This website requires JavaScript.
E-Commerce

China’s O2O Wave Hits India’s Tech-Startups

Aug 28, 2018 by Avanish Tiwary
China’s O2O Wave Hits India’s Tech-Startups

While the offline businesses in India are lobbying against the online stores claiming the latter has undue monetary advantage owing to foreign investments, an increasing number of e-commerce players are now trying a new model to prosper. They are partnering with physical stores to ride the relatively new bandwagon called O2O (Offline to Online or vice-versa).

Online startups across verticals are working with physical stores to help them realise the potential of having an online presence could have on their business. On the face of it, startups such as online retailer Paytm Mall, food delivery company Zomato and logistics provider Shadowfax are different from each other, but there is one thing common among them—they are all trying to bridge the gap between offline and online.

“There is a wave of opportunity in India. Almost all the sectors are predominantly offline oriented and that is where transactions are happening. So, as an online startup, as you scale, this is the way to penetrate into the unorganised and fragmented sector into the loop,” said Ashish Taneja, managing director, GrowX Ventures.

China’s Alibaba-backed Paytm that started its online retail store Paytm Mall in February last year has quickly escalated in its endeavour to partner with physical stores. Alibaba and Japanese SoftBank invested USD 450 million in April this year in Paytm Mall, that reportedly operates in 700 cities across India. It works with offline sellers to realise them the potential online visibility can give them. It announced it will invest Rs.320 million to expand its O2O model.

While talking to Mint newspaper, Amit Sinha, the chief operating officer of Paytm Mall, said, “This latest investment led by Softbank and Alibaba reaffirms the strength of our business model, growth trajectory, execution capability and the potential of India’s massive O2O model in the retail space.”

It's not just Paytm that is placing bets on the O2O model in India. In September last year, the US-based e-retail giant Amazon through its Indian subsidiary, picked up a minority 5% stake in the offline fashion chain Shopper’s Stop for Rs. 1796 million.

Is this a China impact?

Since the last two years that the Chinese venture capitalist firms have started investing heavily in Indian technology startups, the craze to experiment with O2O model has kicked-off in India. China-based internet companies such as Tencent, Baidu, Alibaba, etc. have collectively invested USD5.2 billion in at least 30 Indian startups last year. Compared to the USD930 million investment in 2016, this is a five-fold jump. In the first two months in 2018, Chinese interest in Indian tech startups has resulted in a near-billion-dollar investment.

However, Taneja doesn’t believe the O2O wave in India is solely because of the Chinese money pouring into the country. “In China for sure O2O is a big success which has got the Chinese investors excited that a similar model can be replicated here. But I won’t say O2O in India is picking up because of the Chinese investments in India,” he said.

Taneja, although agrees that Paytm’s foray into bringing offline stores into the online milieu is completely driven by Alibaba’s success in China with the O2O model.

After establishing itself as a dominant e-commerce player in China, Jack Ma owned-Alibaba ventured into physical retail stores and shopping malls. It only showcases products of its own brands such as Tmall, Hema and Taobao. One reason, Alibaba veered into the O2O model is that people, despite having multiple options to shop online in China, want to go out just to have a different experience from their regular daily life. According to Jing Daily, a China-based digital publication, the reason Chinese shoppers visit shopping malls is not that they want to buy something, but mostly because these places serve the purpose of socialising, dining, live entertainment, etc.

Moreover, a PwC report says people in China also like to see the product in the physical store first, and when they know what exactly to buy, they go online and place the order. This is very similar to the habit of Indian shoppers and that is precisely why various online companies have opened physical stores.

Urban Ladder, Pepperfry and LivSpace that sells furniture online have opened sprawling physical stores in metro cities in India. However, these stores are mere “experience” stores where people visit to touch and feel the product before ordering it online.

Different O2O models

According to Harish Shah, founder of online fashion retailer Fynd, when an online company simply opens a physical store without empowering any existing offline businesses, it is not an O2O model. This sentiment is shared by others in the industry as well. Taneja likes to call it a hybrid model, instead of O2O.

“Having a physical brand is largely to build the brand and tap into the users who have not spent time on buying those kinds of products online,” Taneja said.

The homegrown online retailer Flipkart through its fashion subsidiary Myntra has also opened physical stores for its private labels such as Mango, Roadster and Espirit.

Taneja said he is not gung-ho about online sellers just opening a physical property. “It doesn’t mean a lot. But offline players partnering with leading online companies are going to be a big thing.”

The online fashion retailer, Fynd in partnership with offline physical stores provides them wi an online presence on its portal. “Say, a buyer can’t find a specific colour or size of a product in a physical store that has partnered with us. Using the tablets and kiosks that we have placed with our partner stores, she can find out if that colour is available in a different store. She can also place an order then and there which will be home-delivered,” Shah explained.

Fynd claims to have partnered with around 8500 brand stores in more than 50 cities. It recently raised an undisclosed sum of money led by Google, and other existing investors including Hong Kong -based Axis Capital, IIFL, Kae Capital, GrowX Ventures and Tracxn Labs, among other angel investors.

Apart from merchandise, tech-startups are also working with restaurants and hotels to bring them online. Shadowfax that provides last mile delivery has partnered with more than 1,000 restaurants across 20 cities to deliver their online orders.

“Since the beginning, our model has been to work with the offline stores. We also worked with online players. We have a separate fleet that regularly talks to offline restaurants and brings them online for deliveries,” said Vaibhav Khandelwal, co-founder, Shadowfax.

Taneja believes, the dollars—both of investors and shoppers—will continue to grow in companies that invest time and effort in the O2O model. “This is a wave that has been going around in India for some time now, and with the right focus, offline is going to be the bigger revenue generator in the coming time,” he said.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

Follow Avanish Tiwary