ecommerce digital media_and_convergence_promise_oct_10_final_v2

The E-Commerce, Digital Media and Convergence Promise:

Are we there yet ?

2© 2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3

4 Concluding Remarks

Challenges and Way Forward



India goes online…

Claimed internet users as of June 2012 are 137 million

Wireless connections are expected to constitute about 90 percent of all internet connections by 2016

Broadband wireline connections to grow upto 51 million by 2016

Internet enables smart phones expected to reach approximately 264 million by 2016

Mobile gaming touched INR 4 billion in 2011

Tabl

ets

Smart phones

E-B

ooks

IPT

V

Onl

ine

vid

eo

Online advertising Online shopping

Evolving models Internet connections projected to grow to 400 million by 2016

Downloads

App

lica

tions

E-t

ailin

g

Online travel

Social media

Emailing

Internet Online music

Live

str

eam

ing

Mob

ile h

and

sets

Online gaming

Online music

Digital TV

Applications

E-commerce Wire

less

Broadband

Digital cinema

Dig

ital T

V

Digital advertising touched INR 15.4 billion mark in 2011

Online payment


The digital ecosystem is rapidly evolving with continuous growth in internet penetration and mobile device access…

Urban users are expected to reach 105 million by December 2012

Source: IMRB IAMAI 2012 report

Proliferation of new age devices...

Source: Consumer and Convergence V, KPMG in India analysis

As of June 2012, there are 137 million claimed internet users in

India

99 million – Urban

India

38 million – Rural India

Source: IMRB IAMAI 2012 report

Sept-08

Mar-09

Sept-09

Mar-10

Sept-10

Mar-11

Jun-11

Dec-11

Jun-12

Dec-12E

5763

71 7378 82 85

9299

105

Units: Million

Gadget usage


Mobile connectivity will drive the next phase of growth…

Smart Phones and Tablets to drive on-line media consumption

Source: KPMG in India analysis

Demand for smart phones is driven by continuous reduction in prices

Source: Smartphone market in India 2012

Frequency of accessing internet on mobile/tablet

4-5 times a

day

Daily 3-4 times a week

Once a week

Once in 15 days

Once a month

0%

10%

20%

30%

40%

50%

39%

48%

7%3% 1% 2%

Source: Report by ViziSense & Komli Media, July 2012 - Afaqs.com

Better user interface, affordable pricing and availability of internet has led to spurt in

smart phones/tablet market in India

2009 2012

12000

3845

- 32 %

Price – INR


..powered by the youth….

Source: IAMAI, iCube report

75%

Youth driving the Internet Usage...

Smartphone usage by age-groups 15-24 yrs 31 + yrs

Total Time spent on Smartphone 3 hrs 2 hrs

Total Time spent on Browsing & Entertainment 2 hrs 1 hr

Total Time spent on Chat & SMS 31 mins 15 mins

On an average, Indian smartphone users are spending about 150 minutes a day on their phones and more than 50 percent of this time is on Browsing, Entertainment and Applications.

Source: Nielsen Informate Mobile Insights

Under 18 yrs

18-24 yrs

25-30 yrs

31-35 yrs

36-40 yrs

Above 40 yrs

5%

13%

8%

8%

8%

5%

Smartphone ownership among age groups (as a % of mobile phone users)

...and augmenting the adoption of media devices


Under 18 yrs

18-24 yrs

25-30 yrs

31-35 yrs

36-40 yrs

Above 40 yrs

5%

13%

8%

8%

8%

5%

Smartphone ownership among age groups (as a % of mobile phone users)


An evolving new media segment with number of users spending considerable time and players building business models to monetize on the same…

Along with console, mobile and PC & digital TV are emerging in the gaming segment

Growth in the digital ecosystem is one of the key enabler for online video consumption

Digital books Portals Online

classifieds Search

Social networks

Emerging segments

Source : KPMG in India analysis

Television (Users)

Video (Unique Users)

639

101

Audience 2011 (Million)

Source: Comscore, KPMG in India analysis


What are users doing today…?

