E-commerce in the West is just the dessert. In China it’s the main course.
—Jack Ma
E-commerce in China is the main course. In India, it’s a seven-course meal.
—Sandeep Aggarwal, founder of India’s ShopClues
Just when it seemed our deliveries were getting off to a good start, a monkey jumped atop our dabbas, or lunch boxes. The furry intruder grabbed their handles and attempted to pry open the lids to get to the food. Our efforts to coax him down were fruitless, and he jumped up and down atop the lunch boxes and swiped at anyone who came near. Finally, after we pleaded with the woman panhandler accompanying him, the monkey jumped off the dabbas, leaving our lunches intact. Our lunch deliveries to nearby offices could finally get under way.
I had decided to spend the afternoon shadowing Mumbai’s famous dabbawalla deliverymen to learn more about what Indians cited as the greatest hurdle to e-commerce on the subcontinent—logistics. Without fail, Mumbai’s dabbawallas deliver 130,000 meals to workers across the city every day so that everyone gets a home-cooked lunch that meets the dietary restrictions of their caste and creed.
Dabbawalla derives from the words dabba, a box containing a meal, and walla, which means “the man who carries.” For more than one hundred years the dabbawallas have been shuttling food from the homes of office workers on the city’s outskirts to their desks and offices in central Mumbai. Dabbawallas are such an institution that India’s largest e-commerce player, Flipkart, partnered with a dabbawalla union for last-mile delivery in 2015.1
Mumbai’s dabbawallas meet a need: people in India have many religions, each with its own dietary restrictions. Mumbai’s Muslims avoid pork, Hindus avoid beef, Jains avoid meat altogether, even avoiding onions, potatoes, and garlic. Meanwhile, everyone is concerned about the cleanliness and cost of so-called outside food—that is, anything not cooked at home. So, for about $10 per month, the dabbawallas pick up home-cooked meals from their customers’ houses and deliver them to their worksites.
The scheme is remarkably efficient.
The five thousand dabbawallas operate a hub-and-spoke delivery system, passing lunch boxes like relay batons between deliverymen. The lunches are marked with color-coded symbols, numbers and letters denoting the point of origin and destination of the delivery. The delivery network has received worldwide attention for its efficiency and low error rate, studied by everyone from Richard Branson to the faculty of the Harvard Business School.
I’d started my day at one of the main hubs, Christchurch railway station. Just before lunchtime the dabbawallas pushed their way through the crowd to scramble onto the platform. Dressed in crisp white shirts and the traditional Gandhi cap, some were carrying as many as thirty lunch boxes balanced precariously on their heads.
From the Christchurch station I followed one crew to a patch of pavement a block away, where they dropped off and sorted the lunch boxes.
My tour guide and interpreter, Viren de Sá, arranged for me to shadow Anil Bagwhat, a career dabbawalla. I asked Bagwhat about the monkey encounter. “Does that kind of thing happen often?” He seemed unfazed. “In this job, there is always some new thing happening,” he replied. “Given a chance, I could write a book about all of my stories.”
Each of us slung a few bags of lunch boxes over our shoulders and walked to the neighboring offices. The markings on the lunch boxes told Bagwhat exactly where to go, and he walked into the nearby office buildings and dropped them off at the front desk or outside the office doors. Office workers immediately snapped up the deliveries. “Dabbawallas are the only people in the city that follow official IST—Indian Standard Time,” Viren de Sá explained to me. “Everyone else in the city follows a different IST—Indian stretchable time.”
Our sunny afternoon was fairly relaxed, and I could see the appeal of life as a dabbawalla in contrast to that of the officer workers behind the desks. “I’ve been working here twenty-eight years, and this is my life,” Bagwhat told me. “My father was a farmer, and when I came to Mumbai as a boy, I didn’t know what to do. My older brother was a dabbawalla, so when I was fifteen, I just started to emulate him. There is joy in this work. Every day you are outside with your friends. Even in the monsoon we still work. All I have to do is put on a raincoat. This is my life and this is my family.”
Still, it is a hard life, and he didn’t want it for his kids. Although Bagwhat enjoys job security and respect, dabbawallas earn only about $200 a month. “My daughter is studying pharmacology. I enjoy this life but it is too much labor,” he told me.
