Tech czar Azim Premji is boarding India's rapidly expanding e-commerce story

Premji may buy Myntra stake for e-commerce entry

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Tech czar Azim Premji is boarding India's rapidly expanding e-commerce story. His family office, PremjiInvest, is in discussions to lead a $50-million (or Rs 300-crore) fund-raise in fashion e-tailer Myntra, people familiar with the matter told TOI. PremjiInvest has a corpus of more than $1 billion for private equity-type investments in listed as well as privately-run growth companies. Premji's entry signals the trend of bulge bracket Indian investors beginning to place bets on the domestic e-commerce market, which has largely been riding on foreign investments so far.

PremjiInvest is likely to be a co-investor in the latest round of funding, which may also include British investor CDC, valuing Myntra at around $250 million (Rs 1,500 crore), said a source cited earlier in the report. "Premji's family office is in the reckoning but the transaction is not yet closed. There are a bunch of other investors putting in money as well," another source added on condition of anonymity since the talks are private. Existing investors Accel Partners and Tiger Global, two US investors who are prolific backers of the Indian e-commerce play, will also participate in latest fund-raise.

IITians Mukesh Bansal, Ashutosh Lawania, and Vineet Saxena founded Myntra in 2007, which has since changed its business model from being a portal offering personalized gifting options to a fashion and lifestyle retailer. It sells multi-brand fashion merchandise online with annual gross revenues nearing Rs 800 crore, or $120 million. When contacted, Bansal said that the e-tailer was in talks with various investors. "At an appropriate time, we may raise money with the right set of investors," he said without giving details on the fund-raise. Myntra has so far raised $75 million in funds from its existing investors.

US investment bank Pacific Crest is advising Myntra on the transaction. "We do not comment on our investments," Prakash Parthasarathy, chief investment officer, PremjiInvest, said in response to an emailed query. Wipro's chairman and billionaire Premji is India's fourth richest man with an estimated net worth of $14 billion.

Myntra, arguably India's largest standalone fashion e-tailer, has stayed ahead of an aggressive rival Jabong — backed by the German incubator Rocket Internet — in sales by gross merchandise value, analysts tracking the sector said. Myntra expects to close 2015 with revenues of around Rs 2,500 crore, Bansal had told this newspaper in an earlier interaction.

The fresh funding comes at a time when the poster-boy of Indian e-commerce and Myntra's cross-town rival Flipkart has expanded its fashion business, piling up pressure on specialized online rivals.

Last month, Flipkart raised a record $360 million from investors, including Morgan Stanley, indicating that industry leaders were attracting big bucks even as laggards continued to drop off without any funding. "Fashion is one of the largest categories in Indian e-commerce and a leader there will find backers. Myntra has also been collaborating with brands to create its own fashion lines fetching it better margins," said Deepak Srinath of Allegro Capital, which advises internet start-ups on fund raising. In-house private labels now account for 15% of Myntra sales and its share would increase substantially in the coming months, Bansal told TOI.

In the last three years, the Indian e-commerce industry has witnessed a 150% growth rate, increasing from $3.8 billion in 2009 to $9.5 billion in 2012, a recent report jointly released by KPMG and IAMAI said.

Flipkart and the fate of online retail in India Despite its potential, the online sector continues to underperform

The $160 million that Flipkart, India’s Amazon-to-be, has received in its latest round of funding is a big deal for the company, but for the e-commerce industry in the country, it is a proverbial drop in parched sands. With this, Flipkart has now raised $540 million from investors since it started operations in 2007. That’s more, of course, than any other Internet start-up in India and should allow the company to continue its growth momentum, though at what cost remains to be seen. That the private equity entities whose money is fuelling the company’s aspirations have such abiding faith in its future must bring great satisfaction to the founders as well as other aspiring entrepreneurs. It should also silence for a while naysayers of the e-commerce business in India. 

 

The funding holds significance for the sector as a whole. With this round of funding, a new set of investors—Dragoneer Investment Group, Morgan Stanley Investment Management, Sofina and Vulcan Capital are joining existing investors Tiger Global, Accel Partners and MIH, in making a play for online commerce in the country.

 

India is one of the top retailing markets in the world and among the fastest growing. Coupled with that is its online penetration, which is nearly 60% now, according to a research report by Comscore for Assocham—State of e-commerce in India. India’s Internet base, already the third highest in the world after China and the US, is growing by nearly 40% every year. Yet despite the potential and the platform, the sector continues to underperform with all the major companies bleeding. Operational break-even for most of India’s e-commerce start-ups is at least five years away with even market leaders such as Flipkart, HomeShop18, Jabong, Myntra and Snapdeal yet to make a mark. Consequently, in the $500 billion retail sector, the online segment’s contribution is less than 0.50%. 

 

What’s worse, even the business they have built at a huge cost is rendering most of the new entrants bankrupt. Part of the problem is that the online customer today demands sweet deals including freebies such as no shipping charges and flexible payment options, besides, of course, newer and newer inventory. In what is a vicious cycle, companies report high rejection rates on top of enormous logistic costs. Online retailers, much like their offline counterparts, make money when transactions happen. Currently, far too many users browse sites for information about prices or styles or even to read reviews. As a result transaction sizes for most such firms are in the low band of Rs200-300.

 

But the companies too have brought it upon themselves by their inability to innovate and break new ground. Far too many companies have been interested in the low-hanging fruits that B2C offers. The supply chain needed to complete the cycle has found few backers. Yet it is the lack of an efficient back-end that has been the bane of most such firms. Just how important fulfilling real needs for customers is can be judged by the fact that one out of five online users in India visits the Indian Railways site, despite it being among the most clunky and difficult to access.

