Dec 27, 2010

Digital Incentives in India

Lately I have seen a lot of deal activity in the digital incentives space in India ranging from group buying and flash sales to TV group deals and comparison shopping. While it's quite exciting to see all this excitement it's clearly a sign of riding the hype. In the case of group buying a lot of investors are riding the Groupon hype that's been in the buzz for the last few months with Google trying to acquire it for a huge valuation. The deal never happened and Groupon chose wisely to move on independently. Now setting aside all the unnecessary hype, I do feel that there is a significant opportunity for digital incentives in India.

The key driver is the rapid growth of the retail sector in India in the last few years. It seems that it will continue to grow at 11.4% annually to reach $543B by 2014. Further, access to credit/debit cards is also driving ecommerce at a healthy pace. Digital incentives, both for ecommerce and brick and mortar products and services, are also influenced by these macro trends. This will be the inflection point for small businesses to start advertising on digital media (both online and mobile).

There are 3 main areas within this space that have shown a lot of activity. First, group buying or daily deal sites like Deals For You, SnapDeal and Taggle which rely on the group phenomenon and virality as a key mechanism to drive awareness. All of them have had some kind of investment infusion in the last 12 months. Most of these sites focus on driving awareness for local lifestyle businesses from restaurants and spas to travel getaways. Then there are flash sales sites like Fashion And You, 99 Labels and Exclusively.in. These focus on driving sales of branded exclusive products by limiting membership based on user demographics. I particularly like Exclusively.in's model because it focuses on selling Indian fashion goods to people living abroad. Fashion and You raised money from Sequoia India and Exclusively.in raised from Accel & Helion. Finally, there are odds and ends like Cellcast (group buying on TV), Naaptol (shopping comparison) and Flipkart & InfiBeam (plain ecommerce sites).

There are two main areas of opportunity. First, no one offers a thoroughly mobile experience and whoever does this best will likely lead the pack. One of the key limitations to ecommerce's rapid has been poor Internet access in the country. Mobile is the key medium through which you can reach a very broad audience. Second, it has to tie in virality and social concepts into incentives. The premise of group buying is to drive the power of 'word of mouth'. These incentives have to leverage social networks in India effectively to achieve broad success.

Clearly, there are too many players in the market and some will disappear. Also, discount margins will come down from the insance 80-90% you see at the moment. But the digital incentives phenomena will have a significant impact on making digital commerce main stream in India.

 

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