What does all this have to do with e-commerce? The success of the dabbawallas shows that it’s possible to solve India’s logistics problems. It’s an issue complicated by many factors, especially the lack of accurate addresses.
I first noticed this when I was trying to send packages in India. Addresses often read more like descriptions, with phrases like “behind the temple” or “close to the baobab tree.” “Street names in India are very complicated,” Viren de Sá told me. Some cities have several streets with the same name. Every city in India has a Mahatma Gandhi Road, and some have as many as five. Street names seem to change as frequently as the elected officials. Many names are difficult to spell, and quite often nobody knows the official name of a given street. “If I say Marine Drive, everyone will know this place,” he said. “But if I use the official name, Netaji Subhash Chandra Bose Road, nobody knows it. So people realize that it is better to use landmarks. Landmarks remain constant.”
The issue of addresses is even more complicated in India’s countryside. Unlike growth in centrally administered China, India’s has been largely unplanned, and as a result many people do not have addresses at all.
Indeed, India faces all the problems China had to solve and a long list of other challenges. Here, e-commerce is indeed a seven-course meal, not just the main course that it is in China. To make e-commerce work in India, every link in the e-commerce chain needs either the solution to a problem or an improvement—logistics first and foremost. But, as in China, the bigger the challenge, the greater the opportunity. And that has made India the central battleground in global e-commerce.
THE SCRAMBLE FOR INDIA
In February 2016, as I was eating a breakfast dosa (pancake) in Mumbai, all I needed was the front page of the local newspaper to tell me that I was sitting at the global epicenter of e-commerce. The whole thing was dedicated to stories about what it called “The Great Indian E-commerce Liftoff.” Snapdeal had just raised $200 million at a $7 billion valuation. The mobile payment provider Paytm was preparing to invest heavily in its own expansion into a smartphone-based marketplace. Headlines declared that India’s largest e-commerce retailer, Flipkart, “Wants to Do an Alibaba” to take on the global giants. EBay, too, was pumping money into India.
But the frenzy was not limited to the headlines. Full-page newspaper ads touted upcoming online sales by the leading e-commerce sites. Billboards for Amazon India littered the highway from the airport into Mumbai. Even fans of kabaddi (an Indian form of tag) could not escape e-commerce ads, as Flipkart sponsored televised professional kabaddi tournaments. When it came to using investors’ money to pay for splashy ad campaigns, India’s e-commerce players were partying like it was 1999.
Clearly, India had become the central battleground market for the big players in global e-commerce. By 2016, anyone who was anyone was there. Amazon, eBay, and Alibaba all were backing local proxies. And the investors who had funded e-commerce in other emerging markets, including Naspers, Softbank, and Rocket Internet, were pouring money into India. By 2017, Facebook, Microsoft, and Tencent were joining the Indian e-commerce fray. China had proved that e-commerce could work in developing markets, and no one wanted to miss out on “the next China.”
* * *
ON THE FACE of it, they had good reason to swarm India. The country had not only the hottest emerging market but also the hottest e-commerce market in the world. While growth was slowing in the other members of BRICS (Brazil, Russia, India, China, and South Africa) or even heading toward recession, India was powering along, growing faster than ever. That much was clear from the Mumbai skyline, where cranes rose above unfinished skyscrapers far as the eye could see. Mumbai of early 2016 reminded me of Shanghai in the 1990s.
Optimism was in the air. People sensed this was India’s time. India’s prime minister, Narendra Modi, had learned from China’s export boom and was busy promoting India as a new manufacturing hub that could challenge China and potentially lift India’s workers out of poverty. The entire city of Mumbai was blazing with banners and billboards for Make in India Week, a week designed to celebrate innovation and encourage foreign investment.
Indians were tantalized by the possibility that, after years of being closed off from the world economically, their country might finally live up to its full potential. And nowhere was their excitement more evident than in e-commerce. Just one year earlier Modi had announced his Digital India campaign to accelerate India’s entry into the Internet era. Affordable smartphones were bringing the Internet to the pockets of millions of Indians each month, and Internet access was spreading to the hinterlands.
But while the technology was advanced, traditional ways of doing business were shaping technology’s application in the Indian market, which had formed over hundreds of years.
