An estimated $850 million was invested in digital media ventures in India in 2011, and close to half of that was in e-commerce. But the fundamentals for a sustainable e-commerce ecosystem are not yet in place, said Mr Himanshu Singh, Chairman and Managing Director, Travelocity.
Mr Singh was speaking at the Internet and Mobile Association of India's (IAMAI) conference on Digital Commerce in Mumbai on Wednesday.
“Problems related to payment solutions, logistics, supplier apathy and the like are all common issues. We need to be able to articulate a common strategic vision as an industry, like IT and ITeS had done. Once we have that in place, we can get the relevant Government help as an industry,” he said.
He warned that unless the issues affecting the industry were sorted, the investor community would not be as bullish as it has been about the e-commerce space.
Travel, which accounts for over 70 per cent of e-commerce business (of over Rs 46,000 crore last year), would come down to a fifth in the next four years as e-tailing grows, he estimated.
“But for that, the fundamentals have to be in place, and business models need to be sustainable. The model of looking at exits in three to five years won't work for too long. Another billion dollars of venture money is not going to change the game. The industry does not even have a legal definition today,” Mr Singh added.
Customer lifetime value
Mr Bejul Somaia, Managing Director, Lightspeed Ventures India, urged players to focus on the customer lifetime value, and reduce the customer acquisition cost.
According to him, on the average revenue per transaction of Rs 1,000 today, the net unit margin is as low as Rs 30 (of a gross margin of Rs 200).
“Scale is not going to solve this problem. Customer acquisition cost is between Rs 500 and Rs 700. Then there is logistics (and reverse logistics, for returns), inventory write downs, customer service and content cost. Companies are beginning to work on these issues now,” Mr Somaia explained.