 

India’s e-commerce companies have far too often concentrated on the bells and whistles instead of focusing on deploying and customizing technology to serve customer needs. Contrast that with Amazon which competes not only with a Wal-Mart for retail business but also with Apple for technological horsepower. On the evidence of its latest Kindle, its tablet computers or its set-top box for television, it could well pass muster as a top tech company. 

 

Flipkart, which switched to a marketplace model earlier this year, allowing third parties use of its platform to sell products, is making some belated efforts with its launch of PayZippy, a kind of digital wallet. But this too is a me-too product (modelled obviously on PayPal) and the company’s switch of business model aims at accessing foreign direct investment, which is banned in direct online retail. With such limited objectives, long-term investments in technology of the kind Amazon and even Wal-Mart are making, are not possible.

Flipkart’s sales of Rs2,000 crore should give its market valuation of nearly Rs10,000 crore some justification. But the true test for the company will come when and if it goes public. Amazon went public after just two years of operations. As private equity darlings from WebVan to Facebook have found out, there is a wide gap between the way early investors value a company and the price the market sets on it.

Why funding seems elusive to start-ups Only 10% of the 800 start-ups that enter the Indian market each year survive to make it to the next level

Fifty-two e-commerce companies have raised close to $700 million in venture capital in the last three years.

 I have an idea, but no money”—that’s the commonest refrain among aspiring entrepreneurs. Investors say there are only a few good ideas they can back.

Only 10% of the approximately 800 start-ups that enter the Indian market each year survive to make it to the next level, experts say. On average, start-ups in India have received 52 angel and 155 Series A investments in the past three years, according to Venture Intelligence, a research service that focuses on private equity and mergers and acquisition. Only 22 angel and 86 Series A investments have been made in the first seven months of 2013.

While the number of start-ups that have entered the market in the last two years has doubled, the number of early-stage investors in India has remained fairly constant at less than 10, widening the mismatch in expectations between the two groups.

In addition, run-of-the-mill business ideas such as websites to sell handicrafts are unlikely to receive serious consideration from investors.

“If you are just another e-commerce website and want to sell handicrafts, then you will think there is a Series A crunch,” said Bala Parthasarathy, managing partner, AngelPrime.

It took Y Combinator, a start-up accelerator that provides money, advice and a networking platform to founders, nine months to make Airbnb, an accommodation search website, ready for the market in the US, while it took eight years to bring Stayzilla, a hotel bookings website, to reach the same stage in India.
“The pace of doing business in India is much slower, which means India needs longer gestation periods,” said Sharad Sharma, executive council member of Nasscom, a lobby group for Indian software services companies.

Also, some experts feel that the surge in the number of e-commerce start-ups in India has made it more difficult for them to raise funds. Fifty-two e-commerce companies have raised close to $700 million (around Rs.4,500 crore today) in venture capital in the last three years.

“You can count with your fingers how many companies got funded,” said Sharat Potharaju, chief executive and co-founder of Mobstac, a mobile technology company founded in 2009.

There might be a lot more entrepreneurial participation today, but the quality of entrepreneurs entering the ecosystem plays a pivotal role in funding.

“We look for founders who are passionate and motivated. They must know that their market target is large enough and their product distinctive. It is important to invest behind people and not ideas,” said Sandeep Singhal, managing director, Nexus Venture Partners, a venture capital fund.

“Sometimes we see companies with incomplete teams, no prototype and no monetization plan. Plus the product sucks—not even their families use their products or they are clones of other companies. Will they get funded? No way,” said Ravi Gururaj, chairman of Nasscom Product Council.

When an idea works in one part of the world, entrepreneurs hope to replicate the success in another part. These are called reflection ideas, according to some experts. Microsoft Accelerator, now renamed Microsoft Ventures, received about 22 travel planning ideas in 2012 and 36 car sharing ideas in 2013.

Though Google Inc. and Intuit Inc. are great examples of copycat companies, their successes came from the “secret recipes” they embraced to make it possible.

Nasscom sees more than 5,000 start-up applications every year, out of which many are only aspirational ideas and do not make for great business plans, said Gururaj.

“There are no bad ideas, only half-baked ideas. The way to get from a zero idea to a hero idea is the iterative method,” said Sharad Sharma.

Angel investors in India avoid taking blind risks because any irrational funding sends out a wrong message to the market. Some early-stage investors decline to fund mobile apps, education and data analytics because the sectors are overcrowded. Entrepreneurs disagree.

“VCs (venture capitalists) have to loosen up a little more. Education research and development, transport and bio-tech are chaotic sectors, not crowded sectors. There is development scope, but nobody wants it. They would rather invest in known things that are already in the market,” said Gowdhaman Margabandu, chief executive and co-founder of Digital Future of Education, a company that provides electronic classroom solutions for students.

The best way to describe the Indian ecosystem is that entrepreneurs have ready-to-cook ideas, but investors want ready-to-eat products, said Sharma.

Some experts say that VCs, including Nexus Ventures and Accel Partners, operating in India have raised significant capital in the last year, but have avoided expanding their portfolio.
There are two ways to beat this evident non-availability of funds, according to experts—create more funds and accept whatever is offered.

“Unlock more high net-worth individuals. Encourage large companies to do alternative investments-to-early-stage funding. Create smaller exits, so that entrepreneurs can exit and become investors,” said Sharma.