FROM BOMBAY’S BAZAARS TO BAAZEE: THE HISTORICAL CONTEXT OF E-COMMERCE IN INDIA
Walking through Mumbai’s teeming bazaars can feel as if the entire population of the country has squeezed into a few narrow lanes. Merchants and shoppers balance rugs, clothing, toys, and large bags full of goods on their heads as they zigzag through the crowds. Motorcycles and cars weave in and out, horns blaring, as drivers fight for space with the sea of pedestrians, who are dressed in brightly colored saris, black burkas, and even skinny jeans. Here and there cows loll lazily in the shade, nibbling at a patch of grass or browsing in the garbage.
Nearly two thousand years ago the area now known as Mumbai was simply a collection of seven islands inhabited by fishers. From about 200 B.C. through the fourteenth century, various Hindu dynasties controlled the islands until Muslim traders from Gujarat took control of them. In 1534 the Portuguese took over because they needed a port to facilitate the spice trade, only to cede control to the British as part of the dowry of Catherine de Braganza when she married Charles II in 1661. Charles II leased the islands to the East India Company in 1668, and the seabeds around the islands were filled in over time as Mumbai grew into an important international trading port.2
That lease marked the beginning of a period of about 250 years when a corporation—the East India Company—ruled India. Following the Indian Rebellion of 1857, the British Crown assumed direct control of the country. For the next several decades Britain solidified its hold on India, building roads and railways, establishing cotton mills and other commercial infrastructure, and creating a class of English-speaking local administrators.
But the start of the twentieth century saw increasing resistance to British rule. Indians began fighting for greater participation in their own government. Mohandas K. Gandhi—popularly known as the Mahatma, or great soul—led a nonviolent movement to compel Britain to quit India that began in 1942. A central part of the Quit India campaign was a boycott of British cloth, which Gandhi regarded as a symbol of colonial oppression, in favor of homespun cotton, or khadi, instead.
When India finally won its independence in 1947, ending the long colonial era, the focus on self-reliance and swadeshi—Indian-made products—continued.
The economic policies of Jawaharlal Nehru, India’s first prime minister, emphasized local production and the protection of the small producer. From 1947 to 1991 India’s economic policy was a combination of protectionism and central planning. The idea was to ensure that India—whose resources Britain had exploited—could be economically self-sustaining.
Strong government intervention in business typified the era, and high prices and taxes dominated. India nationalized its pillar industries such as steel, power, telecommunications, and banks. The government discouraged multinationals that were thinking about setting up shop in India, and for the most part they stayed out.
In some respects the plan was a success. By protecting local industries Nehru laid the foundations for several of today’s multibillion-dollar conglomerates—including the Aditya Birla Group, Tata Group, Bajaj Group, and many others. But the system of manufacturing quotas was prone to abuses. The so-called License Raj (also known as the Permit Raj) gave bureaucrats virtually unlimited power to demand payoffs to allow companies to make their products. And the command-and-control system in turn facilitated crony capitalism.
The strict controls meant that preliberalization India was known for its deprivations. “It was a world where the absence of things—Wrigley’s Juicy Fruit, Seiko watches, Parker pens—was experienced not just as scarcity but as a superior form of austerity,” writes Mukul Kesavan, a history teacher and author. Homes and cars had no air-conditioning. The only cosmetics available were made by Lakmé, a brand name made up by the Tata Group—it’s a faux French version of the name of the Indian goddess Lakshmi. And people traveling abroad were allowed to convert only a small sum in foreign exchange—not enough for dinner in most of the developed world.3
India had ejected both IBM and Coca-Cola for refusing to comply with a foreign exchange provision that required foreign firms to dilute their stakes in local outfits to 40 percent. As a result, a generation of thirsty youngsters grew up envying wide-open Pakistan, of all places, as they sipped the medicinal-tasting Campa Cola. And every business trip abroad became an opportunity to stock up on essential supplies, ad executive Shovon Chowdhury recalled in a recent essay, writing, “Very few people have purchased Pampers from as many countries” as he has.4
No amount of foreign exchange controls could avert disaster, however. Irresponsible government spending in the late 1980s, combined with an ever-increasing oil import bill, sent India spiraling into a balance-of-payments crisis in 1991. Government debt soared to 50 percent of GDP, and the country’s foreign exchange reserves fell to a paltry $600 million—barely enough to cover two weeks of imports. With default imminent, the Reserve Bank of India airlifted sixty-seven tons of gold to England and Switzerland to secure an emergency loan of $2.2 billion from the International Monetary Fund—and kicked off an era of economic reforms.