Urban Population 2012339 Mn

Computer Literates 133 Mn

Claimed Internet Users 99 Mn

Active Internet Users 80 Mn

Mobile Phone Users 628 Mn

Mobile Internet Users 59.4 Mn

Rural Population 2012833 Mn

Computer Literates 70 Mn

Claimed Internet Users 38 Mn

Active Internet Users 31 Mn

Mobile Phone Users 323 Mn

Mobile Internet Users 3.6 Mn

Activity Urban

E-mail 87%

Social Networking 67%

Chat 61%

Music/Video/Photos 49%

Information search 42%

Activity Rural

Music/Video/Photos 75%

E-mail 56%

Online Services (for educational purposes and Online Jobsites)

50%

E-commerce 34%

Social Networking 39%

Online Finance 13%

Rural Needs 16%

Penetration of activities amongst internet users

Source: IAMAI_Internet in India 2012


Accelerating commerce on the internet…

Source: IAMAI digital commerce 2011, KPMG in India analysis

814614030 16600

2170028500

40300

55600

77100

107800

0

20000

40000

60000

80000

100000

120000

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E

INR

Cro

res

CAGR – 36.8%

CAGR – 39.5%

E-Commerce market in India Numbers of users transacting online

35

79

1115

21

28

38

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011 2012 e 2013 e 2014 e 2015 e

No

of u

sers

(mn

)

Source: Avendus Research Bain Research, Press Articles

The growth in e-commerce market in India is driven by

Broad segments

Source: IAMAI digital commerce 2011, KPMG Analysis

Online travel

E- retailing

Online financial services

Digital downloads

Other online services

• Rising income levels

• Better education

• Payments infrastructure

• Government initiatives


Provision of viable payment options is also one of the key enablers to drive e-commerce in India

Indian electronic payment-wide array of choices for the consumer


Case : Indian Railways

50%Net

banking30%

Credit/ Debit cards

20%Prepaid cards

In 2010-11, online ticketing at over INR 80 billion accounted for 40 percent of reserved accommodation of Indian Railways. Such payments were made through

Cash on delivery (COD) plays a significant role in making consumer comfortable with online transactions

40 – 60 % Overall transactions coming through cash on delivery across categories in e-commerce

Advantages

Eliminates long/complex payments

process

Choice to touch and feel the product

Transfers risks from consumers to supplier

incase of delivery failures

Option of reverse logistics


Online consumption, improved connectivity and technological advancements … fueling growth in both digital media and e-commerce

Payment options

Young active users

Mobile connectivity

Internet users

Smartphones / tablets / feature

phones

Social media / research / emailing

Digital books, portals, video….


Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3





Digitization – A game changer across major media segments in India

Subscriber base in Television is expected to shift towards digital in coming years

Similarly, digital sales have surpassed physical sales in Music industry

Source: KPMG in India analysisSource: KPMG in India analysis


Exhibition – Digital cinema

Digital print continued to grow during 2011

Digital now accounts over 80 percent prints

of Hindi film releases

Leading to significant cost savings

Print - Emerging sources of news consumption

Television

Blogs

Social Networks

Online news

websites



Mobile becomes the preferred device for content access

Source: Mobext India Survey_Role of the Connected Device in the branding and buying cycle of a Consumer

Device purchases cannibalise other media consumption habits

Mobile80%

Laptop/desktop 13%

Tablet7%

Primary Access device

Communication

Entertainment

Information

46%

43%

40%

Use of Mobile/Smartphone

Mobile is the device of choice Mobile dominates media consumption

• 21 percent read less printed books

• 22 percent watched less TV

• 16 percent reduced time on Internet via desktop/laptop

• 30 percent read fewer books in print

• 31 percent watched less TV

Tablet UsersSmartphone Users

44% of total media time is spent on the mobile

As per a survey by Mobext India in 2012 among mobile/smartphone, laptop and tablet users:


