Why you should care

Because a local twist on a tech boom is pretty funny — and profitable.

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In late October, Laxminarayan Krishnamurthy ordered a Samsung Galaxy smartphone from an online retailer as a surprise for his wife. A different kind of surprise awaited. When he opened the package, he found a bar of soap instead of a phone. The Mumbai dweller complained to Snapdeal.com, the e-commerce site that sold him the phone, but, he says, the company ignored him. And there the story might have ended: a goof-up by an Indian company, a frustrated customer.

But in the social media age, Krishnamurthy’s Facebook post about the goof, along with photos of the blue-green soap bar in a Samsung Galaxy carton, was shared more than 21,000 times. And the soapmaker, Hindustan Unilever, gifted him with the correct phone. Snapdeal.com did not respond to multiple requests for comment, but Krishnamurthy posted that they did apologize and refund his money. (We couldn’t reach Krishnamurthy, but the soap company confirms the story.)

Despite such occasional Kafka-esque tinges to India’s emerging e-commerce market, more and more shoppers are starting to take a chance online. That’s a huge shift. The $2.3 billion market is expected to jump to $32 billion by 2020, according to retail consultancy Technopak. But because India maintains a set of protectionist foreign ownership laws, many international e-commerce platforms haven’t yet broken ground on the subcontinent. Instead, plenty of copycat companies have arisen, basing their models on Western companies while adding a local twist.

In the long run, experts say, Indian businesses will need to keep up with better-resourced companies.

Such a “unique local insight” has made venture capitalists eager to pour money into locally grown biz, says Tarun Davda, a partner with investing group Matrix Partners.

Success stories are ubiquitous: Take Flipkart, the biggest online retailer in India, valued at $11 billion and started by two former Amazon employees. Five years ago, the company began allowing customers to pay for the purchase in cash when it’s delivered. Copped from online retailing giant Alibaba Group in China, it came at a time when many Indians didn’t have credit cards or distrusted posting their info on the Web. That now popular practice helped all Indian e-commerce get off the ground, observers say. (Flipkart and Amazon didn’t want to comment.)

In fashion, the second most popular e-commerce category in India, standard clothing sizes are rare. So most Indians were wary about buying before trying. To lure them into buying online, companies allowed customers to return unwanted goods with the same delivery guy who dropped them off. The delivery guy waited as customers tried on items, and he took back whatever they didn’t want. Other fashion retailers, including shopping platform Jabong, adopted the model; Jabong co-founder Praveen Sinha said via email that offering instant returns, same-day delivery and mobile order tracking also helped. Despite the high cost, these tactics brought in new customers, says Ankur Bisen, head of retail and consumer products practice at Technopak.

A photo of a young woman wearing elegant jewelry.

CaratLane.com is modeled after Seattle-based Blue Nile.

Source CaratLane

There’s also CaratLane.com, not unlike Seattle-based Blue Nile, which sells diamond jewelry (as well as gold, a favorite among Indians). Unlike its Western parallel, it offers the option of trying on jewelry at home. That’s crucial, says Ashvin Vellody, partner at KPMG in India — in part because Indians tend to have a “family jeweler.” People are “more comfortable” when they can touch a product, says Calvin John, CaratLane’s VP of marketing.

And Lenskart, India’s equivalent of Warby Parker, sells glasses and contact lenses online. The bonus: Should you lack an eyeglass prescription, they send a team over to test your eyes — for less than $2. The company sells close to 2,500 pairs a day, says Lenskart founder Peyush Bansal, almost six times as many as they sold at this time last year.

It continues: Ola Cabs, similar to Uber, started in late 2010. (India, incidentally, is colliding with the actual Uber; the city of Delhi just banned the multibillion-dollar San Francisco-based company.) As in many emerging markets, most drivers don’t have a bank account and need cash for fuel and other daily expenses, so Ola devised a complex system to collect and settle cash each day from the 50,000 drivers it works with.

But will it turn out that local companies have invested big money in seducing a new user base and developing local tactics only to then lose them to foreign companies? Multinational empires are encroaching, and venture capitalists say they’re unwilling to back startups that don’t have their own business models. Currently the only scenario in which e-commerce sites like Amazon and others can participate is as third-party marketplaces rather than as primary sellers. That isn’t stopping the giants from making a play: Amazon has already committed $2 billion to expanding in the country and is lobbying new Prime Minister Narendra Modi to allow greater foreign investment.

If that happens, Western companies just may outpace the locals, experts say. “Copycats don’t work” on their own, says Matrix Partners’ Davda. In the long run, experts say, Indian businesses will need to keep up with better-resourced companies.

And, there are still myriad regulatory issues in the way of any of these startups getting off the ground. Taxation rules are unclear. Newer startups that haven’t had to drop money on developing the new infrastructure have cheaper ways in. Plus, only 20 percent of the country has even experienced the new goodies; reaching the rest is crucial for the companies to stay profitable, many say. Fraudulent vendors continue to be the bane of the industry, as Krishnamurthy’s soap debacle makes clear.

Despite all the hurdles, industry watchers are still excited. Says KMPG’s Vellody: “Consumers are beginning to have real choices.”

Amazon and Blue Nile declined to comment for this story. Neither Warby Parker nor Uber responded to multiple requests for comment.

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