Indian E-Commerce Growth Has Stalled, And All E-Commerce Companies Need To Be Very, Very Worried

Amazon, Flipkart and Snapdeal have spent the last three years engaged in a brutal war for market supremacy. They’ve put in tremendous amounts of capital, manpower and technology into winning the e-commerce battle in India, but it was thought to be worth it – once they had market leadership, they could recoup the enormous losses they’d incurred, and ultimately start earning profits. But their plans might’ve just hit a major roadblock.

E-commerce growth in India has all but stalled, the Economist has reported. In 2014 and 2015, e-commerce companies had received hundreds of millions of dollars in funding, and no one had batted an eyelid – Indian e-commerce was growing at breakneck pace, growing at 125% in 2014, and an astonishing 175% in 2015. But in the year that just passed, Indian e-commerce growth came crashing down…all the way to nearly zero.

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This will send analysts scrambling to change their Excel models. There had been several predictions of how the Indian e-commerce market would grow over the years, but none had predicted that it would go down to zero over an entire year. In August 2016, Assocham had said that the Indian e-commerce market would grow at 51% annually; in October 2015, Goldman Sachs had doubled its projection of growth of the Indian e-commerce market.

The princess is in another castle

Indian e-commerce companies now find themselves in the unfortunate situation that Mario players were familiar with – after getting past customer indifference, regulatory hurdles, and intense competition, it turns out that the princess was in another castle. 



The Indian e-commerce princess might not be in another castle, but she’s certainly underage, and her father isn’t going to give companies her hand in marriage any time soon. Indeed, apart from the Economist numbers, there had been disconcerting signs that the size of Indian e-commerce market had been grossly overestimated. Flipkart CEO Kalyan Krishnamurthy had said at an event earlier this week that there are only 10 million monthly unique transacting users in the Indian e-commerce space. This is a worryingly low number – India’s e-commerce potential had been based on its 1.2 billion population. But if only 10 million – or less than one percent – are regularly buying things online – Indian companies can’t command the valuations that they once hoped to. 

The bottleneck, sadly, might be something that’s beyond the control of Indian e-commerce companies. In spite of all the growth, India remains a desperately poor country. Thirty percent of its population is below the poverty line according to World Bank data, meaning that they’re unlikely to ever transact online with their $1.90 (Rs. 100) daily incomes. And as for assumptions that Tier 2 India will readily get on the e-commerce bandwagon, there are some signs that it hasn’t quite happened.

Localization hasn’t taken off

All e-commerce sites had said that they’ll be offering their services in regional languages to tap into India’s hinterland. Snapdeal had even launched in 12 different languages last year. But in 2017, none of the three big retailers even offer their desktop website in any language other than English. That’s quite telling in a country where only an estimated 10% of the population speaks the language. The retailers realize that not enough people who don’t speak English are even bothering to transact on their platforms.

The Jio non-effect

Some people had argued that what was stopping e-commerce firms from reaching their full potential is digital connectivity. Jio, quite simply, has put paid to any such concerns. The company essentially offered Indians free high speed internet access for a good part of 2016 – and Indian e-commerce numbers didn’t move an inch. In fact, they went down to nearly zero, showing that even when Indians do have faster and cheaper internet many years from now,  e-commerce transactions won’t necessarily go up.

So where does this leave e-commerce companies in India? They’ve already invested billions of dollars into capturing the e-commerce market, but have now hit India’s natural demographics wall to expand any further – people simply don’t have enough money to be buying enough things to make these companies viable anytime soon. 

Flipkart and Snapdeal, though, are going to be harder hit than Amazon. Both are funded by Venture Capitalists, who’ll look to recoup returns on their investments over a period of 7-8 years, and won’t have the luxury to just stick around until India’s market matures and grows more wealthy. Amazon is publicly traded, has deeper pockets and will be willing to go several years without being profitable. 

But this is bad news for e-commerce firms across the board. The e-commerce industry forms the bulwark of the Indian startup ecosystem, accounting for most of its unicorns and most of its revenues. And with the e-commerce market slowing as it is, it might signal tougher times for the ecosystem as a whole.