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.
“One can safely say that India, and to some extent China, are leading the world in this regard,” says Harminder Sahni, founder and managing director of management consultancy firm Wazir Advisors. “E-commerce started growing in India around the same time as online businesses worldwide started adopting apps. It is similar to how India bypassed the landline to straight away go to mobile [in telecom].” 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.”
S. Ramesh Kumar, professor of marketing at the Indian Institute of Management Bangalore, notes that mobiles have become “a part of the lifestyle” in India and “different apps are needed to fit in with the lifestyles of specific consumer segments.” Apps that “connect with people and brands in real time will become increasingly important from the viewpoint of consumer behavior,” he adds.
Another reason for the proliferation of apps in India is the low cost of development, says Sahni of Wazir. It is negligible compared to the U.S. or Europe. “Even if many fail, they pave way for others and add to overall evolution of the ecosystem which in turn fuels further growth.”
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.
Pointing to the apps’ ability to send notifications for personalized promotions, Hosanagar says: “This can improve the rate at which browsers convert to buyers, especially for products such as apparel and jewelry whose purchases are more discretionary in nature and are driven by sensory considerations as opposed to functional value.” He goes on to add: “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.”
This, in fact, is one key reason behind Myntra’s move. Says Narayanan: “Culturally, we want our organization to think differently. We believe that in the future, all mobile transactions will happen on apps, and we want to focus all our resources — our engineers, our product teams, our sales people, everybody — on this. We want our entire organization to have an app mindset.”
“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). In a recent media interview, Faasos CEO Jaydeep Burman said that the company moved to app-only because of the “overall proposition.” Faasos offers a dynamic menu which changes based on customer location along with estimated time of delivery on a real time basis. “This is not possible when someone orders over phone or through a website.”
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.”
Prashant Gupta, president and CEO of fashion e-tailer abof.com (all about fashion), which was launched by the textile to telecom conglomerate Aditya Birla Group in October 2015, holds the same view. Abof was launched with website and app versions. “We don’t see any prudence in being an app-only player. It reduces the options available to the consumer and also takes away the richer visual experience they can have on a larger screen,” says Gupta.
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 newspaperThe 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.
Sahni of Wazir believes it is a “business call.” Pointing out that the cost and effort required to maintain both an app and a website is very high, Sahni says: “More than money, it is the limitation of engineers for coding. The business has to take a call on where they wish to deploy the scarce engineering resources.” He goes on to add that as more and more devices start supporting apps, an app-only strategy could work well. “There are issues to do with screen size, but with television screens getting connected to smartphones and having the capability to run apps, this limitation is quickly going away.”
“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
Not everyone agrees. “I don’t see the merit in not operating a website. The incremental cost of operating a website is very low,” says Ankur Bisen, senior vice president for retail at Technopak. “If the business model is based on scale and involves merchandise selling, it will need broad-based customer user interface options. An app-only strategy will become restrictive.”
Echoing the sentiments of many app-only skeptics, Prasad says: “I believe that ‘click-and-buy’ will happen on the app while ‘browse-and-buy’ will be on desktop. Where the user knows what to buy and where to click, like in groceries or calling a cab, the app will precede the desktop. But where the buyer wants to browse before buying, websites get preferred.” Prasad adds that “unless mobile connectivity becomes much more stable, app usage for large transactions may be limited in India.”
There are other problems, too, such as phone memory. While smartphone penetration is high, many of the phones are at the low end of the price and features spectrum. Abof’s Gupta points out that typically, minimum internal phone memory allows only five to seven apps beyond the preloaded apps that come with an Android device. “The usual challenge of getting noticed and heard in a crowded market is even more exacerbated in the app world. Users will tend to uninstall apps they don’t use frequently,” he says.
Bhadada of Zinnov agrees. “Typically, an average user in India installs about 18 to 20 apps at any point and engages with only five to six on a regular basis. Ensuring downloads, stickiness and regular engagement with the app is a huge challenge.” While established e-commerce players can woo consumers by offering huge discounts, smaller players will find it difficult to get them to download their apps. Bhadada believes that new models of incentivizing will emerge. “This is where I see a lot of innovation happening,” he says.
The Road Ahead
So, what model are Indian online firms likely to adopt? Hosanagar feels that an app-only strategy is “quite risky.” He notes that “globally, desktops still play a meaningful role,” including in other big Asian markets where mobile dominates. “I doubt many firms will go app-only. I think the trend we are more likely to see is that many new e-tailers will be mobile-first and will launch on desktops later. That, by itself, is a non-trivial shift and will expose many incumbent e-tailers to threats from entrants that have better mastery of mobile than them.”
Dutta of Third Eyesight adds: “For any e-tailer that wishes to focus on funneling more profitable, sticky customers, an app-only strategy is the way to go. [However,] for an e-tailer that is in a growth mode and wishes to be a mainstream choice, I believe it is counterproductive to close off any channel for potential customers.”
Rishikesha Krishnan, director of the Indian Institute of Management Indore, notes that the combination of smartphones, powerful networks, location finding services and Internet access is powering a whole new range of applications. This is also, he says, a time for experimentation. “Everyone is trying to find the sweet spot or the best models for commercial success. I see the attempt by some vendors to move to an app-only platform as part of this trend of experimentation.” Krishnan feels it’s too early to tell if the experiment will succeed. “My own suspicion,” he adds, “is that a hybrid approach is better.”
“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), Lenskart (spectacles) and Zimave (lingerie) are opening physical stores. Others, like Snapdeal, are integrating offline and online channels by partnering with stores such as The Mobile Store (for mobile phones) and Shoppers Stop (for fashion products) and enabling consumers to access services like demonstration, installation, activation or returns at a store near them.
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.
For Amazon, “building the hyperlocal experience is a big focus area,” says Agarwal. Amazon launched the “Kirana Now” pilot in Bangalore last year enabling customers to shop from the ecosystem of their local (kirana) stores and get orders delivered within 90 minutes.
Bisen of Technopak notes that multi-channel play is well established in mature e-commerce markets like U.S. Pointing out that globally, 50% of the nearly $1.3 trillion of merchandise sold through e-commerce is done by established brick-and-mortar retailers, Bisen says: “In a market like India where many categories are assistance-led, physical stores provide critical elements of customer experience. We will see the role of multi-channel emerging more strongly that it is today.”
Bhadada of Zinnov offers another perspective. While companies have a web strategy, an app strategy and an offline strategy — all of these are in silos. What they need, he says, is an omnichannel strategy which provides a personalized and seamless customer experience. “With digital transformation becoming mainstream, an omnichannel approach will be a strong competitive advantage. All firms are at a level playing field on this front. What they need is vision, commitment and investment.”