Online video takes off in India

2010 2011

0

20

40

60

80

100

120

79.79

101

Online Video: Unique Users

Mill

ion

2010 2011

0

1

2

3

4

5

6

7

8

4.8

7.6Online Video: Time spent

Ho

urs

pe

r u

ser

pe

r m

on

th21 %58 %

India

UK

Germany

US

0 5 10 15 20 25

8

17

20

21

Time spent watching Video online

hours per user per month

79 74 70 69 6655 55 52

4233 33

25 23 23 22 21 20 20 19 15 15

% Reach of online activities on Smartphones


Source: ComScore, KPMG in India analysis Source: ComScore, KPMG in India analysis

Source: ‘KPMG n India analysis

After activities like communication and search, video is the most popular activities for smartphone users in India

Compared to matured international markets, Indian market still has significant potential to grow

Growth in both users and time spent on Online video


E-book market presents a new growth opportunity

Source: Bowker

Educational Con-tent70%

Other30%

INR 140 billion Total Book market in India

While the current penetration of e-books in India is just 2 percent, the market is likely to take-up with the following opportunities in India:

World’s third largest book market

Rising literacy rates

Rising adoption of e-readers and tablets

Source: KPMG FICCI Report 2012

3 Lakh tablets sold during Jan-March 2012 and expected to grow by 25% annually

Purchased an e-book during last 6 months

Likely to buy an e-book during the next 6 months

0 10 20 30 40 50 60

20

50

As per Bowker's survey in India (Feb 2012)

% of respondents

Source: KPMG FICCI Report 2012


Consumers now willing to receive targeted advertisements on their personal devices

Source: Consumer and Convergence V, KPMG in India analysis

70% consumers willing to be tracked for advertising


A shift in ad-spend – Growth of digital media

Advertisers shifting their focus from traditional media to digital media

Source: Zenith Optimedia


Percentage share of advertising spend by media

Growing contribution of internet ‘s share to the World ad-spend...

TV39%

Print46%

Radio4%

OOH6%

Digital Advertising5%

Digital has surpassed radio in terms of advertising spend


Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3





Globally, content providers are experimenting with different business models for online content

A combination of ad supported and paid models are used to monetize content in developed markets

PlayerSubscription (Paid/Free)

Monetization/Pricing

Spotify 2.5 M; 10 MFree with ads; USD 4.99 per month for web; USD 9.99 / month for web and one mobile device

Deezer 1.4 M; 20 MAd supported free streaming (Eur10 m); free, medium tier (4.99 Eur) and premium tier (9.99 Eur)

7Digital3 M registered

usersFree with ads; USD 4.99 per month for web; USD 9.99 / month for web and one mobile device

Netflix 24.6 M$7.99 for unlimited streaming movies OR unlimited one-disc at a time rental service ($11.99 for 2 unlimited). $15.98 a month for unlimited streaming and discs

Hulu 2 M

All content is ad supported. Non paying users can only watch on computers. For $7.99. Hulu Plus customers can watch shows in high-definition and access programs on mobile devices, video game consoles.

New York Times 0.5 MFree for 10 articles a month; Three paid packages ranging from $15 to $35 per month to include access on the website, phone apps, iPad app

Financial Times 0.3 MFreemium model with limited free content and tiered pricing ranging from $4.95 per week to $8.59 per week (which varies considerably across geographies)

Mus

icV

ideo

Prin

t

Source: KPMG in India analysis, news articles


While there is a growing demand for video content, consumers have not shown a willingness to pay for the content leading to a primarily ad funded model

Monetization of video content online is primarily through ad funded models

Ad Funded Paid Models

• Ad rates have been rising especially for video ads and are around 400-500 on a CPM basis

• Challenge: ad rates remains low compared to TV ad rates

• Low willingness to pay for content compared to developed markets

• Ditto TV, launched by Zee offers premium content online with monthly subscriptions starting at Rs 21 per month

