linguistically diverse regions. It’s worthwhile remembering that we feel more connected and feel a certain trust with people and services who talk to us in a language we are most comfortable with.

And we have over 30 languages spoken by a minimum of 1 million people.

9. Newbies – There are lots of guys out there who have read a few articles, downloaded a template, contacted some vendors and are selling stuff online. Which is good for startups and eCommerce in general. Unfortunately most end up creating a really bad quality company and keep it that way. Many of these teams have very little idea of the quality and details that go into creating a great eCommerce company (most just claim to run an eCommerce ‘site’). Most feel that setting up a site sits takes less than 1 lakh and then the money starts rolling in. Such sunny dispositions leads to failure and almost zero innovation. Hence, today we have a horde of mediocre to bad sites which just do not work.

My Point. Running an eCommerce company is not easy; it is NOT a tech centric company. If anything it is mash between a retail, tech and a logistics company. And unlike 3-5 years back people expect their products to come on time, featured products to be in stock, a professional site, multiple modes of payment, good customer service, a return policy, a constantly updated site and lots of professionalism.

10. High Attrition – Though recently it has stemmed, major players for eCommerce had shown high attrition before and around Diwali due to the proliferation of well funded startups looking for people. This  has led to a nascent industry developing on shifting sands. After all, even for a process-centric, strong, services company, you need experienced and talented people to set the processes, follow them, tweak them, document them and then create a process centric culture. This is critical for most companies.

10 Things YOU need to do before you decide to take the plunge (Full Time)

Let me begin with apologies. I was enjoying my little holiday in Delhi a little too much and couldn’t get into the flow of writing posts.

Here is a list of 10 things which I felt all aspiring entrepreneurs need to do before they decide to take the plunge into full time entrepreneurship.

This list has been created based on my interviews, informal chats, reading and experiences.

Just like everything in life (and my posts), this is indicative, not exhaustive, based on today’s context and doesn’t claim to be 100% spot-on.

But it’s still worth a read because unlike many other articles/posts I have read on this subject, this stuff isn’t philosophical. 

1. Money to survive – Most entrepreneurs I have spoken to have confessed, that if there is anything that takes their eyes off important and long term goals, it is the paucity of cash to survive. If and when you decide to take the plunge, be under no illusion that millions will start pouring on day 1. It’s a known fact that more than 90% of businesses make little or no money over their lives. If you are going to be slogging it off in meeting people, developing products, writing code, setting up offices, wooing customers etc you need to know that somewhere a bank sits with enough booty to let you do this for a couple of years. Everyone I have spoken to has said that a 2 year cash pile is a good idea and a 1 year buffer is essential. Hey, you might strike it rich real soon and never need that money ever. But I won’t bet on it. 

2. A Plan – Most plans don’t work, I agree. But what plans do, for the right person, is that it helps think up of all the stuff that needs to be put in place before making the play. Good plans work out contingencies and help plug leaks. These plans are required for investors, team members, interns, stakeholders to have confidence in you. Writing down what you want to do, how you want to do, when and where creates the kind of clarity which is almost impossible to pin down, when we let these ideas and thoughts roam around in our heads. 

3. Getting the Home Team Involved – There is a reason why sports teams usually perform better while playing at home. It’s because the Home Team i.e. the crowd, spectators, sponsors etc is firmly on the side of the team and that helps, even though they aren’t doing the playing. A considerable amount of time needs to be spent on letting your family, friends, stakeholders, well-wishers, bosses etc know why and what you are going to do as an entrepreneur. Many (probably most) won’t understand. After all, change is perceived as bad and change in a good situation (comfortable salary, position, perks, bonus etc) brought on by yourself is considered madness. But they will appreciate the fact that you decided to get them on board. Many will help out with contacts, introductions, ideas and even money (0% interest money with indeterminate payback period). And once you have a little success, creating a cult of evangelists will be easy. 

4. Team! Team! Team! – I know that most of us dream of being the sole commander of our forces in the quest for glory and money. But a look at startups and armies across the world may be instructive in lessons of having a team. Getting a good startup, up and ready, is a difficult stressful job which involves a lot of heart/headache. And no one has all the skills. Get a team of co-founders or management ready before you decide to get going. You will need it. And getting them on-board requires time and lots of convincing steam (meetings, presentations, trial and error etc). But it will all be worth it once you have the killer app/product/service up and running.
 

