A Study of Marketplace Business Model in India: March 2021
A Study of Marketplace Business Model in India: March 2021
A Study of Marketplace Business Model in India: March 2021
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- Swagatika S. Sabat
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EXECUTIVE SUMMARY
E-commerce is one of the most dynamic and important sectors of the Indian economy.
Its development is driven by rapid expanding in Internet access. For the past few years,
e-commerce is dominated by the marketplace. There are both advantages and
disadvantages for both buyers and sellers. The thesis focuses on how e-commerce has
gained significance in India and its growth factors. The objective of the thesis is to
understand why the marketplace business model is an important aspect of the e-
commerce sector and how it has gained significance in the modern digital era.
Followed by how the marketplace business model generates revenue and what are
different modes of revenue generation along with that understand each revenue
model’s pros and cons. Finally, to understand consumer behaviour towards the whole
concept of a marketplace business model, to do so an online survey was conducted
using a questionnaire. The questionnaire was distributed to respondents from different
age groups and their responses were analysed. Data was collected from other
secondary sources too.
The thesis analyses importance of the marketplace business model, its revenue model
and consumer preference and behaviour towards different types of marketplace
models. Marketplaces create new opportunities for expansion on a larger scale for
online sellers. Companies do not need to invest in various sales platforms. Moreover,
they have access to innovative solutions.
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AKNOWLEGMENT
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TABLE OF CONTENTS
CHAPTER PAGE
PARTICULARS
NO. NO.
EXECUTIVE SUMMARY 2
ACKNOWLEDGEMENT 3
1. INTRODUCTION 6
1.1 General Introduction 6
1.2 Rationale for the Dissertation 6
1.3 Objectives of the Study 7
1.4 Literature Review 7
1.5 Research Methodology 8
1.6 Limitation of the Project 9
2. CONCEPTUAL FRAMEWORK 10
2.1 Growth of E-commerce in India 10
2.2 Growth drivers of E-commerce 11
2.3 Nature of Marketplace 12
3.3 Marketplace Revenue Model 13
3. DATA ANALYSIS AND FINDINGS 16
3.1 Data Analysis 16
3.2 Findings 19
4. CONCLUSION 23
REFERENCES 24
ANNEXURES 25
4
LIST OF FIGURES
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CHAPTER 1- INTRODUCTION
The share of e-commerce in retail has been growing rapidly. In 2018, it was 11.9%,
reaching 13.7% in 2019 and expected to reach 22.5% in 2022 [Statista 2019]. Fashion
items (clothing, footwear, and accessories), as well as electronics and media (personal
electronics, music, and games), are the most common items purchased online.
Customers buy items from both online retailers and marketplaces, with the latter
gaining a lot of momentum. The top 100 largest marketplaces produced USD 1.86
billion in revenue last year. This accounted for more than 95 percent of total revenue
across all platforms and roughly 65 percent of global e-commerce. There are 61
platforms in the United States, 17 in Asia, 14 in Europe, 5 in South America, and 3 in
Africa all among the top 100.
Amazon is the world’s largest marketplace for online shopping with over 25
categories, followed by it is Alibaba. In India there is Flipkart with over 80 million
products with 100 million registered users and Snapdeal with over 300,000 sellers
selling more than 60 million products with 65+ million marketplace visitors.
1.2 Rational
The way business functions have drastically changed over time, especially in the last
few decades. With the introduction of the internet into the market, the traditional
business shifted to e-commerce and since then there has been a continuous evolution in
the e-commerce sector and today e-commerce is dominated by online marketplace
business models. This thesis aims to understand:
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• How marketplace business models have changed the way e-commerce
functions. Its advantage, disadvantages, and benefits
• Gain deeper insight into how marketplace models business models generate
revenue and analyse each revenue model.
• Study consumer behaviour towards marketplace business model.
1.3 Objectives
• Understand the importance of the Marketplace Business Model in the Digital
Era.
• Study and analyse different marketplace Revenue model.
• To identify consumer behaviour towards different Marketplace Revenue
Model.
