Board Games

Written by Anushree Bhattacharyya | Updated: Jul 15 2014, 13:48pm hrs
Were in the business of making Wow, and not in the business of making money. If we make Wow, lots of money will happen over time, said Jason Goldberg, founder and chief executive officer, Fab, an US based e-commerce portal in an interview to Credit Suisse last year. Goldberg could not have more right, as the business of e-commerce is all about providing rich buying experience to consumers. While some e-commerce players in India learnt this mantra the hard way, a few were able to hit the bulls eye from day one. Interestingly, those who tasted success were either graduates from Indian Institute of Technology (IIT) and Indian Institute of Management (IIM) or had earlier worked with with an e-commerce portal. In some cases such as Sachin Bansal and Binny Bansal, founders of Flipkart, it was a combination of both.

However, all this is a thing of the past now, as the e-commerce category has caught the fancy of other white collar men and women including investment bankers. While Rajan Mehta was the founder of asset management company Benchmark Solutions, before starting My Healthcare Solutionsa healthcare service which uses technology such as cloud computing, mobile, etc., Falguni Nayar runs beauty

and wellness e-tailing website, Nykaa.com, after a stint as managing director and chief executive of Kotak Mahindra Capital. For Mehta, his job as a venture capitalist helped him understand how the healthcare industry functions in India, which in turn prompted him to start his own venture. While working as an investment banker I realised that there are various business models which healthcare companies such as private hospitals and clinics can follow. However, most of them follow only one modelthat is their patients should fall sick frequently enough for them to earn more revenue. Healthcare companies fail to understand that they are now in the lifestyle business, which requires a different level of engagement with consumers, said Mehta. For its pilot project, My Healthcare Solutions has tied up with a private hospital in Mumbai, where it runs various health programmes through the help of health coaches and doctors.

Similarly, Richa Dikshit was an associate investment banker at Bank of America Merrill Lynch till a few years back. Today she runs her own e-commerce website Yellow Giraffe which sells toys and an online video channel, Toy Tasting. She started the the online video channel on a personal whim when she was expecting her child only to realise its potential later.

While reviewing various toys on YouTube, I realised the importance

of toys for children and the role it plays in shaping their thoughts and their personality, she says. I started the

e-commerce portal based on the feedback from parents who said that there were not too many platforms available online which could guide them to

buy the right toy for their children, said Dikshit.

Other names include Ajay Shetty, who once crunched numbers for Merrill Lynch in Hong Kong and later shifted to Bangalore to set up Myra Vineyards in Pune. Shetty today uses social network site Facebook to help buyers place orders via phone. Likewise, Rahul Garg, after working as an investment advisor with various global investment banks such as Lehman Brothers, Nomura International and HSBC Securities, has launched an e-commerce portal, ArtisanGilt.com, which sells lifestyle products including saris, jewellery, personal accessories and furnishings.

More the merrier

Rohit Bansal, co-founder and chief operating officer, Snapdeal says that the e-commerce category which is still at a nascent stage in India needs smart people who can think different. The e-commerce category is going through a revolution and has huge potential for growth. The entry of professionals like investment bankers, will further help in building the category and increasing awareness amongst consumers, said Bansal.

As per KPMG in India and Internet and Mobile Association of India (IAMAI), the e-commerce industry has witnessed 150% growth in the last three years, increasing from $3.8 billion (R19,249 crore) in 2009 to $9.5 billion (R47,349 crore) in 2012. The e-commerce market is expected to touch $12.6 billion (R62,967 crore) in 2013. Moreover in 2012, 63% of e-commerce ventures were started by first time entrepreneurs. For Ashvin Vellody, partner, KPMG in India, a management consulting firm, venture capitalists entering e-commerce make perfect sense as they have all the qualities required to turn the business into a success. One generally needs three ingredients to make e-commerce a successmarketing skills, technical capability and financial backing. So investment bankers joining this category makes intuitive sense, given they are one leg of the three-legged table! Since these skills are not easily found in one individual, it requires three individuals to fulfil these, said Vellody.

Interestingly, lifestyle category is the segment which seems to have caught the fancy of the majority of e-commerce players. From home dcor to kitchenware and apparel to accessories, everything is up for grabs in the virtual world. Initially, companies started selling books online as it was easy to deliver them and there was no wear and tear cost attached to the shipment of books. The next big change came when e-commerce companies began to sell electronic items. This was also easy to sell as it came with a guarantee from the manufacturer. Companies then began to look for gaps in the market and realised that lifestyle is a huge segment and is always in demand, said Garg.

Agrees Vellody who says that lifestyle is more visible than other categories. Unorganised retail in the lifestyle category captures the lions share of mind space and wallet. While the unorganised share of the market is high, the organised share is increasing on the back of new brands entering the market. A growing preference for branded apparel/ lifestyle products is now a visible trend even in rural Indiagrowing from 40-50% during 2011-12. The per capita expenditure on apparel was 6.4% in 2012, which has doubled in the last 10 years, he said.