5. Investor/Stakeholder Introduction – You may never require investments. Maybe you have enough. However startup history has shown that lack of financial capital is the No.1 killer of startups globally. So ideally one should start talking to investors long before one decides to enter the fray. How does that help when you have no service/product or even a good plan ready?

a. Knowing a person is underrated. If you know an investor, because of a past meeting, you won’t have to waste time doing the waltz when you have to ask for money.

b. Investors will usually help you understand and fine tune your idea at the outset for no extra charge. 

c. They may agree to be your mentors and help open other doors.

d. Hiring employees becomes easier.

e. They will let you know if your idea sucks and save you a lot of heart burn (Though I suggest you don’t listen to the first guy who says this, but if 10 of them say so, then a little thought is in order)

Stakeholders like distributors, channel partners, agencies etc will do the same and be ready to do business with you when you finally get your act together.

6. Market/Idea Research – Take a lot of time to understand the market you wish to operate in, understand the future, the technology and the skills required to make it big. Many times, people get into markets with this amazing mind-blowing idea, only to later realize that the market doesn’t want it, or worse, there are laws, taxations and bigger players making the entry barriers real high.

Do your homework, understand the market better than any expert, talk to players in this field and other stakeholders. Understand the issues, trends, technologies, legalities, costs, revenues, benchmarks of the market. All of the above will give your startup great confidence, flexibility and differentiation.

7. Prospective Customers – Though part of the above point, it was important enough to warrant its own place in this list. Talking to prospective customers not only gives you great insight into the market, but also increases their readiness to doing business with you, when you become a full time entrepreneur. Why? Because they know you and you have developed a product/service based on their feedback. Human beings are naturally helpful to those whom they have invested time and energy in. Talking to lead customers of a market also helps you create great focus and differentiation in the market.

8. Readiness to Fail – This is fairly counter-intuitive since all our lives, our parents, teachers, girlfriends, bosses, subordinates have been stressing on the need to ‘not fail’. This trait has a predominance in Asian cultures and promotes risk-averse excellence, especially in academic and corporate environments. Shaking off this mindset is of great importance and the lure of risk-aversion is sometimes just too tempting. Unfortunately most of us will be alone in this endeavour unless you have friends who are successful entrepreneurs. But if to-be entrepreneurs refuse to take calculated risks (which by the way is nothing more than enterprising work backed up with common sense, far-sightedness, pragmatism, ass busting work and self-belief), then you might as well put your savings in Fixed Deposits. Cause that’s the best returns you will ever make.

9. Bootstrap your life – Cut down on loans, don’t buy that new car, eat out lesser, rent out a smaller house, control your mobile bill, buy lots of work clothes on sale (since you plan to be working 18 hour days duh!), don’t plan that trip to Spain (watch ZNMD instead). Why? Because you signed up for this shit. I don’t want to explain this further than this quote.

“Entrepreneurship is living a few years of your life like most people won’t. So you can spend the rest of your life like most people can’t”

10. Plan B and Backup Plans – Plan B and backup plans are real important. Why? Well a lot of people recommend having a Plan B ready in case your startup fails (90% probability). I have a different take on this. 

I think it’s important to have a Backup Plan and not a Plan B. The difference? (I feel like writing a post dedicated to this one)

Plan B is the stuff you plan for which is just below what you actually wanted to achieve. Like running a marathon (42.195 km) and aiming to do so in 4 hours, but actually being able to run only 30 km and giving up. Why? because 30 km isn’t bad by any standards. It’s good enough. You went out to prove that you can run long distances, that you are fit, focussed etc and you did. To an extent.

Backup Plan is the stuff you plan for when you have crashed and burned in your endeavour to reach your aim. Like running the same marathon and getting really tired at 30km. But still continuing despite dehydration, cramps, pains, the wind, the sun, a bad stomach and making it in 6 hours. But making it. The backup plan comes into play when you let your friends know that you will probably require medical help and an ambulance to take you to the hospital once you finish. Then it’s not just good enough, its epic. 

Plan B is setting yourself up for being average. Backup plans are for those who don’t aim for second best.

Megaupload and the Broken Cloud Business Model

That’s what one sees when you visit the MegaUpload site today. Its a small jpeg file which has driven fear into tons of VC funds, investors, entrepreneurs and 12 yr old file sharing kids alike.

The arrest of Kim Dotcom (Yup, that’s his real name legally changed from Kim Schmitz) and the shutdown of the MegaUpload site may just be a watershed moment in the ‘Fight against Piracy’ or whatever they want to call it. This fight has Big business and Big government on one side and scores of scrappy sites, entrepreneurs, artists, hackers and a multitude of downloaders on the other. If you have ever downloaded a song, file, picture etc which doesn’t belong to you and which you haven’t paid for, then you are in the latter camp. While this fight may be about Copyrights and other legal stuff, what it is actually about is control and hence, money. Lots of it. But that is for some other time.