Any change in the ecosystem will take time, so “if you want $2 million and get only $0.5 million, take it, tweak the product and try raising funds over and over again. Raising money is not a one-time occurrence,” said Abhishek Rungta, who holds the title of chief gardener at Seeders Venture Capital Pvt. Ltd. “And the very best companies always get funded. So you figure.”

Manmohan Agarwal of Yebhi.com on challenges for e-commerce

Manmohan Agarwal, CEO of Yebhi.com, talks about how smaller towns are opening up to e-commerce, but says there is still a long way to go as logistics remains a big issue

Yahoo snaps up e-commerce app start-up Lexity

 

Yahoo Inc. on Wednesday said it bought e-commerce platform start-up Lexity, racking up its 20th acquisition since Marissa Mayer became chief last year.

Yahoo did not disclose the financial terms of the deal to buy Lexity, a four-year-old company specializing in software applications that help small businesses attract and service customers.

Lexity, founded by former Yahoo employee Amit Kumar, boasts tens of thousands of clients spread across 114 countries.

“We’ve been humbled by the overwhelming positive response,” Kumar and his team said in a blog post.

“We are excited to join forces with Yahoo and to continue building on our vision.”

Lexity applications will continue to operate as independent offerings.

“We will continue to support the current platform, the Lexity Live app, existing customers, and third party apps and developers,” Yahoo said.

“In the near future, we plan to integrate the service with the Yahoo Small Business offering.”

The acquisition continues a shopping spree launched after Mayer became chief of Yahoo a year ago.

Yahoo’s growing list of acquisitions includes Qwiki, a New York operation behind an application that converts video and pictures on iPhones into sharable movie clips complete with music soundtracks.

Yahoo has also bought Xobni, a startup behind tools for better managing contact lists and email inboxes, and Bignoggins Productions, a one-person operation specializing in fantasy sports applications for iPhones.

Yahoo in June completed a billion-dollar deal taking over the popular blogging platform Tumblr, a move aimed at bringing more youthful users into the company’s orbit.

Since former Google executive Mayer became chief at Yahoo, the company has snapped up an array of startups including GhostBird, Alike, Stamped, Snip.it, and a Summly application built by a British teen.

Mayer’s plan for reviving the fortunes of the faded Internet pioneer includes making priorities of mobile devices, video, personalized digital content, and elevating the company’s popularity outside the US.

Amazon.com seeks FDI policy relaxation for retail e-commerce

Global online retailer Amazon.com on Tuesday sought relaxation in the foreign direct investment (FDI) policy, which restricts such companies from offering services directly to retail consumers.

Currently, 100% FDI is allowed only in Business to Business (B2B) e-commerce and not in retail trading.

The issue was raised by Amazon Global vice-president Paul E. Misener during his meeting with commerce and industry minister Anand Sharma here.

“We talked about it,” Misener said when asked whether he has sought policy relaxation in e-commerce from Sharma.

“We talked to the government officials on all kinds of issues... (we are) trying to find a better way to serve our Indian customers, both sellers and buyers,” he told reporters here after the meeting.

“We have nearly 9,000 employees here in the country and we are looking ways to better serve our customers,” he added.

Google India partners e-commerce sites for ‘Cyber Monday’ on 12 Dec

Internet users can log on to www.gosf.in and get deals for 24 hours on this day from over 50 partners. 

 

 Google India on Tuesday said it has partnered with a host of e-commerce players including Flipkart, Snapdeal, Homeshop18, IndiatimesShopping, and makemytrip to bring to India its own version of ‘Cyber Monday’ on 12 December.

 

Internet users can log on to www.gosf.in and get deals for 24 hours on this day from over 50 partners across e-commerce, local and classified, online travel sites and BFSI (banking, financial services and insurance) industries, Google said in a statement. 

 

The festival will offer users an opportunity to shop for jewelry, shoes, apparel, travel packages, books, kidswear, gadgets, watches, computer accessories, health and fitness equipment, home decor products and real estate deals, it added. First coined in 2005 as a marketing term by online retailers for the Monday coming after ‘Black Friday’, which itself is the name for Friday after Thanksgiving in the US, the ‘Cyber Monday’ has become a phenomenon over the years. 

 

In 2010, comScore reported consumers spent $1.028 billion online on Cyber Monday (excluding travel) compared to $887 million in 2009. With over 137 million Internet users in the country, India is witnessing a significant growth in the online activity. 

 

This is for the first time, an industry wide initiative of this scale is being attempted to offer users an incentive to gain from deals that they can find on the web on a single day, Google said. “The initiative is aimed at encouraging shoppers to adopt online shopping with a focus to reach out to first time online buyers. The participating companies will also offer special deals for the first time buyers on their websites,” it said. “The online shopping industry is already over $1.5 billion and with this initiative, we want to reach out and promote online shopping to the first time buyers,” Google India MD and VP sales and operations Rajan Anandan said. “For this 24 hour sale, we have lined up some really exciting offers from our portfolio of 500 brands and we’re confident that shoppers will come back for more,” Myntra.com co-founder and CEO Mukesh Bansal said. 

 

The partners include eBay India, Flipkart, Snapdeal, IndiatimesShopping, Makemytrip, Yebhi.com, firstcry.com, Homeshop18.com, Croma, Gitanjali Group, Monster India, Tradus, GoIbibo, among others.

E-commerce may be gaining momentum in India, but an estimated 70-80% of e-commerce companies are in dire need of funds

Over the past three years, 52 e-commerce companies have raised about $700 million in venture capital. A large portion of this funding has gone into one company, Flipkart.com, which has raised roughly $550 million since 2009.

