A first mover has the opportunity to craft a competitive edge. It can become a figurehead, it can capture customers, it can erect entry barriers, it can make mistakes and correct them. In the happening Indian e-commerce space, such an association is usually made with Flipkart, which started in 2007. Except Flipkart, for all the ways it has been the marker of e-commerce in India, wasn’t the first mover.
Three years before Flipkart made a non-descript beginning as an online book store, there was eBay.in, the Indian subsidiary of the $16-billion US company. It bought local auction platform baazee.com for $55 million in 2004 and transplanted its American business model an online marketplace where sellers engage directly with buyers, with eBay only serving as a hosting platform to India.
It had a lot going for it: a profitable parent, a team that wrote the code for online marketplaces, a brand synonymous with this medium of shopping. Yet, in the ecommerce din today, eBay India is hardly in the conversation. The talk is, instead, centred around Flipkart, Amazon and Snapdeal, and their fund-raising, investments or valuations.
“We are the largest marketplace (by number of sellers), but we are not in the valuations game,” says eBay India managing director Latif Nathani. “Hence, we don’t get talked about that much.” But it’s also true that while eBay, though growing at a rate that would be the envy of most companies, is trailing its peers in this high-growth sector.
In 2012-13, the latest period for which comparable numbers are available, Flipkart grew 476 per cent in value of goods sold. By comparison, eBay’s revenues stood at Rs 81 crore for the year, against Rs 51 crore the previous year a growth of about 60 per cent.
Globally, in 2013, eBay earned 8 per cent of the value of goods transacted as marketplace revenues. Extrapolating that to India yields a value of goods sold of around Rs 1,000 crore in 2012-13. That is close to the Rs 1,180 crore that Flipkart did that year.
But the others appear to have hit a sweet spot and seem to be breaking away from eBay. For 2013-14, Flipkart says it maintained that scorching pace, without disclosing numbers. In terms of unique visitors, in July, eBay trailed both Flipkart and Amazon, according to data from ComScore.
“When eBay started in India, it was ahead of its time,” explains a former country head of eBay India, on condition of anonymity. “The Internet user base was less than 10 million and few people were willing to shop online.
However, things changed in the last few years and eBay has been surprisingly indifferent.” The indifference this former country head, one of the six eBay has had in 10 years, is referring to is its reluctance to pivot with the times to capture more business from the 200 million-plus Internet users in India today, 10 per cent of whom shop online. For example, eBay was the last to switch to cash on delivery, the preferred payment mode of Indian consumers, about three months back.
AHEAD OF ITS TIME
This reluctance to change partly stems from its unique business model. EBay is an open marketplace (OMP) a technology-based, asset-light model. It merely hosts sellers, of new and, in a small percentage, used goods, and connects them to buyers.
EBay does not handle logistics beyond alerting its partners in this space via an automated process. When goods move from sellers to buyers, they don’t pass through an eBay warehouse.
By comparison, its three main competitors Flipkart, Amazon and Snapdeal all follow the managed marketplace model (MMP), where they control delivery and returns, and don’t do used goods. “We opted for MMP as the question of trust comes in OMP,” says Kunal Bahl, founder-CEO of Snapdeal, in which eBay owns a significant stake and which could emerge as a more significant expression of its business interests in India in the coming years.
According to Mukul Arora, vice-president of SAIF Partners, a venture fund, MMP helps control customer experience and is more suitable for India. “OMP is relevant in a mature ecosystem where sellers, logistics partners and buyers all are tech-savvy, and there are strong customer redress systems in place,” he says. In 2013, eBay posted a net profit of $2.9 billion on an income of $16 billion, 70 per cent of which came from US, Germany and UK, all mature markets.
Sanjeev Aggarwal, senior managing director of Helion Venture Partners, sees three phases of evolution in marketplaces. The first is inventory-led, where the e-tailer controls everything. The second is MMP, where the e-tailer does not own the products, but controls delivery, quality and returns. Lastly, there’s OMP where the e-tailer is merely a hosting platform. “India is now migrating to the second stage,” says Aggarwal. “A pure OMP is about a decade away.”