In some ways the so-called liberalization of the Indian economy in 1991 paralleled Deng Xiaoping’s decision to open China to Western investment in 1978, and until recently India seemed to be following the same path as China, just thirteen years later.
Per capita incomes rose more than tenfold, from 583 Indian rupees a month in 1991 to 7,774 rupees a month in 2016, while the salary of India’s highest-paid CEO rose by a multiple of thirty-five, to 22.5 million rupees from a paltry 6.5 million in 1991. Other indicators are equally dramatic. The market capitalization of the Bombay Stock Exchange has soared from just 32 billion rupees in 1991 to nearly 95 trillion in 2016. From a mere handful in 1991—when the government owned all of India’s banks—the number of Indians with bank accounts has skyrocketed. A government initiative started in 2014 has brought 200 million more Indians into the formal banking system in just the last few years.5
Along the way, the era of sanctimonious deprivation has given way to one of unabashed consumption—complete with a new ideologue, the Art of Living guru Sri Sri Ravishankar. An Indian version of Deng Xiaoping, Ravishankar travels the country speaking to his followers and has effectively told a generation of Indians—once anxious about materialism—that “to get rich is glorious,” and spiritual too.
But China’s boom since the mid-2000s has widened the gap, exposing the vast differences between the two countries. The most obvious are in infrastructure and manufacturing—and that translates into dramatic contrasts in the way e-commerce operates in each country.
INDIAN RETAIL
Even as India opened its industries to competition—sometimes more rapidly than China did—it held fast to certain vestiges of Gandhian thought. As China began to grow, it took advantage of the size of its market to woo foreign investment and plowed money into factory infrastructure to reach massive economies of scale. But until recently, India preferred homespun cloth, retaining tax breaks and other incentives for small-scale producers and regulations that made it difficult for larger companies to grow. (For example, the government enforces strict labor laws for companies with more than a hundred workers, which helps to protect millions of tiny sweatshops around the country.)
Nowhere has this way of thinking prevailed more thoroughly than in the retail sector—where government policies have long curtailed foreign investment, ostensibly to protect the little guy.
Retail plays an incredibly important role in the Indian economy, accounting for $600 billion in trade, or about 22 percent of India’s GDP, according to a recent Boston Consulting Group report. Yet “modern” or “organized retail”—large chains and supermarkets—accounts for only a tenth of those sales.6 Most commerce still is transacted in the small mom-and-pop shops known as kirana stores.
In many ways, the kirana shop is the symbol of Indian retail, a small store stacked with hundreds of products crammed on shelves in an area sometimes no more spacious than a large closet. India has twelve to fourteen million kirana stores, or approximately one for every twenty households. Like the general store on the US frontier during the 1800s, the kirana store is more than just a retail shop. The owner often knows many of customers by name, understands the tastes of the neighborhood, delivers orders large and small, and will even sell to customers on credit.
Given the importance of the kirana store in India, it’s easy to understand why many Indian immigrants to the United States get their start as convenience store owners. The Asian-American Convenience Store Association estimates that India American entrepreneurs own 80,000 of the 132,000 convenience stores in the United States. Most of these entrepreneurs hail from Prime Minister Modi’s home state of Gujarat, which is known for the entrepreneurial spirit of its baniyas, or traders.
Along with the kirana stores, India’s unorganized retail market includes a legion of boutiques, as well as handcarts and street sales from the back of a bicycle of everything from mops and brooms and fruits and vegetables to balloons and wicker furniture. Sit on the balcony of a middle-class house in any Indian city, and you can’t help but hear a constant litany of singsong sales pitches floating up from the street. Vegetable vendors shout out their selection: “Carrots, spinach, tomatoes, onions!” Snack vendors bang on the side of a wok with a metal spoon. The balloon man blows a kazoo. Every so often a guy with a performing monkey shows up, whirling a little drum called a dug-duggi.
It’s chaos. But don’t underestimate its charm.
In recent years, as the Indian economy has liberalized, some Indian retailers have moved to consolidate and grow the organized retail sector. But some also have found Indian shoppers slow to adjust. Take Pantaloon Fashion & Retail, which operates eighty-six department stores across the country.