To be sure, the entry of these seasoned professionals have spiced up the competition in the e-commerce industry with each player introducing special services tailor-made to fulfill specific demands of their consumers. Shetty of Myra Vineyards which entered the entry level wine category last month (June) with the launch of Two Headed Bird (THB) range is also mulling starting his own e-commerce portal to sell wines from his vineyard or tie-up with an existing player. The THB range is available at R330 per 750 ml bottle across Maharashtra and Karnataka and R340 in Goa. Shetty believes that it is his past experience which has helped him in understanding the need of consumers. With the Indian consumer being exposed to global lifestyle, she too wants manufacturers and service providers to match up to her expectations when it comes to their products and services. We are therefore forced to think out-of-the-box, said Shetty. Similarly, Garg of ArtisanGilt.com plans to launch a bespoke service for international buyers on his site.

The real deal

One big advantage that these newbie entrepreneurs have is that their CVs help open doors to deep-pocketed investors. Rachna Nath, leader, retail and consumers, Pricewaterhouse-Coopers (PwC), an audit firm, points out that a solid background in the banking industry surely helps in opening many gates which help in raising funds. Holding the tag of a former investment banker lends assurability and hence it becomes easier to present ideas to investors but ultimately it is the viability of the business model which leads to flow of funds, said Nath. Agrees ArtisanGilts Garg who points out that his past experience comes in handy in presenting his idea to investors. As we do know a lot people in the business it is easier to present our ideas and plans, but whether they will be ready to invest in the website, depends on the practicality of the business model, said Garg.

Even as new online businesses spring up, the venture capital firms and angel investorss love story with e-commerce companies seem to have hit a rough patch. While investment rose to $591 million in 2013-14 from $358 million in 2012-13, the number of deals fell from 74 in 2012-13 to 60 in 2013-14, according to data collected by VCCEdge, the financial research platform of VCCircle.com, a news website covering the financial sector. Therefore it comes as no surprise that the e-commerce websites started by these former investment bankers are self-funded. However, the invesment bankers turned entrepreneurs are unfazed by this. In case of a start-up, the first job is to build the business and then transform it into a sustainable business model. Once these two jobs are done, funds will flow in automatically, said Falguni Nayar, CEO, Nykaa.com. The beauty e-commerce recently raised funds from investors including a big business family. The two-year-old venture will use the funds to expand its online business and set up offline retail stores. Nykaa plans to set up its first offline store at Terminal 3 of New Delhis airport.

Says Deepinder Goyal, CEO and founder, Zomato, an online restaurant discovery guide, investors look for a product that adds long-term value to an increasing user base. Citing the example of his website, he says, Our product offeringup-to-date content, a scalable business model, and a great team in placegive investors and merchants alike the confidence to invest in us.

Speaking of business models, different frameworks from inventory lead to marketplace as well as manage marketplace are being experimented with by theinvestment bankers turned entrepreneurs. While Mehta follows the subscription lead model as per which people can opt for various packages in the range of R300-500 per month. Both Nayar of Nykaa.com, and Dikshit of Yellow Giraffe follow the inventory lead model. Meanwhile, Garg of ArtisanGilt.com has switched from the inventory lead model to the manage marketplace model. Inventory lead model requires a lot of capital. From setting up warehouses to logistics, everything has to be managed by the company, which requires a huge investment. Thus we have switched to manage market place. This allows us to sell goods without setting up a warehouse. Moreover, it also permits us to add more suppliers on the website, said Garg.

Garg further adds that his team is developing a new model, called virtual inventory model, which will allow him to get more suppliers on board even as it will help him bring his storage cost to zero. We plan to tie up with local artisans and suppliers who will manage the warehouse on our behalf. For example, an artisan based in Gujarat will be asked to keep about 50% of his stock for our website at his own warehouse. The product will be directly picked up by our logistic partner after an order has been placed, he said.

According to KPMG in Indias Vellody, e-commerce in India has just seen the tip of the iceberg. There is enough space for many more innovative models. Currently e-commerce players mainly follow two modelsinventory lead and market place. While in the former model it is the company which runs the operations which includes management of the inventory, in the latter, the inventory risk is diluted as the portal acts as a mediator between buyers and sellers. In addition, we have seen the entry of hybrid models such as manage market place, added Vellody.

He further explains that as of now investment in marketplace models has increased, adding that vertical classifieds such as Zomato have also become lucrative investment categories.

Observers feel that the game has just started as the e-commerce sector which was until now dominated by former IITians and IIM graduates have now begun to see the entry of professionals from different walks of life. The category has already seen the entry of celebrities such as Salman Khan who bought 5% stake in Yatra.com while Sachin Tendulkar picked up 7.5% stake in musafir.com, said Vellody.