E-commerce may be gaining momentum in India, but an estimated 70-80% of e-commerce companies are in dire need of funds, said a KPMG and Internet and Mobile Association of India (IAMAI) report e-Commerce Rhetoric, Reality and Opportunity. The report puts the size of the e-commerce market in India this year at $13 billion.

Several e-commerce companies are struggling to raise capital and carry on with their day-to-day activities in what is universally accepted to be a money-burning business.

Between November 2012 and April 2013, 136 e-commerce start-ups folded, according to data collected by Ashish Sinha, who runs the website NextBigWhat.com

Experts say money will not come easily to e-commerce firms.

Over the past three years, 52 e-commerce companies have raised about $700 million in venture capital. A large portion of this funding has gone into one company, Flipkart.com, which has raised roughly $550 million since 2009.

Inventory carrying e-commerce companies such as Myntra.com, Flipkart.com and Jabong.com with large product spreads may require funding to the tune of $200 million to get to profitability, said the report.

Over the years, the average deal size has almost doubled from $6 million in 2007 to $11 million in 2011, as e-commerce businesses have gained traction and require larger investments for growth, it added.

Even then, except for the top two-three e-commerce firms, most companies are surviving with 12-14 months of cash and therefore need to raise capital, said Mukul Singhal, vice-president of SAIF Partners, which has invested in four e-commerce firms. He added that e-commerce is a capital-intensive business and profitability takes time because of infrastructure issues, logistics costs and early-stage competition.

“Few companies will be able to raise funds and a few will not be able to do that,” said Singhal while pointing out to the fate of companies in the online travel segment as an illustration.

According to Singhal, in 2006, 15-20 online travel firms raised funding. Only three-five firms were able to raise the third round of funds and only two or three raised a fifth round.

It’s the ability to raise subsequent rounds that distinguishes the winners from the others, according to another expert.

“E-commerce in India is a game of the biggies who will continue to raise follow-on rounds. Category leaders are more or less identified. In the large, horizontal play, we will see a few firms emerging as leaders, while in the niche segment there could be multiple leaders,” said Deepak Srinath, director at Allegro Capital Advisors, an investment bank. “We will see natural death or another wave of M&A in this space.”

The e-commerce market is growing at an average rate of 34% since 2009 and is expected to reach $13 billion by the end of 2013, according to the KPMG-IAMAI report. The online travel segment contributes 71% of total consumer e-commerce transactions whereas online retail, or e-tail, is the fastest growing segment contributing 16% of the overall transactions as of 2012.

In the past year, some of the biggest investments have happened in the e-tail segment in companies such as Flipkart.com and Myntra.com. The e-tail sector is expected to grow at 59% a year and will account for one in every two e-commerce transactions by 2016, said the report.

E-commerce drivers include discounts, cheaper prices, convenience and accessibility. Nearly two-thirds of people buying online due to the cheaper prices and discounts, it added.

“Pricing followed by availability and experience are the most important drivers for us,” said Praveen Sinha, co-founder and managing director of Jabong.com, who added that nearly half of his firm’s overall sales comes from cities outside of the top 50. Consumers in most of these cities do not have access to these products and choose to buy them online, he explained. Sales to customers in these cities is growing faster than that to customers in the metros, and in coming years, the contribution of sales from these towns will exceed that from sales in metros, Sinha added, without providing any numbers to back his claims.

Yet, servicing the smaller towns and rural areas is a challenge due to limited last-mile connectivity. Over 50% of the logistics cost for e-commerce companies can be attributed to last-mile delivery, said the report. Moreover, only 10,000 out of more than 150,000 pin codes in India are covered by courier companies, it added.

Flipkart launches e-books app for iOS, Windows Phone, browser

The apps will sync across all platforms; the company also plans to add Marathi and Bengali books by the next quarter

Flipkart currently has over 250,000 e-books in its digital catalogue, and plans to raise that to 1 million.

After a major funding round of $200 million last month, Flipkart’s next big announcement has been to widen its scope in the Indian e-book market. The company already had an Android app through which users could read e-books they bought via Flipkart. On Wednesday, it announced apps for iOS and Windows Phone, along with a browser-based reader, to read books on your computer. All the readers are free to download and use.

“Providing seamless content, regardless of platforms, will be a big part of our strategy to further strengthen this position and extend it to the digital space,” says Ravi Vora, senior vice-president, marketing. The apps will also sync across platforms, so you could read on your computer and then switch to your phone, without having to try and find your page. The apps will also let you read the first 10% of any book even before buying it.

“We’re particularly bullish on the iPad, which lends itself really well to reading, and today, you also see a wave of new, large-screened Android devices. Users now have a lot of options and it makes sense to be device agnostic, instead of tying your books to just one device,” says Mekin Maheshwari, head, payments and digital media.

Apart from the new readers, the company also announced that it will be focusing more closely on Indian language writing, and will work with publishers to digitize more books from Indian authors. As of now, Flipkart already has books available in Hindi and English. The company plans to add Marathi and Bengali books by the next quarter.

While Maheshwari wouldn’t share the total number of downloads or even titles on Indian language books, he feels that this is going to be a big area for future growth, particularly as more and more people start to use smart devices.

Flipkart entered the e-books space in November, around six months after their MP3 store launched, putting both under the Flyte banner. Flipkart exited the digital music space in May, owing to issues such as lack of buyer interest and issues with micropayments and piracy.

It’s worth noting that the problems of a small user base and piracy will be the case even with e-books. Maheshwari would not reveal the total number of users buying e-books from Flipkart, but believes that piracy is a smaller problem for books than it is for music. “Unlike music, books have never really been DRM (Digital Rights Management, a form of copy protection) free, so piracy isn’t a big issue. There were also fewer content models, like streaming, which definitely makes it easier to sell books.”