Pantaloon’s CEO, Kishore Biyani, built out his retail chain, at first by emulating the large, uncluttered, Western-style supermarkets he’d visited when traveling abroad. But he soon realized that, despite their efficient layout, they don’t generate the same sales volumes in India as they do in the West.
As the Wall Street Journal reported, he had to redesign his stores to make them more like the shopping environment that his lower-middle-class shoppers were used to—louder, messier, cluttered, and chaotic. As if to bring to the traditional bazaar to modern retail, he replaced his grid layout with narrow, crooked aisles. Changing the design of one store to make it more haphazard increased sales 30 percent, he said—suggesting parallels in India with the customer preference for chaos that Alibaba found in China.
In a traditional Indian boutique, three or four salespeople may assist in a sale, taking dozens of folded saris from the shelf, for instance, and repeatedly unfurling them before the customer with a flourish, until it seems rude to leave the shop empty-handed. Especially when the proprietor punches up the total and shaves off a few hundred rupees to seal the deal.
That’s why Biyani staffed three times more employees per square foot than a typical Walmart. Although employees are not allowed to haggle on price, they do walk around with megaphones to make promotional announcements to shoppers, often using several local languages to make them feel more at home. And in his cluttered grocery section, instead of displaying only the shiny, unblemished produce, his employees leave dirty, wilted stragglers in the bin, because they give customers a sense of triumph—and boost sales—when they find the choice fruits and vegetables.7
The success of Pantaloon and similar chains suggests that organized retail will gradually supplant India’s small boutiques and kirana stores, as it did in the West—at least to some degree. Boasting air-conditioned comfort and clean surroundings, Western-style shopping malls already have mostly eclipsed the bazaar, except for the sale of traditional items like jewelry and saris. Thus organized retail was expected to grow 20 percent a year between 2017 and 2020, compared with 10 percent growth for traditional trade, according to the Boston Consulting Group.8
But the continued growth of the traditional sector hints at its surprising resilience, and the woes foreign retailers face illustrate the deep commitment (at least on paper) of Indian policy makers to protecting the little guy. While China swiftly encouraged direct foreign investment in retail so as to improve the efficiency of its supply chain and get its massive manufacturing output to market, India has been slow to open up its retail segment. Many Indians argue that opening up the retail sector will spur growth and thus generate employment, but others contend that more efficient superstores will result in massive job losses for the forty million Indians engaged in retail and logistics. At the same time, homegrown tycoons like Sunil Mittal, founder of Bharti Enterprises, and Mukesh Ambani, chair of the Reliance Group, have capitalized on those fears and have begun to build their own chains while enjoying protection from the international giants.
Until 2011, foreign direct investment was prohibited in multibrand retail, making supermarkets, convenience stores, or other general retail establishments off-limits to the multinationals. In November 2011 the Indian central government announced that it would open India’s retail sector to foreign direct investment but tabled the reforms after encountering intense opposition from retailers. The next year the central government decided to allow the states to determine whether to liberalize retail. But given shifting public opinion and the need to comply with twenty-nine different state tax regimes, foreign retail expansion has been limited.
Even those reforms engendered an instantly negative reaction, and politicians rushed to the defense of the small shop owner. It got so bad that a senior politician in Uttar Pradesh said he would set Walmart stores on fire and India’s parliament ground to a halt.9
Nonetheless, retail reform has its proponents. Indian retail is highly inefficient. Supply chains and logistics are unreliable, meaning that as much as a third of a vegetable shipment may spoil before ever reaching the market. Farmers argue that they could sell more produce if retail was modernized. Consumers argue that modernizing retail would save everyone money, especially the poor. But the proponents of reform have so far made little progress.
One of the great challenges for India is that government officials often benefit from the inefficiencies. Whereas China for the most part acts as a national market, India’s states set taxes and other policies; that is, products that move from one state to another incur taxes. The policies are not always clear, and officials along the way, eager to collect bribes, always are willing keep delivery trucks waiting at state lines if necessary.
Despite all these challenges, foreign retailers are beginning to make headway in states that allow them to. Some states are allowing retailers like Walmart, Tesco, and Carrefour to open stores. But modern retail still accounts for only 10 percent of the Indian market compared to 85 percent of the US market.10
That translates into an even bigger opportunity for e-commerce.
