The sales momentum was breathtaking, Amazon looked like it was forging ahead of rivals to become the market leader and it became clear pure-play wallets are an unworkable proposition. Those would have to be the three key takeaways from the e-commerce sector the space that dominated the headlines in 2015. It was all about pace, position and product. Little was heard about the most important ‘P’ of all—profit.
Spurred by discounts, online buying hit new levels in the past 12 months, not unexpectedly, overtaking all previous estimates and ushering in new projections. Bank of America Merrill Lynch upped its estimate of $200 billion worth of GMV by 2025 to $220 billion.
The triggers for the boom remain pretty much the same—better telecom infrastructure, convenience and awareness. But primarily higher sales will be driven by more smart phones—possibly 500 million by 2020—creating some 530 million shoppers whose spending habits could defy the theory of marginal propensity to consume.
Not surprising then that PE and VC money continued to flow in, encouraging entrepreneurs; in the first 6 months of FY16, investments had already hit $4.5 billion, way more than what came in FY15. With all sorts of start-ups looking for financial support, money managers seem to have backed verticals more than horizontals.
That didn’t matter to Amazon however, which, going by Diwali sales, now seems well-positioned to lead its two major competitors. In a somewhat stunning breakaway, Amazon attracted twice the traffic that Snapdeal did in October, drawing 200 million unique visitors. More important, it left Flipkart (with an estimated 164 million visitors) some way behind. Snapdeal came in a distant third with 109 million visitors.
To be sure, it is early days yet to call a winner because customers are going to shop where they believe they will get the best deal or discount. However, price may not always be the clinching factor from here on; one consumer survey, albeit a slightly dated one, pointed out how Snapdeal offered consumers a lot more variety but felt Flipkart’s delivery was better.
At this stage, it would appear Amazon is doing all the right things; remember that in the November 2014 festive season it managed just 85 million visitors compared to 140 million for Flipkart. Amazon is also reportedly burning less cash at $25 million a month, down from $50 million a month last year though the losses could well go up. But where Flipkart doesn’t look like it’s in danger of losing the number-two spot, Snapdeal may not find it so easy to hold on to the third place. There aren’t any serious contenders just yet—but with Alibaba behind it, Paytm might just get there.
Paytm realised fairly early in the day a pure-play wallet business wasn’t going to work; even before it heard from State Bank of India the bank’s customers wouldn’t be allowed to load money from their accounts onto its wallet. That explains its aggressive foray into e-retailing.
The case for wallets per se is a convincing one—they are way more convenient than cash—but the question is whether there is enough to go round. While not all banks may be tech-savvy, the smarter ones will launch wallets and large e-retailers will find it hard to stay away from these. The not-so-smart banks too will come up with one.
It is true independent mobile wallets can surpass banks when it comes to service because it is a focus area for them whereas for banks, it is just one more service. And young users can be demanding. But banks can throw in other services to woo customers. Also, a wallet that is attached to one retailer and doesn’t allow customers access to other large e-retailers—Flipkart or Amazon, for instance—it could soon find itself without too much business. Given how service providers such as an Ola are also in the mobile payments space, there is even more competition. Which is why it is hard to see even two stand-alone wallets operating at economies of scale.