Agreeing with that broad assessment, Nathani insists there’s a case for OMP in India even now. “OMP is the right model for India as we are a country of merchants,” he says. “I agree that not all 50,000 (sellers on eBay) have robust backend systems. There’s a digital gap, which will be bridged as more people start using the Internet.” Boston Consulting Group sees 500 million Internet users in India by the end of 2015.
“Given its model, eBay is not doing badly,” says Rachna Nath, leader, retail & consumer, PricewaterhouseCoopers (PwC) India. “The market still has plenty of headroom to grow.” Adds Niren Shah, managing director, Norwest Venture Partners, who was also part of the original leadership team of Baazee: “Amazon has made an impact in just a year. It’s not tough for eBay to come back.”
TOO MANY HEADS
But to do so, eBay also has to align itself to the Indian market better and with greater continuity. Six country heads in 10 years have not helped it. The first of these was Avnish Bajaj, the founder of Baazee who left in 2006 to head venture fund Matrix Partners. In a 2012 interview to a portal, Bajaj said: “I think Flipkart is a clear winner (in e-commerce). They have done a great job. I am not sure about almost everybody else.” An e-mail to Bajaj went unanswered.
Ambareesh Murty had the longest stint, between 2008 and 2011. He introduced PaisaPay, an escrow service for payments, and multiple products check-out. “The latter was taken globally by eBay. Before that, a customer could buy only one thing at a time,” says Murty, who is now the co-founder-cum-CEO of Pepperfry, an online furniture marketplace.
“In a growing market, you need consistency at the top. That was clearly missing here,” says the unnamed former head of eBay India quoted earlier. Adds Nathani, 45, who has been at the helm since May 2013: “Long tenures (at least four to five years) help in building markets.”
Continuity is especially critical in a fast-changing market. “That is where an entrepreneur-driven company has an advantage,” says Aggarwal of Helion. “E-commerce is a speed-oriented business and you have to empower the local head to take decisions and there has to be consistency. In this respect, Amazon, which came in late, has proven better.”
Aggarwal cites the example of cash on delivery, which is far from the global norm but is a necessity in India today. Murty says he was suitably empowered and eBay was focused on localising its business model in his time, an example of that being PaisaPay. “We are as empowered as any start-up and are empowered to localise,” maintains Nathani.
OPEN OR MANAGED?
The competition is heating up. On July 29, Flipkart secured $1 billion more in funding. The next day, Amazon promoter Jeff Bezos allocated $2 billion to its India business without specifying a time frame. “The competition is too intense,” says Pragya Singh, associate director, retail and consumer, Technopak, a consultancy.
“They (eBay) need investments that go into pushing the market.” Nathani feels eBay is very much in the mix. “We are adequately funded from our parent,” he says. “We are shooting for big, bold goals like having the largest number of sellers.” He cites the example of the partnership eBay entered into in April with the Confederation of All India Traders (CAIT), which represents 60 million traders. “This increases our reach,” adds Nathani.
“The key is how many (sellers) are active,” says Aggarwal. His estimate is that less than one-third of sellers who sign up on marketplaces are active. “In India, retailers are not technology-savvy and they don’t have smart connectivity,” he adds. For example, data from the central bank shows that only about two million retailers have credit card swipe machines.
Meanwhile, both buyers and sellers point to the relative disadvantages of the OMP model in the Indian context. “eBay says logistics is automated,” says Pooja Kapila, founder of Erato, a garment retailer on eBay and other platforms. “But every time I receive an order, I have to call FedEx myself. For eBay, India does not seem to be a priority.”
Such relative disadvantages are compounded as the last three years have seen the emergence of robust options in the marketplace space. Another eBay seller, who wished not to be named, says his electronics and computers business has grown from Rs 60 crore to Rs 100 crore in the last year. But his share from eBay has dropped, while that from Snapdeal and Flipkart has more than doubled.
“As an OMP, it does have a long tail you can find things that are nowhere else,” says Arun Srideshmukh, co-founder of Fashionara.com. “They should move to a managed marketplace model if they are serious.” One way is to increase its involvement in Snapdeal. Its first mover advantage is long gone. Can eBay now regain ground to be a prime mover?
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