THE INDIAN CONSUMER
As the varying state taxes and regulations suggest, India’s diversity also poses a different challenge than China’s relatively homogeneous market. China is unified by the common use of Mandarin and the dominance of the Han Chinese—who make up nearly 92 percent of the population. But India is splintered by language, religion, culture, and geography. Its federal structure means that the twenty-nine states do not operate by the same rules, and their degree of development varies widely. Lifestyles also vary from state to state. Some Indians are living much as they did a thousand years ago, while others have purchased all the gadgets and conveniences familiar to the wealthiest consumers in the United States or Europe. On one hand, the country boasts 185,000 millionaires and nearly a dozen billionaires. On the other, nearly half of India’s 1.2 billion people live on less than $2.50 a day.11
In some respects this means companies must approach the Indian market as though it were many different small countries rather than one big one.
Even so, many demographic factors in India favor of the growth of e-commerce. Half its 1.25 billion people are younger than twenty-five. And incomes have been growing at a steady 10 to 12 percent per year.12 Most of all, Indian entrepreneurs are optimistic that recent policies are improving their lives.13 As studies have shown, optimism is often a self-fulfilling prophecy. And nowhere is the optimism higher than in India’s booming e-commerce sector.
THE RISE OF E-COMMERCE IN INDIA
I made my first trip to India in 2000, when I traveled to New Delhi with Jack Ma to attend an Internet conference. Interest in the dawn of the Internet had drawn thousands of locals of all ages to the expo grounds to hear experts talk about this exciting new technology. Indians’ interest in the Internet was even greater than what I’d seen in China.
But although the Internet had been available in India since August 1995, the infrastructure didn’t come close to matching the enthusiasm. Our five-star hotel didn’t have Internet service, and dial-up was painfully slow and expensive. Probably as a direct result, only about five million Indians—fewer than 1 percent of the total population—were online, despite their widespread fascination with the new technology. (Indians nationwide had only 5.7 million PCs.)14
It seems crazy now, but that minuscule level of penetration didn’t stop e-commerce entrepreneurs from taking a shot. And, just as in China, the first opportunities they identified were for B2B portals designed to help isolated companies find trading partners. One of the earliest firms was a company founded by Bikky Khosla, who’d begun publishing the Exporters Yellow Pages in 1991. As Jack Ma was introducing his China Pages to connect Chinese exporters to buyers overseas, Khosla saw he could use the Internet to give Indian exporters a better way to find buyers for their products. In 1996 he began TradeIndia, a B2B site designed to give Indian exporters a platform for promoting themselves globally. While countless other players have come and gone, TradeIndia survives to this day.
Meanwhile, entrepreneurs in India thought they could apply technology to help improve another kind of marketplace. But it wasn’t C2C or B2C they found the most attractive in 1996. Rather, it was B2G—bride to groom. Aware that Indian newspapers were earning massive sums from classified ads placed by parents seeking suitable matches for their sons and daughters, several innovators launched matrimonial websites that made the search easier and more efficient. With 90 percent of marriages still arranged by parents, it was a massive opportunity—and still is.15
The sites provide details about individuals’ job prospects, salary, education, caste, religion, and dietary restrictions, as well as height, weight, and complexion, making it possible for parents to instantly search for, say, a Tamil-speaking bride of the Brahmin caste with a degree in primary education—eliminating hours of combing the classifieds. Needless to say, matrimonial sites have proved to be hugely popular. Countless sites today specialize in specific regions, religions, and social classes, as well as visa holders permitted to work in the United States, widows, widowers, and divorced people, accounting for a $36 billion market, according to Frost & Sullivan, an international consulting firm.16
That may sound entirely unrelated to the buying and selling of goods and services online—the bread and butter of e-commerce. But it illustrated something important.
Finding a suitable mate requires a lot of trust. In traditional matchmaking trust usually is based on existing social relationships. But the Internet created a challenge by introducing greater anonymity to the process. The “prematrimonial detective” arrived alongside the matrimonial sites to fill the trust gap. These third parties follow and investigate potential mates to assure the parents that the people behind the profiles are who they say they are.
The emergence of matrimonial sites proved that the lack of trust in India’s online environment could be overcome. If a marketplace for a bride or groom could successfully bridge the gap, surely a marketplace for products could do the same.