Flipkart currently has over 250,000 e-books in its digital catalogue, and plans to raise that to 1 million. “We’ve been working with local publishers, helping them to digitize their catalogues. We’ve already got the best reach in Indian authors writing in English, and guys like Amish (Tripathi) and Chetan Bhagat, whose physical books sell well. They’ve also been highly successful in the digital format. The other big thing for us is going to be the support of more Indian languages. Our technology is in place, now we’re helping the publishers to get the content to us.”

The company already sells a smattering of Hindi e-books, and will be expanding this catalogue, besides adding Marathi and Bengali language books in the next quarter. As more publishers come on board, Flipkart will add more languages too.

While all these updates might make the app more appealing to users, some of the issues that were faced by the MP3 store remain. Apart from that, there is also competition from Amazon.com Inc.—the company has a long history in this space, and its prices are very competitive. It already offers many of the same features that Flipkart is now bringing, and if you already have a history of buying e-books from Amazon, or own one of the popular Kindle e-book readers, then you’re locked into the Amazon market, and wouldn’t want to buy from a second seller.

Ashish Hemrajani | The original ticket master The founder and CEO of BookMyShow on big deals, building reserves and survival

Ashish Hemrajani | The original ticket master

The founder and CEO of BookMyShow on big deals, building reserves and survival

Ashish Hemrajani explains the monopoly his company has in the online ticketing space as some sort of “last man standing” phenomenon

“I am like the Forrest Gump guy,” says Ashish Hemrajani referring to the 1994 movie. “The whole world has gone around and I haven’t moved out of a 1km radius.”

Hemrajani, the founder and chief executive officer of Bigtree Entertainment Pvt. Ltd that owns the website Bookmyshow.com, which offers ticketing for cinemas, plays, concerts and live events, gives further evidence to the claim. He lives in the house he was born in Juhu, Mumbai, he went to school (Maneckji Cooper Education Trust) and college (Mithibai) in the same area. “Then,” the 38-year-old says, “I travelled 30km for two years to Sydenham (College of Commerce and Economics) for my MBA. That’s as far as I went.”

Professionally, though, Hemrajani has gone farther than many.

In mid-July, Bookmyshow.com signed a five-year deal worth Rs.1,000 crore with PVR Ltd to sell the latter’s tickets online (BookMyShow was previously managing PVR’s ticketing system but was not selling its tickets on the BookMyShow site). Hemrajani says the biggest gain from this deal is for the end consumer. “All I own is your user experience. The user owns us. I am giving that extra experience in one place,” he says. The deal adds 89 PVR cinemas (including Cinemax India Ltd, which the company acquired in January) with over 380 screens to BookMyShow’s existing tie-up with over 1,500 screens.

Illustration: Jayachandran/Mint

About 85% of their sales comes from movie tickets, says Hemrajani, but 45% of the revenue comes from other properties like the Indian Premier League (IPL), Formula One Indian Grand Prix, music events like NH7 in Pune, at blueFROG, among others. He believes there will be some equitable distribution of revenue in the future—“it will settle down at 50-50%”. His focus now will be on spreading into smaller towns since most of the current business comes from the top 4 metros. “The growth from class 2-3 towns is phenomenal, not because of the Internet on computers, but because of the mobile phone. BookMyShow does 26% of its transactions on mobile—the highest in the country. It’s (the app) a bit clunky but it works,” he says.

We meet at the Olive Bar & Kitchen at the Mahalaxmi Racecourse in Mumbai. Dressed in a black shirt tucked into jeans, Hemrajani has just finished a late lunch and gets a coffee as the restaurant begins to slowly wind down. He sinks into the cushions by the large windows, unperturbed by the unusually bright sunlight streaming in, after weeks of cloudy or rainy weather. He fires his answers swiftly, like an accurate automatic weapon, with figures and dates flowing in smoothly.

His parents, children of the Partition, moved to Mumbai to fulfil certain aspirations they had for their children. “Somewhere, genetically, that risk-taking ability seeped in,” Hemrajani says. He learnt piano while his elder sister learnt the guitar—“it should have been the other way round,” he says, laughing—while also doing speech lessons. There was a comforting routine then to life—trips to Jehangir Art Gallery on weekends, meals at Samovar and Sea Lounge, which his father could barely afford, buying LPs at Rhythm House, visits to the beach in Juhu…a routine which he still keeps up with. “Three generations of watchmen know me, the postman has seen me grow—these relationships have not changed in 38 years. Only that I lived in two different cities: I was born in Bombay and am today in Mumbai.”

He has told his story of enlightenment often enough—it came under a big tree while backpacking in 1999 in South Africa, when he happened to listen to a radio programme promoting tickets for rugby. The idea marinated in his head the whole trip, culminating into a decision while lying on a bunk bed towards the end of the trip, after a night of binging at Stellenbosch. The name of the company comes from the location of this realization.

Shortly after, Hemrajani quit his two-year-old first job in advertising agency Hindustan Thompson Associates, where he was working then, persuaded friends Parikshit Dar and Rajesh Balpande to leave their jobs as well, to start selling movie tickets through telephone and Internet in 1999, at the height of the dotcom boom. Private equity firm Chase Capital Partners invested Rs.2.5 crore, selling their stake in Bigtree to News Corp. two years later before the dotcom bust. His number of employees went from 150 to 6, he had to shift offices and reassess all priorities.

