Articles

E-Commerce and Virtual World

ARTICLE - 53

Indian consumer, especially in the metro cities, seem to prefer purchasing through e-commerce routes. A quiet (and also not so quiet due to an incidence with a company!) revolution is taking place in terms of booking for taxis. I had talked to a number of consumers of such services in Bengaluru and we have used it too. Ola has “aggregated” taxi services and a person can get a taxi within any place in Bengaluru city within about 20 minutes by calling or using an Apps to book Ola. The taxi is used mainly for a pick-up and drop. Asking to wait and stay is costly as time clock ticks fast the rupee rate! But pick-up and drop, is very competitive compared even to auto rickshaw fares! So what is the problem if waiting is costly? One can finish the work at leisure or hurriedly and book for another taxi at another place where one is!

What is the impact on the drivers? They are all very happy. They don’t have to overwork all day. They can fix the time of their availability and be available at that period. No hassle of bargaining; the amount comes in their mobile. Take the amount and go for another duty. Many drivers told me that they get about Rs. 3000 per day net profit. There are also other drivers who do the earlier conventional duty of pick up in the morning, wait in office, and drop in evening. Then they do “Ola” duty for a few hours at night and/or week ends and earn more.

Passengers are happy; the drivers are happy. The middle persons who used to run an office, receive calls, fix rates etc., are now the most affected, as drivers directly book with Ola, complete the formalities of police check etc., get the standard instruments for e-contact. Many of the small scale business of these “middle persons” who run taxi service businesses either have their cars or have drivers with cars registered with them, have to charge their overheads on the consumers (passengers) and on the drivers. Those overheads are now in e-aggregation mode spread over several thousands of drivers, unlike the traditional taxi service providers who used the traditional mobile phones and did business by talking. They at best texted (SMSed) driver name etc., They had around 50 to 100 taxis at their command some even less number. The new service mode of e-commerce (Ola, Uber etc.) “aggregates” several thousands of drivers and have complex computer models which link the nearest driver to the passenger seeking the service of a driver (car sizes also can be chosen).

Passengers link to this “aggregated information” available in the virtual world and get the services directly without direct intervention by a “physical middle person”. The virtual world of computers, networks software and mobiles, do their linking. Passengers can choose the car type, in whatever place they are going to stand. This method of e-commerce using the virtual world for selecting the goods or services through Virtual Medium has the economy of scales. The managerial overheads are spread over many thousands of people. Therefore the services are competitively priced for the consumer and the actual person who delivers the service is also paid well. “WIN-WIN” for both these group of persons. But the traditional service providers are losing out on their businesses.

Remember “good old days” as late as 1980’s when telephone operators with excellent voice and diction were sought after by the telephone exchanges and offices and were paid fairly well. With the advent of automated long distance trunk dialing, their importance started waning. Nowadays most big organizations have just one operator. Most of the enquiries are done by pressing one number or another, and operator is the last resort help desk.

That is the power-of-the technology. Automated exchanges use computers to route calls. Later came train booking Now @ 2015 reservations for railway tickets including selection of seats are done through internet and also paid electronically. It is also an e-commerce in the virtual world.

We explore in this brief article, the dimensions of e-commerce as they are now emerging in India and the new possible directions. We will also look advantages that can directly accrue to rural economy and those who depend an agricultural produce for their incomes.

WHY E-COMMERCE IS GETTING POPULAR?

For airlines booking through internet or smart phones and for tele-check in, the advantages is very obvious. Earlier, ticketing used to be in a few places in a city.

So is the reason for rail ticket booking and also for many tourist bus services – for a city tour, inter-city tours, tours to places of religious pilgrimage etc., There are many one-person businesses as well which help a number of not-so-tech-savvy passengers including those in lower middle class who may have not have internet or smart phone facilities, to book trains, tourist busses etc., with a small service change.

For these travel related services which sometimes include hotel bookings as well (for tourists), the advantages are very obvious. No hassle of long queues. This also helps them from the loss of leave or wages, which they lose, if they have to go to railways station or select offices to go and get tickets etc...

Nation benefits as a whole, because the economically productive persons, do not waste their working hours inefficiently by standing in queues. For getting such efficiencies for the national economy a percentage of persons in airlines, railways, and bus services who were doing a “parasitical” task of issuing tickets one-by-one (a large inefficiency!) would have “lost” jobs. But as the overall efficiency of the system improves with much passengers who travel, these agencies also gain a lot; the redundant persons who were performing inefficient and parasitical job would be deployed to more productive tasks.

In a similar way, look at the advantages of ATM Services provided banks. The economic efficiency, these ATM services have provided for ordinary Indians and the economy is many-fold. In addition well being of people is increased several-fold, as they don’t have to wait for a bank to open for cashing cheques and almost losing half-a-day in casual leave!

