Flipkart’s successful fund-raise revived investor sentiment, saving the ecosystem from a near-death funding environment
The Indian consumer internet industry settled down to a modest growth rate of 22 per cent in 2017, ending the year at $55 billion; quite unable to maintain last year’s 29 per cent growth forget the scorching pace of 66 per cent growth in 2015.
The first two quarters of calendar year 2017 witnessed sluggish growth as a result of the impact of demonetisation, GST adoption and Snapdeal vacating its No 3 position in the e-commerce rat race.
Investor sentiment, which was largely negative last year, turned positive after Flipkart scored a double bonanza, with two big funding rounds of $1.4 billion and $2.5 billion in quick succession.
POSITIVE INVESTOR SENTIMENT
Flipkart’ssuccessfulfund-raise revived investor sentiment, saving the start-up community from a near-death funding environment, as global investors loosened their purse strings and pumped in money into Paytm ($1.4 billion) Swiggy ($80 million), UrbanClap ($21 million), OYO Rooms ($250 million), Ola ($1.1 billion) and BigBasket, among others.
As per start-up tracking firm Tracxn’s estimates, the total number of funding deals in e-commerce dropped to 137 in 2017, as of December 18, from 256 deals closed last year.
However, the average deal size was five times larger this year as a result of generous funding rounds.
After a sluggish Q1 (January-March) 2017, following the festival hangover, May was the biggest month for e-commerce in the first half of the year, made so by Flipkart’s 10-year anniversary sale and rival Amazon’s ‘Great Indian Sale’.
With Diwali arriving early in October, the festival season sales were re-scheduled to September, unlike the past two years when it was held in October, leading to the highest ever Gross Merchandise Value (GMV) for Q3.
The year also saw rivals Flipkart and Amazon claiming to be market leaders based on differently calculated metrics.
“This year, online shopping was driven by value rather than by discounts as e-commerce firms were sharply focussed on building sustainable businesses that solve real problems for customers,” said Anil Kumar, CEO of RedSeer Consulting.
“Therefore, this year’s annualised GMV of $17-18 billion by e-tailers, which constitutes 33 per cent of the overall consumer internet market that is dominated by OTAs (online travel agents), is more solid than the previous year’s GMV of $14.5 billion.”
He expects the $55-billion consumer internet market in 2017 to grow at 30 per cent to hit $72 billion in 2018 and exceed the $100-billion milestone by 2020 at a compound annual growth rate (CAGR) of 25 per cent.
By 2026, the Indian e-commerce market will grow at 30 per cent CAGR to achieve $200 billion in GMV, as per the latest Morgan Stanley report.
“It has been a year of consolidation for e-commerce horizontals (e-tailers who sell all categories), where two clear players have emerged — Flipkart and Amazon,” said Harish HV, Partner at Grant Thornton India.
“In 2018, the sector will see further consolidation among vertical players in the grocery, fashion and furniture segments, and e-commerce firms will train their focus on growing the market and delivering a superior customer service experience.”
In addition to growth led by mobile phones, consumer electronics and fashion, 2018 will see e-tailers focussing on large and new growth categories such as personal care products (nutraceuticals, babycare, colour cosmetics), grocery and food delivery.
Alibaba-backed Paytm Mall will emerge the third-largest player in the horizontal space after Amazon and Flipkart, and technology will be mined to create greater personalisation and enhance customer service, observed Srini Vudayagiri, Investment Director, Peepul Capital, a private-equity firm with $700 million under management.
The two big tasks ahead for the consumer internet industry, according to Kumar, is to acquire new customers and grow the monthly active customer base.
“There are 400 million internet users in India, of which 250 million have daily access. Of this, only 90 million shop online and only 20 million are monthly active customers.
“With the majority of metro internet users already shopping online, e-commerce firms must have a clear strategy to acquire new customers from tier II and III locations as well as from lower income demographics, in order to succeed.”