Online piracy by the two companies, recently shutdown- MegaUpload Ltd and Vestor Ltd – generated more than $ 175 million in criminal proceeds and caused damage of half a billion dollars to copyright owners (allegedly)

 

The forms of internet sharing which are under scanners now

1. p2p Sharing – Programs like BitTorrents, KaZaA, Shareaza, Ares, eMule, MP3 Rocket Beta Frostwire are those which depend on no central servers to save those files. Transfers happen only through various personal computers but helped and tracked along by P2P programs. These are fairly difficult to make a case against since they don’t physically store the files.

2. Digital Lockers – Like MegaUpload and others (Yousendit, Amazon Services, Apple  iTunes, Dropbox, Box.net), these services physically store your files and let you share them by sending links for other to download. As per US laws, these may be liable for prosecution.

It’s scary when one reads the names above because not only are they big players working in perilous waters but simply because the US today has the highest number of servers which make up the cloud (the 1/2 more important part of cloud computing) and hence any law enacted and executed by the US will have devastating consequences on how we have come to share our data.

But what really worries me is that the action on MegaUpload happened in New Zealand and its servers were located in Hong kong. So the US used its political and economic muscle to get other countries to act on laws that it has created for the US.

This sort of muscle is used for International Fugitives, Dictators, Drug Trade, Human Trafficking and the likes…but for taking down a file sharing service??? That’s like swatting a fly using a heat seeking missile. Unless… It involved big money and influence. Which it does in the form of the music, entertainment, software and movie industry. Unfortunately for them, they haven’t learnt that their distribution system and business model are broken. They just don’t get it. Not all of them anyway.

While the above has many ramifications, what I want to talk about are those issues which are related to Cloud Computing for Businesses and Startups.

The effects of this move, if sustained and unchecked may be.

1. US Economy Cloud computing has ensured millions of servers are hosted on US soil. Until now, the startups running those servers/services thought they were safe ‘In the land of the Free’. That just might change. If MegaUpload could be shutdown based on an accusation and not a guilty sentence, any company/startup against which ‘resonable doubt’ can be shown, may be under threat of closure. This may just lead to lots of capital and jobs flowing out to other ‘cloud computing’ friendly regions. For a country aiming at creating higher value jobs, this could be disastrous.

2. The Difficult move to the cloud. CIOs and CTOs across the world have always had issues regarding the safety of their data on the cloud. Imagine them asking themselves what they would do if they woke up one morning only to find that their data has been seized by the Govt of USA simply because the cloud service provider might have been (knowingly/unknowingly) letting people share illegal stuff. Startups may find it increasingly difficult and tough to answer these questions raised by CIOs/CTOs.

3. Startups. Might need to think about moving outside the US or at least hosting their servers in countries like China, Russia, Mauritius, Cayman Islands, Maldives etc. Countries where neither over-burdening  laws  nor US political muscle can influence business without due process and investigation. Existing Cloud based service startups, I am sure, must already be thinking of innovative and circumventing ways to offer great services without breaking the law. 

4. Investments in the cloud computing. The Cloud has until now been the hottest sector for VC investments along with e-commerce and mobile tech. That might just change in the short term.

5. Net Activism. History has shown that whenever there has been a sudden clampdown on what is viewed as culturally and socially relevant freedom, activism has sprung up to resist change. Yin and Yang. Anonymous, the activist cyber-hacking group, has already had its say in this matter by shutting down sites of Department of Justice, FBI, Motion Picture Association of America (MPAA) and Recording Industry Association of American (RIAA), among others.

6. Smart Phones. Unlike computers, smartphones have been designed and introduced to the general population as low memory gadgets, which help you always stay connected. This also means that with the increase in consumption of material on phones as opposed to computers, users will have to rely on fast networks, streaming and cloud based storage. With these laws, the last 2 parts could just radically change, leading to a not-so-cloud-connected world. 

7. Your Stuff. Emails, Photos, Documents, Numbers, Movies and Songs – All legal, could get confiscated if your cloud service provider might just be servicing people who are sharing files illegally. 

Imagine waking up one morning and not being able to open Gmail, access your calendar or download your college report. 

Scary? 

Well that is exactly what has happened to the millions of people who kept their PERSONAL data uploaded on MegaUpload. 

Enjoy this promotional video by MegaUpload while you munch on that.