“Today, kids know valuations and have accelerator programmes,” Hemrajani says. “They have learnt from people’s failures. Then, the ecosystem did not exist. I got calls from headhunters about jobs but I wanted to continue. That was one of my toughest decisions. I knew we had to ride the ecosystem.”

The company now employs over 300 people in offices in Mumbai, Delhi, Hyderabad, Bangalore, Chennai—where Bigtree bought Ticketgreen.com in December for an undisclosed sum—New Zealand and Australia. Network 18 had invested in the company in 2007, at the same time when an intern came up with the name Bookmyshow.com for the portal. US venture capitalist Accel Partners put in $18 million (about Rs.100 crore) in August last year.

“We have retained most of it,” says Hemrajani of this investment. “We have some plans besides the acquisition of Ticketgreen; we have some capital expenditure on infrastructure and some work around access control at events. We have a radio campaign. We built that war chest to run a series of experiments but also if the market changes and becomes irrational. In India, people are short of ideas, heavy on money. There is too much money chasing too few ideas, which leads to irrationality.”

"IN PARENTHESIS: Ashish Hemrajani watches movies only during daytime, Monday to Thursday. It’s not just because tickets are cheaper, he says, but also because there are fewer people and it’s easier to find parking. Most importantly, though, weekends are reserved for sailing. A member of the Royal Bombay Yacht Club, Bombay Sailing Association and Colaba Sailing Club, between October and April, he has been sailing every Saturday and Sunday for the last decade or so. “There are no boundaries here unlike other sports,” he says. “The ocean is your boundary. If you want to race to Dubai you can; you will not win though. The rules are used to disadvantage opponents not advantage yourself. The elements of nature are not in your control; one mistake is catastrophe as the boat can capsize. On water, you are screaming. The moment you come to land, everybody’s friends. Sailors know how to dissolve their egos as soon as they step out of the water.”"

He explains the monopoly his company has in the online ticketing space as some sort of “last man standing” phenomenon. “I have seen two dotcom booms and busts. When the tide pulls back, asWarren Buffett says, you know who’s been skinny dipping. Every time the tide pulled back, like in 2002 and 2008, people fell. In 1999-2000, I had 21 (competitors), in 2007, I had 27. I had to let go of my employees. I have learnt a few lessons in the process, because of which we have now the lowest churn—it’s more expensive to rehire, retrain and it’s bad karma—and highest retention.

“If you don’t earn money, it’s not dhanda (business). Anything that’s free has no value. Don’t be excitable when the going’s good, or feel bad when the times are low. And do not fear junk competition.”

As we move to the outdoor section, to help the Olive staff clear up and prepare for their next cycle, a gentle breeze carries odours from the nearby stables. Hemrajani races into some heavy statistics in explaining how much more is left to be done: 3.6 billion movie tickets sold every year, 1.4 billion Indians, 140 million with Internet access, 20 million transacting customers, 20 million “kids” on Facebook who will get their first pay cheque in a few years, 700 million handsets, 78 million smartphones and 18 million data connections.

“How do you reach out to everyone? It would be foolhardy to say we will do travel, etc. I would rather do something well than be a generalist and screw it up,” Hemrajani says. “Indians are impatient—they want to be millionaires tomorrow. You have to find the balance between doing more and doing the right thing.”

Hemrajani says he is an extrovert in a social situation, able to strike a conversation with anyone, but takes time to make friends. He also has a sharp sense of observation, he adds, and an eye for the future.

“People have the same aspirations, they may want the same Old Navy bag,” he says, pointing to the 11-year-old sack with no label by my side. “The Web is the only way. The possibilities are immense.”

Flipkart.com The campaign breaks through the clutter

Flipkart.com

The campaign breaks through the clutter

The ad spoofs the format of news TV debate shows

Founder and chief executive officer of The 120 Media Collective, a Mumbai-based multi-platform content company, Saluja has made television commercials and other content for Unilever, Nokia, L’Oréal, Pepsi, Sony, Johnson & Johnson and Volkswagen.

CAMPAIGN

The new ad for online retailer Flipkart.com titled, “India Wants to Know”, by Happy Creative Services, extends the children-as-adults concept. The ad spoofs the format of news TV debate shows. The question and answer format is used to address consumer concerns about online shopping. Tag line: Ab sirf shopping nahin, Flipkart karo (Don’t just shop, do Flipkart).

What did you think of the ad?

Talk about tapping into the zeitgeist. Who isn’t sick and weary of what our news channels subject us to? Who better to take potshots at than good old Arnab (Goswami, of Times Now)? Juxtaposing the news setting with the Flipkart kid world just dials up the amusement quotient to another level. People always seem tickled by the Flipkart kid world. While it’s brought a smile to my face, I’ve been a tad less enthusiastic about the campaigns than the average person. That is, until now. This iteration hits the sweet spot and judging from my Facebook newsfeed, they’ve definitely scored big across the board this time around.

Does their decision to use children in ads work?

Of course, it does. It’s allowed them to break through the clutter and create an ownable world that’s limitlessly extendable. It’s probably a casting nightmare but well worth the effort.

What must e-commerce sites keep in mind while planning their campaigns?

Cost per customer acquisition is a key success metric for start-ups and e-commerce players. As a result, production costs and media ad spend need to be kept to a minimum. E-commerce is such a crowded space that it’s clearly a case of “differentiate or die”. While online media spend is far more efficient, one player spending heavily online compels the competition to do the same. At the end of the day, he who has deeper pockets has a greater chance of success. That’s where creativity can be a trump card in helping bring down that acquisition cost number.

Any other ad that you think is cool in this category?