Innovative monetization models for video online

• Sponsorship of entire web property

• Bundling sponsorships with television

• Supplementing TV content with online platforms:

• Using existing TV content innovatively online

The freemium model is expected to become popular in India for music online

• In India, 90% of digital music revenue comprises of caller ring back tones

• Gaana.com, Saavn.com provide ad funded streaming services

• Players such as Flyte, from flipkart, and Hungama offer downloadable music content at attractive prices

• Freemium models are expected to become popular where consumers get an option between ad supported content or

paying for premium content


Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3





Overdependence on ad revenues

Measuring ROI for advertisers

• Lower ad rates compared to developed markets

• Ad revenue is shared by platform providers and aggregators

• Numerous options for advertisers to advertise online .e.g Google, Facebook, Twitter, Pinterest, YouTube

• Difficulty is measuring returns accurately

Digital Piracy

• Digital piracy is a big threat to content monetization

• India ranks 4th globally in terms of illegal movie downloads

• Content providers will have to build revenue models that involve consumer payments

• Improved targeting through data analytics

• Introducing alternate rates such as charging advertisers only when an ad is viewed

• Focus on developing quality content suited for the medium and educating consumers on piracy

Challenge Outlook

Overdependence on advertising, lack of systems for measurement of ROI and digital piracy are the challenges faced by the digital media industry


Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3





Travel and retail are the biggest segments in the e-commerce space

Online Travel80%

Online Retail7%

Online Financial Services6%

Online Digital Downloads2%

Online Other Services5%

Source: IAMAI digital commerce 2011

E-Commerce segments - Market Share


Among online retail segments, apparel has shown the fastest growth while comparison shopping dominates the reach

Apparel is the fastest growing subcategory in online retail

Comparison shopping leads in terms of reach

% Reach among online users (July 2012)

YoY Growth % (July 2011 – July 2012)

Source: ComScore report _State of e-Commerce in India


Growing internet penetration, incomes and living standards have spurred e-commerce transactions in non metros and rural areas

Source: India Goes Digital, Avendus; Internet in India (I-Cube 2011), IAMAI; CRISL, News Articles

Total(Mn) 32 46 50 63 82

Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12

3.3 3.75.5

8.512.1

1720

2427

31Rural active internet usership (%)

Growing internet penetration, income levels and living standards in the non-metros....


E-commerce transactions spur in non metro cities and rural areas

Source: India Goes Digital, Avendus; Internet in India (I-Cube 2011), IAMAI; CRISL, News Articles

Tier 2 and 3 cities contributed about 40% and

Rural India contributed 9% of all e-commerce

transactions between July’10 to June’11

3311 cities shopped online between July ‘10 to

June ’11, of which 1267 were non metros

Metros

Key Motivators*

Convenience

Non Metros Non availability of products

* Ebay Census 2011

Yepme.com

Contribution from non metros (%)

~ 60%

Lenskart.com 50%

Bagskart.com 70%

Watchkart.com 28%

Flipkart.com 60%

....Giving a thrust to e-commerce

Many e-commerce sites now have majority of their sales coming from

non-metros

Source: eBay Census 2011


While VC/PE funding continues to grow in the e-commerce space, most of it is goes to the large players

Note:The above chart includes investments in the entire ‘online’ space and is not restricted to only E-Commerce

Source: Venture Intelligence, KPMG in India analysis

2010 2011 2012 (till Sept)0

100

200

300

400

500

600

107

485 470

US

$ m

n

4.5x

Deal Volume

25 81 69

CompanyInvestment (US$ mn)