Only not right away, as Baazee, one of the earliest players, quickly learned.
THE EBAY OF INDIA
As the worldwide Internet investment boom hit a peak in 2000, investors and entrepreneurs began to look at India. As in China, India’s Internet boom gave rise to thousands of e-commerce sites that replicated the models of the two US e-commerce success stories—eBay and Amazon. But when the Internet bubble burst, India suffered more than most countries, because Internet entrepreneurs were only starting to invest in India.
The first casualties were those that had used the Amazon retail model, companies that stocked their own inventory and sold it to customers themselves. As in China, they found that it’s impossible to build an inventory-led model in a country with low Internet penetration, slow and expensive online connections, lack of trust, and insufficient infrastructure.
In contrast, one company followed the eBay marketplace model—facilitating sales rather than selling its own inventory—and managed to survive the bursting of the Internet bubble. Started in Mumbai by Harvard Business school grads Avnish Bajaj and Suvir Sujan, Baazee set out to be the eBay of India and raised money from some big names, including News Corp.
“There were twenty-two eBay clones at the time,” Niren Shah, the company’s fifteenth employee and former CFO, told me. “We were trying to start our own eBay of India, but we realized very quickly that the auction model is not very popular in India. Used goods were not very prevalent in India, and at one point we had 90 to 95 percent new goods. So we did not waste too much time in pivoting to a fixed-price model rather than sticking with auctions.”
That decision became even more significant when the Internet bubble burst and plunged India into an Internet winter. Baazee had to close regional offices, lay off staff, and bring operations back to Mumbai. “There were ten thousand websites started in 1999 and 2000, and, other than two or four, everything shut down,” Shah said. “2001 to 2004 was real nuclear winter. A lot of guys working with us were under tremendous pressure. They quit because working at a dot-com meant they couldn’t get married. A lot of bride-to-be parents would say, ‘Hey, you’ve got to get a real job.’”
Baazee carried on, struggling to get vendors to sell online. “Basically, we were selling the Internet at that time. Not just e-commerce. We had to go out and convince sellers,” Shah said.
Just as in China, plenty of skeptics said e-commerce could never work in India, he said. “There were tons of people that said you couldn’t offer online marketplaces in India. People would say Indians are very different. Indians like assistance. They like touch and feel. There were big trust issues. ‘E-commerce will never work.’ My parents were very supportive, but a lot of my friends, even some of my cousins and distant family, were, like, ‘What are you doing? This is all a dot-con. The bubble has burst. Head back to the US.’”
In fact, the skepticism was the least of Baazee’s problems. Its registration list read like a who’s who of India, with celebrities and industrialists buying and selling online. But those were just about the only Indians on the Internet at the time.
With only five million Indians online, reaching critical mass was impossible. “After a couple of quarters you realized that the market is just not there,” Shah said. “The entire debate that we would have was whether the market size was a million or million and a half users.”
Instead of giving up, though, Baazee pivoted and entered the B2B reverse-auction businesses, modeling its business on FreeMarkets, a US reverse-auction pioneer. (In a reverse auction, sellers bid for the lowest price at which they are willing to sell their goods.) This accounted for 80 percent of Baazee’s transaction values. “We understood that the value did not lie in the B2B business,” but it was necessary for survival, Shah said. Baazee also began a payment service, essentially the PayPal of India.
By 2004 India had seventeen million Internet users, and the company was still losing money. “We had a great team of rowers, and everybody was pulling his oar like crazy,” Shah recalled. “There simply wasn’t any water in the river.”
Baazee’s one million registered customers represented a respectable percentage of India’s small number of Internet users, but they weren’t enough. So when eBay approached with an enticing offer, Baazee’s founders decided to sell. “We thought the market was still a little farther away, and they gave us a good offer,” Shah said.
Because they had modeled Baazee on eBay, it was a good fit, and many of Baazee’s senior staff rose to important positions with the global firm. However, eBay squandered Baazee’s leadership position by making the same kind of mistakes in India that it had in China. Within a few years Baazee went from Indian e-commerce leader to laggard. And when the e-commerce wave finally hit, the early entrant was left out.
“Candidly, I think eBay focused too much on profitability,” Shah said. “It’s a bit unfortunate that they weren’t able to capitalize on the three- or four-year head start. But it is the way it is. I have no regrets.”17