E*TRADE’s “Monkey” from Superbowl 2000 that features an old man and his odd-looking younger companion sitting still, then joined by a monkey who puts on some music and starts to dance on a chair. His human cohorts accompany him by clapping in the most ridiculous manner you’ve ever seen. It ends with a super that says, “Well, we just wasted 2 million bucks. What are you doing with your money?” referring to the exorbitant ad rates during the Superbowl. Gutsy. Cheeky. Brilliant.

Around 60% of Jabong.com’s revenue comes from small towns: founder

The online retailer is growing at high double digits, says founder Arun Chandra Mohan

Arun Chandra Mohan says Jabong.com gets around 14,000 orders daily

Arun Chandra Mohan , founder of Jabong.com, said the online fashion retailer is getting more than half of its sales from small towns, where people do not have access to brands such asDKNY and Benetton. The retailer’s sales have increased in “high double digits” in the past three months, Mohan said in an interview, even as the Indian economy grew at 4.4% in the three months ended June, the weakest pace since 2009.

In less than 20 months, Jabong.com has become the third-most visited online shopping website after Myntra.com and Flipkart.com, according to a 22 August report by comScore Inc.—an online traffic measurement company.

Jabong.com, a part of the Germany’s Rocket Internet group, gets around 14,000 orders daily, Mohan said. More than 60% of India’s 73.9 million Internet users visit online retail websites, spending an average of 28.4 minutes, less than what people spend in countries such as China, Russia, Brazil and even the worldwide average of 84.3 minutes, according to thecomScore report. Edited excerpts:

You launched Jabong last January. How has the journey been so far?

It has been a roller coaster ride but phenomenal. We are playing a very key role in shaping the Indian retail industry.

Online retail still accounts for a minuscule $600 million compared with India’s $518 billion retail industry, according to a report published by Technopak Advisors.

There is no robust infrastructure to meet the demand of the consumer. It is either completely unorganized or then there are retailers like Future Group who are all concentrated in a very small metropolitan area of the country. In India, e-commerce is not going to be another channel. It is going to be the channel. It’s going to be the main pie. We already see this in China, where the market is growing at 50% and forecasts say that by 2015 it will be the single largest market in the world in value. India is very similar to China. Indian e-commerce will be where China is now (China became the world’s second largest e-tail market with an estimated $210 billion revenue in 2012, according to a March report byMcKinsey Global Institute) in 4-5 years time. It is basically that the supply infrastructure is not there and it is not going to be there.

Is this working for you?

Today, 50-60% of our sales are coming from small towns. These are not the top 45 cities, but the next rung after that. Very often, e-commerce is the first way that our consumers access brands like Benetton and DKNY. They never had access to any of these brands before.

The sustainability of online retailers in India remains suspect. We are yet to see a profitable venture...

There have been questions about that. But now after 18 months of operations, it just proves that having foresight, vision and relentless focus on execution really pays off. We are extremely pleased with the growth of industry and our role in shaping it.

The perception is that growth is driven by investments. If no funding is available then there is no visibility and no growth.

We are running a business. We are also here to make money. I don’t think any sensible e-commerce company is burning money like crazy. Everyone is very pragmatic. Like retail, costs are high and margins are low so you need to think twice before spending money. When we were entering the market there was a lot of stupidity that has significantly gone down. Unless you take a medium- to long-term view, you will never find answers and never make the right decisions.

The fact is that the Internet is very cheap. Add to that a young population with high aspirations. The share of income they (the youth) spend on discretionary activities of looking good or feeling good is substantial.

How value conscious is this segment? Are promotions and discounts the only way to lure them to shop online?

If you really take the evolution, e-commerce in India started with discounts and deals. That was the first wave of companies like Snapdeal, Groupon, etc. That was the main driver for the consumer to come in besides availability. But most of the stuff that was on discount was not really aspirational. It was not really fashion. One can easily sell products that are three seasons old. That would not really excite anyone. So it is discounted. However, for fashion, there is a genuine lack of supply. What we are seeing is that consumers want the latest, something that is in fashion. Our consumers want fresh season stuff. They know how they want to look and feel.

Who is this consumer?

This is the Indian middle class. Over 85% of our consumers are the Indian middle class. This means that they have access to the Internet. They have bought books and tickets online and have now evolved to buying fashion.

Is the slowdown in the Indian economy affecting your business?

The last three months have been great. We haven’t seen a slowdown in our growth. We have been growing at high double digits.

By when will you be profitable?

We have clear timelines to get there. We have made strong progress in the last 8-9 months and we will beat those targets.

Slowdown creates opportunity for e-commerce to grow faster: Sachin Bansal

Bansal speaks about expanding into new product categories and the shift to the marketplace model

Flipkart.com, which recently raised $200 million from investors, including Accel Partners and Tiger Global, is the face of e-commerce in India. Having launched its marketplace platform earlier this year, the company has also attracted the attention of regulators, who have banned foreign direct investment (FDI) in e-commerce. In February, Flipkart effectively moved to Singapore, setting up Flipkart Holdings Singapore that owns and runs the technology and the back-end, and selling the front-end operationWS Retail Services to a group of Indian investors. The change came even as India’s Enforcement Directorate was probing the company for violations of India’s foreign exchange laws. Indian laws do not prohibit foreign investment in a marketplace.

In an interview, co-founder and chief executive Sachin Bansal spoke about expanding into new product categories, the shift to the marketplace model (WS Retail is one of the sellers in Flipkart’s marketplace), the status of the probe by the Enforcement Directorate and working with co-founder Binny Bansal. Edited excerpts:

You started out as a bookseller and then entered many product categories over the years. What are the things or criteria for entering a new category?

