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Ecommerce firms need to reduce their customer acquisition costs: Bejul Somaia

According to Bejul Somaia, Managing Director, Lightspeed
Ventures Partners, on the average revenue per ecommerce transaction of Rs 1,000
today in India, the net unit margin is as low as Rs 30 (of a gross margin of Rs
200). Speaking at the Internet and Mobile Association of India’s (IAMAI)
conference on Digital Commerce, Somaia urged ecommerce players to focus on
customer lifetime value, and reduce the customer acquisition cost.

According to Bejul Somaia, Managing Director, Lightspeed
Ventures Partners, on the average revenue per ecommerce transaction of Rs 1,000
today in India, the net unit margin is as low as Rs 30 (of a gross margin of Rs
200). Speaking at the Internet and Mobile Association of India’s (IAMAI)
conference on Digital Commerce, Somaia urged ecommerce players to focus on
customer lifetime value, and reduce the customer acquisition cost.

“Scale is not going to solve this problem. Customer
acquisition cost is between Rs 500 and Rs 700. Then there is logistics (and
reverse logistics, for returns), inventory write downs, customer service and
content cost. Companies are beginning to work on these issues now,” Somaia explained.

He acknowledged that customer acquisition cost is the
capital investment in ecommerce, but said the customer lifetime value should be
more than three times that cost. “Access to capital will be increasingly
important to sustainable business models. And it’s going to get tight. As we
tell companies we have invested in, ‘Scale something that’s working, not
broken’. Only five per cent of companies we meet are doing that,” he added.

Talking on marketing and customer acquisition, Kunal Shah,
CEO, FreeCharge.in said ‘Companies today burn a lot of money on customer
acquisition costs through traditional mediums and need to look at alternate
smarter mediums for achieving the same. Industry needs to take collective steps
to expand the reach of various ecommerce categories”

According to Himanshu Singh, Chairman and Managing Director,
Travelocity, “An estimated $850 million was invested in digital media ventures
in India in 2011, and close to half of that was in e-commerce. But the
fundamentals for a sustainable ecommerce ecosystem is not yet in place.”

Singh further added, “Problems related to payment solutions,
logistics, supplier apathy and the like are all common issues. We need to be
able to articulate what the common strategic vision is as an industry, like IT
and ITeS had done. Once we have that in place, we can get the relevant
Government help as an industry.”

Travel, which accounts for over 70 per cent of ecommerce
business (of over Rs 46,000 crore last year), would come down to a fifth in the
next four years as e-tailing grows, he estimated. “But for that, the
fundamentals have to be in place, and business models need to be sustainable.
The model of looking at exits in three to five years won’t work for too long.
Another billion dollars of venture money is not going to change the game. The
industry does not even have a legal definition today,” Himanshu Singh added.

Muralikrishnan B., Country Manager, eBay India said, “Ecommerce
has created an entire ecosystem of multi layered, integrated industries in India.
From analytics, logistics, category management to acquisition marketing,
sourcing, merchandising, entrepreneurship and social media. It has created many
opportunities for new India to get employment in exciting new roles.”

K. Vaitheeswaran, Founder and CEO, IndiaPlaza said, “Ecommerce
in India is experiencing explosive growth and is likely to be a large part of
retailing Industry in the coming years. Internet and Mobile Association of
India is bringing together all the players of the ecommerce Industry in their
annual digital event to discuss and debate all the challenges and concerns of
the Industry. It is a great opportunity for the Industry to come together &
work towards the common objective”.

Subho Ray, President, Internet & Mobile
Association of India said, “It is important we look at the ecommerce story in
India holistically rather than looking out for ventures that fail. For me,
ecommerce is here to stay however business models of companies may evolve.”

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