Much has been said about India's accelerated digital transformation. Like the fact that we are the world's fastest-growing internet market, adding 40 million users per year on average. In fact, despite the digital divide, India boasts the second highest active internet user base with 1 out of 3 people online.
The corollary to this story is the country's red-hot ecommerce pie, which according to a new study has the potential to become far bigger, driven by more than 500 million Indians who will constitute the next wave of online consumers. The size of the opportunity up for grabs is a whopping Rs 3.44 lakh crore.
The report, titled 'Unlocking Digital for Bharat: $50 Billion Opportunity', released by Bain & Company, Google and Omidyar Network, claims that India has the potential to unlock over $50 billion in online commerce in India by driving awareness, usage and transactions among the current and next set of internet users and shoppers.
But the road to get there is far from smooth. Based on a survey of 3,400 customers, the study puts the spotlight on some major barriers holding India back, beginning with India's small transacting user base. Only 40 per cent of India's 390 million internet users transact online. The remaining 60 per cent do their research online but complete the transaction offline.
In addition, there is the worrying number of dropouts. According to the report, 54 million users - across the affluent socioeconomic segments that comprise 80% of the user base alone - stop after the first online purchase due to issues with user experience.
Significantly, it takes three to four months for a typical Indian internet user to make the first online transaction and among users who have been on the internet for two or more years, 61 percent transact online. The number of "transactors" drops to 27% among new users, who have been online for just 4-6 months. This underscores the need for ecommerce players to retain customers through content, experience and fostering trust.
The study points out that India can "double the current product transactor base" by retaining the number of people who give up after a trial purchase and by beefing up its current numbers. For the latter, one can start by focussing on the 160M content consumers who draw the line at online transactions, which has the potential to boost ecommerce by $14-18 billion.
Then there is the massive non-user base, just waiting to be tapped. The report estimates 370 million non-internet users across India's affluent socioeconomic strata and 620 million across the mostly-untapped lower income segments. While the latter are out of the scope of the survey, their sheer numbers spell a massive future opportunity.
"Digital India is at a very interesting point - a large internet user base with significant variations across demographics, and only a small portion actually transacting online. While online spends are still low given lower per capita incomes, there is huge potential to unlock value by addressing user concerns at various stages of the digital curve," said Arpan Sheth, partner, Bain & Company, and one of the authors of the report. "However, the path won't be easy for businesses and they will have to innovate and be patient to monetize this user base and generate value."
Moreover, despite the growth of the internet user base in India, online retail spending in India is much lower compared with other countries - $224 per online buyer compared to $374 for Brazil and $1,862 for China in 2017. That's due to the relatively low per capita GDP in India but the good news is that it's growing at nearly a 23% CAGR (2012-17), the fastest in the world.
The study points out that scale and profitability in the online space will likely take time, and hence businesses should focus on exploring alternative options such as monetizing the ecosystem and capturing larger shares across the transaction value chain.
"With the user growth and adoption story on a fast growing trajectory, there is a need to grow consumer confidence to make digital a medium of choice for services and transactions for users across the country," said Vikas Agnihotri, Industry Director, Google India. "With this report, we outline the need for much focused intervention for different subsets of the users who are now online and grow consumer confidence to make the digital medium a viable platform for all."
(Edited by Sushmita Choudhury Agarwal)