Internet and mobile banking have increased many times more the conveniences of banking. Of course, this is still limited to a small percentage of Indians, who are educated and take advantage of internet penetration; there is some good news that rural internet penetration is increasing.

Credit cards given by the banks, cover still more affluent sections of Indians. But this service has added a great convenience for an Indian to shop, to go to hotel or to book a ticket etc., Under Jan Dhan scheme and the RuPay credit cards under the scheme, the current Government of India, intends to extend the convenience (albeit in a limited way) to all Indians including those in the Bulky Base. (Kisan World readers are well aware of this BB)

Another group of middle class and elite group Indians who benefit from such e-transactions (virtual world transactions) are those who pay Income Tax, Service Tax, Property tax etc. Though, there are a number of problems of transition from the earlier system of individual paper filing (more so because of the old mind-set of the tax officials), this e-system is of great help to tax payers. Here again the benefits are obvious: One does not have to run-around and waste time on enquiries.

We have described in some detail in the earlier section about the advantages of booking taxi through aggregated systems like Ola, Uber etc...

We have not included in this set of e-commerce/Virtual world, the traditional forms of phoning and booking taxies, hotels, and even ordering of food. These are mainly due to easy availability of telephone connections (land or mobile) food delivery is simplified because of easy transport (two wheelers) and food packaging facilities (from plastic bags to heat conserving packages). Of course, these add a bit to overall price charged to the consumer (but the convenience is several fold)

Beyond these items, e-commerce is mainly around purchase of goods and services through ordering in the virtual world. These are also called e-retailing or e-tailing.

E-TAILING:

In a recent article Saturday 21, March 2015, in Business standard under the heading “Flipkart has biggest piece of Indian e-tailing pie” there is a brief report of the new report by Morgan Stanley.

The market share of companies is as under:

Flipkart - 44%
Snapdeal - 32%
Amazon - 15%
Others - 9%

In terms of products/services sold in Indian E-comemrce the article states:

Electronics & appliances - 51%
Fashion - 30%
Books - 7%
Others - 12%

There are a number of Merger and Acquisitions (M&A) of different companies which are creating new business opportunities. For example, most of flip karts’ business had been from consumer electronics, books and other categories. With the acquisition of Myntra which has advantages in the Fashion Space, Flipkart became a market-leaders.

The coming months and years would see many such M&A. Such M&A are taking place in the taxi service providers as well.

This business segment is emerging as a big business with veterans like Ratan Tata investing on many such start up companies.

IS IT ONLY UPPER MIDDLE CLASS AND ELITIST ZONE?

Let us look at an article in Business Line 23 March 2015, under the title “Wealth at the Base of the Pyramid”. The subtitle of the article states “World Bank data showcases opportunities in this$5 trillion consumer segment.” This is of course an estimate of the world market. In India too it is sizeable if systems are created to create the right type of Virtual Market for different market segments and also create the supply chain for reaching the consumer speedily with quality products.

The World Bank as per the article use four levels of consumption to segment the market in each country: Lowest, Low, Middle and Higher, based on income distribution data. The population segments are identified through income per capita. It appears to be similar to what we had described Indian demography, in the Indian context. Rich and super Rich, *RSR), Upper Middle Class (UMC), middle and Lower Middle Class (MLMC) and the Bulky Base (BB) in India would be around 700 million.

As is evident and as per the report, in the lower consumption segments, food and beverages dominate; in this segment taken together, food and beverages are significantly larger than the middle and higher segments. Higher segments spend much more on services. No wonder the Indian e-commerce business is dominated by electronics goods and fashion as we have given in an earlier section. Finance services and transport also dominate their lives. This indicates that RSR, UMC, and some of the middle class (MC) participate in e-commerce heavily. They have access to internet and smart phone. Their life style demands both partners working full day, suffering all the terrible traffic congestion. They get only the week ends off. They used to rush to the Malls. Again severe traffic congestion is an inhibiting factor. No wonder the e-purchase has come out as convenient mode for buying domestic white goods, fashion dress and even ordering upper level food (pizza, chicken etc.,)

The estimate in US $Billion in the Business Line article for the market size of South Asia is:

Food & Beverages : 646
Housing : 143
ICT : 37
Education : 40

While it is lot better than in post-liberalisation India, in terms of quality products reaching rural areas where most of BB persons live and also the Tier II, Tier III towns where Lower Middle Class persons live (to be sure they live in Metro cities too), still the benefits of e-commerce has not reached them.