With the advent of the new economy, business models have become an increasingly
popular unit of analysis to explain differences in firms’ success (Afuah and Tucci,
2003). Business model research suggests that appropriate business models can lead to
sustainable competitive advantage and superior financial performance (Zott and Amit,
2007). The business model, as a construct, is a layer located between the firm’s
strategic and operational layer (Osterwalder, 2004). While strategy determines the
intended positioning and long-term source of a competitive advantage, the business
model can be seen as the vehicle to achieve these long-term objectives (Casadesus-
Masanell and Ricart, 2010). The motivations for doing research in business models can
be diverse. Baden-Fuller and Morgan (2010) identify three major functions of the
business model construct: a perspective for the classification of existing types of
businesses, a unit of analysis for academic inquiry, and a recipe for practitioners to
copy and further innovate.
Study reveals that perceptions toward online shopping and intention to shop online are
not only affected by ease of use, usefulness, and enjoyment, but also by exogenous
factors like consumer traits, situational factors, product characteristics, previous online
shopping experiences, and trust in online shopping. (Benedict et al 2001). K.
Vaitheesewaran (2013) examined the convenience of online shopping “With product
getting standardized, specifications getting fixed and the concept of service getting
eroded, the post-sale responsibility of the retailer has come down drastically. Hence
customers go to stores to explore the product physically detail but buy online at a
cheaper rate. Heavy discounts of e-commerce firms are possible because of their no
warehouse model.”
Through secondary data collection such as reports, articles, working papers and
internet sources, this research analysis different marketplace revenue model and
attempts to understand the importance of the marketplace business model in the digital
age. Primary data is collected using a questionnaire to identify consumer behaviour
towards different marketplace revenue model. Both qualitative and quantitative
method is used for the preparation of the report. The response of the respondents is
segregated into different categories based on their age (16 to 24, 25 to 36,37+) to
effectively understand consumer behaviour.
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1.6 Limitations
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The Indian E-commerce industry has been on an upward growth trajectory and is
expected to surpass the US to become the second largest E-commerce market in the
world by 2034. The E-commerce market is expected to reach US$ 200 billion by 2026
from US$ 38.5 billion in 2017. India’s E-commerce market has the potential to grow
than four folds to US$ 150 billion by 2022 supported by rising incomes and surge in
internet users. With growing internet penetration, internet users in India are expected
to increase from 445.96 million in 2017 to 829 million by 2021. As of December 2018,
Internet subscribers in India stood at 604.21 million people. The total internet
subscriber base in India stood at 636.73 million subscribers in FY19.1
Each month, India is adding approximately 10 million daily active internet users to the
internet community supporting the ecommerce industry which is the highest rate in the
world. Online shoppers in India are expected to reach 220 million by 2025. India’s
Internet economy is expected to double from US$ 125 billion as of April 2017 to US$
250 billion by 2020, majorly backed by E-commerce. Digital transactions are expected
to reach US$ 100 billion by 2020. Though its Digital India Campaign the government
of India is aiming to create a trillion-dollar online economy by 2025. Propelled by
rising smartphone penetration, the launch of 4G networks and increasing consumer
wealth, the Indian E-commerce market is expected to grow to US $ 200 billion by
2027 from US $ 38.5 billion in 2017. E-commerce is increasingly attracting customers
from Tier 2 and Tier 3 cities, where people have limited access to brands but have high
aspirations.
Average online retail spending in India was US$ 224 per user in 2017. The
government e-marketplace, three years after its inauguration saw a cumulative
procurement by the central and state governments of Rs. 24,183 crores (US $3.46
billion) in FY19 and has a target of Rs 50,000 (US $ 7.15 billion) crore in FY20. By
2022, smartphone users are expected to reach 476 million and E-commerce sector
1
“India to overtake US as world's largest e-commerce market: Study”- The Economic Times-Industry,
Dec 09, 2018
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expected to grow 1200 per cent by 2026.2
a. Increasing awareness
As the awareness of using internet is increasing, more and more people are
being drawn to E-commerce. Whether it be sellers, buyers, users or investors,
people have started getting used to online mode or commerce.
b. Government Initiatives
Government initiatives like Digital India are constantly introducing people to
online modes of commerce. Favourable FDI policy is attracting key players.
Government proposed the National E-commerce policy set up the lawful
agenda on cross border data flow, no data will be shared with foreign
government without any prior authorization of Indian government.
c. Investment
Increasing FDI inflows, domestic investment, support from key industrial
players is helping in the growth of E-commerce.
