Thursday, 24 March 2016

Can an App-only E-commerce Model Succeed in India?

                                  Myntra, India’s leading fashion and lifestyle e-tailer, created quite a buzz recently. The Bangalore-based firm brought back its mobile (phone and tablet) website, which it had discontinued in May 2015. At that time, nearly 90% of traffic and 70% of the company’s business was happening through its app, and Myntra had announced that it was going the app-only route. It claimed to be the first big web-based e-tailer, not just in India but globally, to adopt an app-only model.
           Myntra’s move of relaunching its mobile website is largely perceived as a roll-back of its app-only strategy. But the company’s top team insists otherwise. The mobile website, they say, is part of their effort to make their app more effective. While the website allows browsing, transactions can be done only on the app. “The mobile website will push users toward downloading the app. We are committed to our strategy of app-only,” says CEO Ananth Narayanan. Meanwhile, the company’s desktop website (for laptops and desktops) doesn’t offer any browsing facility; it simply directs all users to the app.
           Myntra recently launched a new version of its app that allows users to connect with each other for sharing opinions on products, trends, preferences and so on. Every Myntra app user now sees a different landing page based on previous visits, preferences and other social media plug-ins like Facebook. “People don’t like to shop in a deserted mall. Version 2.0 will transform online fashion shopping into a social and personalized experience,” says Shamik Sharma, chief technology officer.

Myntra, which has close to 20 million app downloads and 7.6 million active customers, offers over 230,000 products from over 1,700 national and international brands. It also has around 10 in-house brands. The firm currently has an annualized gross merchandize value (GMV — the total value of sales on the platform) of $500 million. It is looking to cross GMV of $1 billion and also become the first major Indian e-tailer to turn profitable in 2016. By 2020, the target is to cross $5 billion GMV.
“Myntra’s app-only strategy is innovative and particularly notable given its scale,” says Kartik Hosanagar, a Wharton professor of operations, information and decisions. Hosanagar, whose research work focuses on the digital economy, believes that for Myntra, the app-only move is “justified” given that mobile’s reach far exceeds the reach of personal computers in India. “There is non-trivial cost in supporting both channels,” he explains.

The billion dollar question, however, is whether an app-only model can work in the fast growing e-commerce market in India?

According to Goldman Sachs’ estimates, the Indian e-commerce market is around $26 billion at present and is likely to cross $100 billion by 2020. Boston Consulting Group pegs it at around $17 billion at present and $70 billion by 2020. A KPMG report puts it at $17.6 billion in 2014 and expects a compound annual growth rate (CAGR) of 40% to reach $136 billion by 2020. PwC estimates e-tailing (a subset of e-commerce) to be at $6 billion at present, while Technopak Advisors says that it was around $2.3 billion in 2014 and will reach $32 billion by 2020. According to KPMG, e-tail is among India’s fastest growing markets and is expected to grow at a CAGR of 52% to touch $36.7 billion by 2020.
“Myntra’s app-only strategy is innovative and particularly notable given its scale.”–Kartik Hosanagar

     Whichever number one goes by, clearly the pie is growing fast. And it seems that everyone wants a piece of it. So, is an app-only strategy the right one?

Leapfrogging to the App
Be it in online retail, travel, transportation, banking, education, food, health care, home services, payments — every sector is aggressively wooing users with mobile apps by offering freebies and massive discounts. And while India may simply be following the global trend in embracing apps, it is galloping in its pace of adoption. Industry experts peg India as one of the world’s fastest-growing mobile app markets.
            Praveen Bhadada, partner and global head of digital transformation at Zinnov Management Consulting, adds: “We are seeing a viral adoption of apps in India at present. The intensity with which we are penetrating the market is a unique differentiator.”
Multiple factors are at work here. Leading the pack is the penetration of smartphones and mobile Internet. Smartphone penetration in India is growing exponentially. It is expected to increase from around 220 million at present — the second-largest market in the world behind China — to 750 million by 2020. Of the growing 400 million plus Internet users in the country, around 70% access it through mobile devices. This is expected to only increase as the adoption of smartphones goes up.  

              “The pace of smartphone penetration and mobile Internet in India has led to an acceleration of the app model much faster than elsewhere,” says Sreedhar Prasad, partner-business consulting at KPMG India. According to him, for anyone starting an e-commerce venture in India today targeting the youth/affluent population, “it has become imperative to launch the website and the app together.” Adds Bhadada: “The easiest way for companies to reach the masses who are coming online for the first time is through the phone. And an app is more comfortable than browsing on the phone.”

The App Advantage

Apps of course come with a long list of advantages for both the companies and customers: Personalization, better user interface, superior customer experience, ability to easily connect anytime and anywhere, rich customer data and so on.
When it comes to an app-only strategy, however, the scale seems to tip in favor of the firms. “Customers are ‘captive’ in the specific app’s environment, and comparisons and shopping around for discounts — the bane of retailers — is less likely. There are no distractions,” says Devangshu Dutta, chief executive of consulting firm Third Eyesight.
              Hosanagar says: “Companies [with an app-only model] can focus all product efforts on mobile, and that focus can deliver the best mobile experience for consumers. Also, by having all users on mobile, you have a consistent approach to personalization.”

“Culturally, we want our organization to think differently…. We want our entire organization to have an app mindset.”–Ananth Narayanan
Among the few other e-commerce firms in India that are on the app-only track are Ola (transportation), Faasos (food), TinyOwl (food ordering) and Grofers (home delivery of groceries and other items). 

Interestingly, Flipkart, India’s biggest e-tailer which was expected to follow in its subsidiary Myntra’s app-only footsteps (Flipkart acquired Myntra in May 2014), has opted out of this route. Instead, it recently launched a new mobile web application which is extremely light and provides an app-like experience. Called Flipkart Lite, it does not require any dedicated storage space and is designed for users who don’t want to install apps. In an interview with daily newspaper Times of India, Peeyush Ranjan, head of engineering at Flipkart, said: “We want to give the experience of a native application on a mobile website.”
Amazon India, which launched its app in 2013 and currently gets 70% of its traffic from mobile, is also not in favor of the app-only model. According to Amit Agarwal, Amazon India vice president and country manager, while “mobile is integral to Amazon’s India strategy” and “the app will continue to be our flagship experience,” the company will not close any options. Says Agarwal: “We see customers accessing our platform from every device and they come from all over the country. We will continue to evolve and will always be wherever our customers are.”

        Kunal Bahl, co-founder and CEO of leading online marketplace Snapdeal, is dismissive about having only an app. He thinks it is “the dumbest and most consumer-unfriendly idea ever.” In an interview with business newspaper The Economic Times, Bahl said a survey conducted by Snapdeal revealed that 80% of its customers want the personal computer site to remain even though only 20% to 30% of them use the platform. “We are not going to go against the consumers’ wishes,” said Bahl.

“We see customers accessing our platform from every device and they come from all over the country. We will continue to evolve and will always be wherever our customers are.”–Amit Agarwal

“With digital transformation becoming mainstream, an omnichannel approach will be a strong competitive advantage.”–Praveen Bhadada
         Meanwhile, even as the jury is out on the app-only model, another new trend is emerging: e-commerce players are foraying into the physical world. Some like UrbanLadder (furniture),
Flipkart has set up “pick-up stores’’ from where customers can pick up orders at their convenience. It plans to expand the number of such stores across the country and also convert them to “fully outfitted experience zones” where customers can try on their purchases, get alterations done, see product demonstrations, enjoy an assisted buying experience and also return their orders.

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