It is not just enough to build up supply hains, which are still poor because of poor quality roads, too many tax/check points, poor train good services. It is also necessary to create the soft infrastructure required for payment for goods (for the seller and buyer)

An interesting recent article in the Business Standard in the Strategist, titled “Playing Catch-up” The article describes in detail how digital payment service companies like PayPal, the internet giants like Amazon Payments and Google wallet and many other mobile payment companies are operating.

The report states that in India “in the mobile payment space, companies have mushroomed all over India; there are about a dozen mobile wallet firms, including Pay term, with 20 million active users (more than the cumulative number of credit cards in India) and others like Mobikwik, Oxigen, Zipcash and Citrus which allows users to digitally store cash (under a cap of Rs. 10,000) typically for low value mobile on line transactions”. These are good news. Some further facts: “64 percent of Indians are willing to make purchases on smart phone this year (i.e. 2015) SMS based payments have the ability to reach out the unbanked sector. Over 40 percent of digital wallet users hail from tier II and tier III towns. What is more, competitive lines are blurring with telecom companies entering into this arena, an example being Vodafone’s M-pesa Mobile wallet designed to reach out to the under banked or unbanked population done by us to emphasize)". Thus there is a great opportunity to reach out more of these persons and also to rural areas for reaching agricultural farmers, big and small, agricultural labourers and the migrant workers who mostly hail from villages.

The main spirit of financial inclusion desired by the Prime Minister through Jan Dhan programme can be achieved, if such e-facilities are fully utilized. The banks need to be creative and reject the notion of “not-invented-here” NIH syndrome and use many of these successful examples. Government also should not place hurdles on such innovations. Remember how India reached TV with 100+ channels to many millions Indian homes through Cable TV (something market pundits around the world did not envision or forecast!) Similarly mobile phones themselves can reach such services to all Indians especially in the rural areas. The parasitical middle persons (including government inspectors, FCI purchaser etc.,) can disappear if agriculturist is directly linked to consumer via aggregators of e-commerce and the service providers.

VIRTUAL WORLD, AGRICULTURE AND RURAL ECONOMY

As the readers of the Kisan World are well aware, the farmers, not just marginal but also those who are middle level famers, suffer because of vagaries of weather and market. Their options for inputs are also limited. If we list the tradeable commodities, illustratively :

  • Inputs like mix of fertilizers, micronutrients, pesticides, agricultural implements including pump sets, drip irrigation components and project consultancies, animal/bird health are services etc.,
  • Outputs from grains to cash crops, horticultural products (where wastage is very high), agricultural wastes, floricultural products, animal, bird, fishery products etc.,
  • Labour time and period of availability for other sectors of economy, per day or per month wages expected, advance money needed etc.,
  • Many related artisanal, rural products, herbs etc.,
  • Tourist attractions in villages etc.,

Creative young entrepreneurs may list more of these. In a focused way if these can be brought into the virtual world for people offering to sell and buy, a vibrant e-commerce of rural economy can flow.

I am not unaware of the inadequacies of many elements of rural town infrastructure: roads, transport, storage facilities, packaging of products with minimum assured quality levels, etc., Packaging is crucial to e-commerce in the delivery at input or output side). But each of these elements may become major enterprises in themselves in a local area and then expand. See the quality vegetable/fruit outlets in many towns/cities like Pazhamuthir Solai, Reliance, Conduit Fresh etc., There are hundreds of them. How lakhs of eggs are transported daily all over India. Similar aggregations can take place, once a hope and infrastructure are created to exhibit products to the potential markets and for the consumer to order goods/services and pay for the products; The payment should reach the actual supplier almost instantly. Amul’s success is based on this. Similar enterprises will develop, for the lower end consumers to niche upper end consumers (organic foods, special herb etc.,)

I hope the persons in charge of Digital India, really capture these real life issues to benefit Indian people. The National Knowledge Network (NKN) is practically languishing for about a decade with very little of optical fibre Network being laid. Instead of chasing it (it may take years), can India jump start by using a satellite to give such a SATELLITE –TO-MOBILE communication service reaching 600,000 villages including tribal areas. Such satellites with multiple beam antennas have just started reliable operations in many parts of the world. If necessary let India purchase one or two satellites from foreign companies and usher rural India into the world of e-commerce. Such a link can incidentally help the mission of universal education (even to higher education) and to reach SKILLS to all Indians. Of course, it depends how well the attention is given to the contents and the language of delivery.

This is the time to “leap frog” an era of traditional super-markets, optical fibres etc., and straight away modernize rural economy through the tools of VIRTUAL WORLD. We will be amazed by the adapting capability and innovative skills of “ordinary” Indian people. For it to happen the systems of governance should match the speed of new technologies!

 

Y S Rajan.
23-03-2015