2
Indian Ecommerce Industry Analysis- Indian Brand Equity Foundation, July 2018
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2.3 Nature of Marketplace
Most often, the marketplace business model is based on gathering fees for sales
made through them. Some marketplaces collect fees for listing the merchandise
(e.g., Allegro). The sellers agree to such fees, because marketplaces permit them to
enter the market with little financial outlays. Consequently, such platforms are key
selling venues for several sellers.
Some marketplaces seek ways of making extra revenues other than from sales
commission. One such example may be fulfilment services, consisting in the
marketplace taking over processes related to warehouse logistics, i.e., receiving
goods, storage, picking, packing, shipping and handling returns. (E.g., Amazon)
The foremost marketplace sellers owe their achievement to their unique approach
to customers. They draw on clients’ feelings and offer them with a product- and
delivery-related experience.
Largely due to customization, the Internet has made it possible to know clients
better, in specific their shopping experience, and consequently to adapt the offer to
their preferences and to rise up to their loyalty. knowing the needs of their potential
clients allows sellers to offer their products more consciously. Add-on sales are
used for present clients. This has taken the form of cross-selling, where products
from different categories are sold, selling more expensive or more advanced
products from the same category. There are both advantages and disadvantages to
the use of marketplaces, and both for sellers and the buyers.
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Advantages for Seller Disadvantages for Seller
It is by far the most common business model for online marketplaces. The
marketplace charges a percentage or a fixed price for its product when the
consumer pays the supplier. Either the seller or the buyer will be paid by the site.
Taking a fee from both of them is another example.
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Because the fee is justified, this marketplace revenue model is the most common.
Only when they get some benefit from using the platform can the parties work for
free and pay. At the same time, the marketplace also earns income from each
conversion.
If a marketplace charges customer for placing advertising on the site, the listing fee
model is an online marketplace revenue model. Although online marketplaces
based on commissions charge a fee only when the product is sold, they may lose
the revenue from the less popular merchandise. The listing fee model makes it
possible to fix this issue and benefit from each and every ad on the site.
Freemium is a revenue model where there are both free and premium features in a
marketplace. As the marketplace needs to provide very appealing premium features
for consumers.
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The featured listings and advertisement model is a revenue model for the online
marketplace in which sellers purchase advertising rights to improve exposure on
the website. Provided that all other listings are free to publish, vendors or service
providers pay to have a featured listing higher than others or be at the top of a
certain tier.
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CHAPTER 3- DATA ANALYSIS AND FINDINGS
More than 50% of the respondents prefer to shop online, among which the majority of
the respondents belong to the age group of 20 to 37.
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Respondents above the age of 37 mostly engage with in-store comparison before
making a purchase decision. While other age groups 20-37 mostly compare the prices
online via google search and/or Amazon, etc.
As per the data collected it was found that respondents between the age group of 24 to
37 often subscribe or purchase applications/services after their trail period expires,
whereas millennials often switch to other similar applications or services which are
free of cost.
Preference of the applications also varies depending on the age factor, respondents
between the age of 16-35 often subscribe, purchase and even pay premium price for
OTT platforms like Netflix, Amazon Prime, Hotstar, music applications like Spotifiy,
Saavan, Gaana, etc, educational applications like Biju’s, Unacademy, Coursera, dating
sites, gaming applications, property listing applications or other official use
applications like Hootsuite. Whereas respondents above the age of 35 mostly subscribe
to online newspapers or magazines, listing services, few subscribed to music or other
entertainment related applications.
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6. Online vs offline price preference 7. Online vs offline quality preference
73% of the respondents find an online model to be cost-effective but when it comes to
quality only 27% of the respondents think online models like Amazon, Flipkart, etc
provides better quality products or services while 33% think better products or services
can be found offline and 40% of the respondents think better quality products can be
found both online and offline.
Marketplaces provide many advantages, like prompt access to a lot of clients, high
recognizability, 1st contact venue, ready technical keys, a payment system and
logistics. It provides great venues for testing products and new sales markets and for
collecting information from clients. A small batch of pilot goods can be launched to
check demand and obtain feedback from clients, all without making big investments in
sales and distribution channels. Some of the restrictions are very strong competition,
listing systems, communication with clients from abroad, and fees.
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3.2 Findings
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promotions that are handled by the marketplace. Therefore, to run this, you do
not need to commit as many resources. It also helps to realize that these
networks are capable of serving more potential clients than any individual
brand.