E-commerce in India is a land grab opportunity. We see an opportunity in almost every category. The expansion is limited only by our capabilities because the market is huge. Reliability and scalability on the supply side are the main things.

Which new product categories are you looking at entering currently?

We’re already in most categories. What I’m looking forward to is (selling) large items—large electronics, refrigerators, TVs, washing machines, furniture, large sporting gear. There is a very big market for heavy, bulky items. We don’t have these and we’re focusing on how to solve it. It requires a different supply chain investment and we are going to make it. Another category is fashion. We are in it but we can make it huge. In India, the market for clothes and shoes is bigger than electronics.

You’ve exited some categories, online music store Flyte for example. What went wrong?

Our understanding of the market was not deep enough. But in a sense the launch of the product itself was the test for the market. Sometimes, we need a sense of over optimism otherwise you will never try things.

Flipkart launched its marketplace platform earlier this year. Do you own inventory or are you a pure marketplace?

All our sales (to consumers) happen through the marketplace now. We do keep some inventory. Some of the inventory we keep and sell it to our sellers. There are other B2B (business to business) players who buy from us as well. So our own inventory is for B2B sales and as support for sellers. We have 700 sellers now and we’re ramping up. In a year’s time, we want to get to 10,000 sellers.

When did you sell WS Retail (the company’s former front-end business)? What kind of business relationship does Flipkart have with WS Retail now?

It’s a seller on Flipkart now. It’s our largest seller in fact. The change happened a few years back when we made it a separate company. We started separating the front-end and backend of the business in 2009 and our idea was to get separate investors. As regulations changed, we had to sell it.

What’s the status of the Enforcement Directorate probe and what questions have they asked you?

Without getting into the specifics, government bodies have the right to ask questions and our job is to comply and answer their questions. We feel that we’re completely on the right side of the law and completely compliant with regulations. I wouldn’t be able to get into more specifics.

How much of your business comes from mobile and at what rate is that growing?

Twenty percent of our traffic comes from mobile, excluding tablets. 3G speeds are improving, rates have come down … The rate of growth on mobile is exponential.

What are the important things that you’ve learnt about the Indian consumer?

Lately, there have been service issues at Flipkart (regarding delivery of large items). We got a lot of negative publicity about it and rightly so. We did not meet our promises. But we are fixing that and we’ll come back … What that taught me is Indian consumers care deeply about service. That’s what our premise was when we started Flipkart. There were always players who were cheaper than us. We said we’ll differentiate Flipkart on service. And our success is living proof that Indian consumers greatly appreciate quality service and give more importance to service than just cheap prices.

E-commerce is a small sector right now. Even so, has the weak economy affected your growth?

E-commerce is too small right now to be influenced by macro factors. The slowdown possibly creates an opportunity for e-commerce to grow faster. If you look at Amazon, it’s faster after the recession of 2008. Consumers become more price and value conscious during a slowdown. Offline stores because of their high cost structure struggle during slowdown.

For entrepreneurs there’s always the question, when do I sell? What about you? Are you building to sell?

There are pros and cons for both sides. It’s about what the founders want. We want to build the company.

It can be one the largest e-commerce companies in the world; we can be in the top five. India can produce that kind of a company, given the number of the consumers. So we want to be independent and build the company. Our role models are not companies which have sold, but companies like Airtel andInfosys, which have built large businesses.

You’ve raised more money than probably any other start-up in India. What kind of pressure are you under from investors?

Investors invest money obviously where they can make money. From an investor point of view Flipkart is a gold mine. The market is huge and there’s no limit to growth and then you look at our leadership position—we’re more than a third of the market. Then you look at the kind of management talent here … If you put all that together the answer is obvious. I don’t feel the pressure. It’s a personal thing. The kind of investors we have are not just money investors. Tiger Global for example has 50-60 e-commerce investments. So they bring a great perspective.

As you grow larger how is your board evolving?

We want to make our board more independent. We have one independent director right now, Rajesh Magow, the CEO of MakeMyTrip. He’s added a lot of value and we’ll be looking to add more independent board members.

E-commerce is a new sector. Is it challenging to explain what you do to regulators? What regulations do you want passed?

We work very hard with trade and government bodies to build a case for e-commerce. They are taking some time to understand … On the regulations front, we would like to see stability. There’s uncertainty right now and it should not always be a catch up game. The definition of group company is an example—regulations on that have changed a few times and it’s still a bit ambiguous.

Flipkart has seen many executive departures at the senior management level. Is the company struggling to retain talent and what do you do to reduce attrition?

If someone thinks Flipkart is not the right place, or that there’s something better out there, there’s not much you can do. But trying to do a better job while hiring is one thing we can do.

When you hire, you don’t just look for capabilities. It’s also the alignment on what the company needs and what the hires want to do. We can do that better and we’ve been doing better after making a few mistakes. In any case, the number of senior executives who have left Flipkart is not more than for any other company.

It’s essential for start-ups that their founders have functional relationships, at the least. What are the dynamics between Binny Bansal and you?

Trust and understanding between founders are very important. Mistakes happen. There are disagreements and sometimes I would decide to do something because I was so passionate about it but it turned out to be the wrong decision. What we’ve been able to do is not blame each other for mistakes. If we’re not able to come to an agreement, the guy who’s more passionate about the issue will take the decision. But we never do things like, ‘I told you so.’ That’s wrong, even if you had told the other so! Having complementary skills is also important. Binny is able to analyse a lot of data, which I sometimes find difficult. Whereas I come from the other way—sometimes I form a hypothesis and then look at data.