Why Online Marketplaces may fail in India…


Indian eCommerce space is slowly transforming itself and virtual marketplace is the new frontier. Flipkart recently launched their own marketplace as reported here, and in the last 18 months, several eCommerce ventures started their own marketplaces: Snapdeal, Infibeam, Tradus, ShopClues to name a few. In fact, so much is the energy in this sector that Ebay recently fought with Amazon to invest money in Snapdeal and eventually placed $50 million to claim a minority stake.

Another point to notice: In the last 3 years, more than 50 e-commerce sites have collectively generated VC funding of around $800 million, but only 20 odd companies have been able to raise a second round. Something is not working it seems.

Will Online Marketplaces prove to be a new trend which will totally transform (and save) the Indian ecommerce space or it is something which is being copied from the West with a hope that it can work in India too?

I have several reservations, that I would like to point out.


What is an Online Marketplace?

Have you ever been to a local bazaar or haat in India? Online Marketplace is something similar: sellers bring in their products to sell and buyers choose from an army of options. When it comes to Online, then these marketplaces need a platform to operate.

This business model wherein ecommerce companies provide a platform for both buyers and sellers is not new, atleast in US. The providers of these platforms charge a small fee ranging from 2-10% on each transaction and make their profit.

Ebay is world’s largest online marketplace where sellers post their products and buyers choose them. Reportedly, there are more than 1.3 million sellers (in 2008) on Ebay.

Amazon, the world’s largest online retailer with profits of $1.15 billion in 2010 has around 1.6 million sellers on their own marketplace and 40% of their total revenue is being generated via these marketplaces.

Etsy, another big online marketplace reportedly sold more than $1 billion worth of exclusive handicrafts from their online platform.

Why Online Marketplaces in India?

Very tough question to answer, but financial wizards are claiming that the recent decision by government to allow FDI in this marketplace model can be termed as one of the reason for this sudden spurt. FDI is not allowed for direct online retail.

Additionally, by opting for this model, the ecommerce companies are not required to invest in storage and inventory as the sellers will take care of that. Yes, another saving option and another channel for increased revenue.


Why Online Marketplace may fail in India

Supply Chain & Customer Experience: Supply chain and logistics remain one of the major issues with India. The reason online marketplaces work so magnificently in US is because of their incredible supply chain.

With just an addition of a dollar or two, one can opt for overnight shipping! It is this infrastructure and supply chain capability which has enabled sellers to prosper and grow. But in India, it can be a challenge.

For example, the hallmark of Flipkart has been its excellent timely delivery. Now, say a seller based in Assam has sold a product to a buyer based in Mumbai. The delivery time of the product will suffer, and so will the customer experience.

Additionally, there can be issues with the products advertised and products sold as well, leading to greater returns and bad customer experience.

At the end of the say, the buyer will not blame the seller for this late/poor delivery but will target Flipkart.

Customer Acquisition Costs: Although the ecommerce companies can save on the storage and inventory costs by opening its platform to individual sellers, the customer acquisition costs for the company remains the same. And with lower margin while opting for open marketplace, the revenue part will suffer. The Venture Capitalists will need their answers and ROI.

Only time will tell whether this new model will succeed or not within India, but the road to success looks quite bumpy.

What do you think about Online Marketplaces in India?

Will it work like it works for Ebay and Etsy? Would love to hear your comments!

  1. Indrajit says

    My gut feelings is that unlike traditional e-com sites, there isnt space for more than 2-3 marketplaces to survive. the reasons are as follows:

    1. Marketplace concept requires deep pockets to wade through challenges like technological infrastructure, robust platform, critical mass of sellers and buyers to sustain. the critical mass or pivot point is much higher compared to normal e-com
    2. managing buyers n sellers is not going to be easy. ebay comes with market leading exp and tech knowhow in marketplaces but still struggles against fraudelant buyers and sellers. Also there are actually v few sellers who are dependent on ebay for livelihood. unless that happens seriosuness is not going to come. when ebay with 10 years in india has not been able to acheive that, wonder how new ones can even think of , be it even flipkart or amazon
    3. i speak this out of experience. i run two seller accounts on ebay gizmobhai and indiacod. its a challenge to do business both for us and ebay. been sticking around for 4 years but thought of giving up so many times. got persistant calls and offers from the likes of shopclues, tradus and snapdeal but chose to ignore. however did threw in the towel for flipkart and amazon but of which are coming in marketplace full guns blazing. in fact backend data entry of listings already on by sellers incl me in amazon.in. the site is still not live

    Hence concluding it, i have no doubt, its only ebay, flipkart and amazon at most. even here i feel one of them most likely flipkart will fall through eventually..

  2. Achin Tyagi says

    They wont fail in india…The scene is challenging with bad infrastructure, thats why sequoia capital always invests in “hardcore problems”, if you’ve heard about “gharpay”…ecommerce players started banking on cod as a service…gharpay is running in profits and expect to work for online marketplace segment…sequoia will exit with at least 10x..you dont get to see such startups in u.s…. if google cant understand how a startup justdial can file a ipo in india,…i am quite sure gharpay will be huge in coming years, making online marketplace grow gradually..

  3. Akuti says

    Thats right.. the Supply Chain is one of the importants areas.. but I miss the customer service..?

  4. Mohit says

    Totally agree with the Supply Chain and Customer Experience part.

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