• Higher conversion Rate: As the consumers visiting your marketplace is
higher, so would be the conversion rate at competitively lower cost.
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Featured Listings When sellers buy It is the best Difficult to get
and Ads advertising revenue when you enough users to
privileges to have want to introduce a pay for the
more visibility on new flow of premium features.
the platform revenue. Providing enough
values.
Mixed Revenue Mixture of more Several revenues Maintaining a
Model than one revenue stream. balance between
model charging both the
parties
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• Mostly subscribe to entertainment,
feature listing and other
informational
applications/services.
37+ • Prefer to shop both online and
offline, mostly offline.
• Least like to subscribe to any
online services.
• Mostly prefer offline mode for
better quality products and
services.
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CHAPTER 4- CONCLUSION
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References
Fareeha Ali. Jul 9, 2020. Infographics – what are the top online marketplaces?
https://www.digitalcommerce360.com/article/infographic-top-online-marketplaces/
Anand Daniel. Nov 2017. Rise of the Indian marketplaces, and what the future holds.
https://medium.com/accel-india-insights/rise-of-the-indian-marketplaces-and-what-
the-future-holds-614d6219fbf7
Tracey Wallace. Big Commerce. Infographic- Modern Consumer Behavior in the New
Omni-Channel World. https://www.bigcommerce.com/blog/consumer-behavior-
infographic/#is-it-that-shoppers-arent-shopping
The Economic Times, ET Retail. Jan 2020. Trends to watch out for in the e-commerce
sector. https://retail.economictimes.indiatimes.com/news/e-commerce/e-tailing/trends-
to-watch-out-for-in-the-e-commerce-sector-2020/73422007
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Annexures
A. Questionnaire
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B. E-Commerce in India
The e-commerce sector has seen a boom in the Asian region in the recent years. India,
the south Asian country, had the fastest growing online retail market in 2019. The
number of digital buyers across the country was estimated to be approximately 330
million in 2020. The figure suggests that almost 71 percent of internet users in the
region will have purchased products online for the mentioned time period. The sector
is driven by personalized advertisements, attractive discounts, quick delivery and
return infrastructure and a high penetration rate of smartphones. This retail ecosystem
combined with the comfort of being at home and getting all your choices delivered to
your doorstep has turned the tables for the e-commerce sector quite significantly.3
Internet penetration rate in India went up to nearly around 50 percent in 2020, from
just about four percent in 2007. Although these figures seem relatively low, it meant
that around half of the population of 1.37 billion people had access to internet that
3
Statista Research Department, “Number of digital buyers in India 2014-2020”, Statista, Aug 15, 2016.
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year. This also ranked the country second in the world in terms of active internet
users.4
The broader ecosystem of connectivity that has led to the emergence of the new
Internet economy also has other components ranging from the tremendous smartphone
penetration to social media engagement among India’s younger demographics. There
is, therefore, a huge opportunity to remake the first generation of Internet marketplaces
(across industries) and make them more responsive to the needs of the young Indian
mobile consumer. In particular, the demands of the smartphones would place greater
emphasis on the User Interface (UI) and User Experience (UX) of the product so that it
meets the experiential demands of the discerning Indian consumer.5
Market size of e-commerce industry across India from 2014 to 2018, with
forecasts until 2027.
4
Sandhya Keelery, “Internet penetration in India 2007-2020”, Statista, Feb 3, 2021
5
Anand Daniel, “Rise of the Indian marketplaces, and what the future holds”, Accel, Nov 6, 2017.
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Owing to the increasing internet user base and favourable market conditions, India has
a lot of potential in the e-commerce industry. Growing at an exponential rate, the
market value of the e-commerce industry in India was approximately 50 billion U.S
dollars in 2018. This number was estimated to reach 200 billion U.S. dollars by 2027.
The competition in the e-commerce business in India is fierce. The market is filled
with many local and foreign companies trying to hold the maximum market share. As
of April 2017, Amazon India was the leading online market place in the country with
more than 500 million U.S dollars in the sale. Flipkart and Myntra were the prominent
players in the local market. In a survey conducted in May 2020 about permitting e-
commerce platforms to deliver goods in India after coronavirus lockdown, the majority
of respondents voted in favour.
6
Sandhya Keelery, “E-commerce market value India 2014-2027”, Statista, Jan 14, 2021.
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