Investors Date

Flipkart 150 Tiger Global, Accel India, Iconiq Capital, Others

Feb-12

JustDial 60 Sequoia Capital India, SAP Ventures

Jun-12

Ybrant Digital 48 Oak Investment Partners, Asia Pacific Capital, Others

Jan-11

Yatra Online 45 Intel Capital, Norwest, Valiant Capital

Apr-11

Pubmatic 45 Helion Ventures, Nexus Ventures, DFJ, SVB, August Capital

Jun-12

Snapdeal.com 40 Kalaari Capital, Nexus Ventures, Bessemer

Jul-11

Fashion and You

40 Sequoia Capital India, Intel Capital, Norwest, Nokia Growth Partners

Nov-11

Quikr 32 Warburg Pincus, Norwest, Matrix Partners India, Others

May-12

Private equity investments in online space

Largest investments during 2011-12 (ytd)

Together secured 67 percent of the total estimated investment in non-travel e-commerce between June 2010 to May 2012

Flipkart

Smile Group

Snapdeal

MyntraSource: Juxt Research

Source: Venture Intelligence, KPMG in India analysis


Signs of consolidation emerge in different segments reducing fragmentation

Reasons for consolidation

Highly competitive market Only 11 million e-commerce users, while more than 400 non-travel online retailers exist

High customer acquisition costs

INR 50-100 mn a month spent on marketing, overheads and salaries by top e-commerce companies

Lack of capitalSeries B funding dying down for many companies as investors become choosy about companies they invest in

Acquirer Target Nature of acquired company Date

Fashion and You Urban Touch Fashion and beauty retailer Aug-12

Hushbabies Mangostreet Babycare retailer Aug-12

Yatra.com Travelguru Hotel aggregator Jul-12

Yebhi Stylishyou Fashion jewellery portal May-12

Snapdeal Esportsbuy.com Sports goods retailer Apr-12

Flipkart Letsbuy Electronics Retailer Feb-12

Recent acquisitions in the e-commerce space

Source: Press releases


Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3





E-commerce companies globally have adopted diverse operating formats and revenue models

Parameter Amazon Sears eBay Asos Gilt Birchbox Polyvore

Model Consignment Click & Mortar Market place Consignment/Private Label Flash Sales Subscription

model Content curators

Revenue in 2011(mn) 48,070 41,600 11,650 550 370 ~1 Na

Unique Visitors per month (Mn) 120 12 89 17 1.5 0.15 10

SKUs (in Mn) 39mn (books) + 11mn (others) Na 1.5 Na Na Na Na

Warehouse Area (Sq.ft) 44.1 mn

46 mn (integrated with

offline) 3.2 mn (GSI) 3.5 mn Na Na Na

Acts as an intermediary providing a platform for

buyers and sellers, Eg- E-bay, Etsy

Directly sells to consumers Eg- Amazon

Combines aspects of offline & online retail Eg: Sears

Business Model Comparisons

Source: Company Websites, Internet sources, KPMG in India analysis

Operating Formats

Format

Market Place model

Click & Mortar

ConsignmentModel

Revenue Models

Sell directly to consumers through direct retailing, flash sales, group buying etc .

Curators of content charge brands to promote their products online. Eg. Polyvore

Provide goods monthly to subscribers. Eg. Birchbox, Dollarshave club, Lost Crates


Some sites had to rework their strategy mid-way to stay relevant to the Indian consumers. Companies had to strategically balance scalable, high margin and sustainable offerings with good consumer experience

Player Details of change

Indiatimes.com

Key motivators for change

• Followed an ‘e-bay’ like aggregator model for 12 years

• Shifted on to stock and sell ‘Amazon’ like model

•Better consumer experience

through a warehousing model

•Establishing trust amongst

consumers

Flipkart.com

• Started as a bookselling website

• Added categories like electronics, baby care, toys. Also

moving into private label and digital content

•Expanding product portfolio to

make business scalable

•Expansion into high margin

categories to ensure better profit

margins

Searching for the right business model


Growing ‘hybrid’ approaches

As players adapt to the changing ecosystem, lines that separate offline and online are starting to blur increasingly giving rise to new ‘hybrid’ approaches

Key Trend Details

Adding ‘click’ to brick and mortar

Presence

Examples

• Enables reach in tier 2 and 3

• Advantages over pure online players:

existing supplier relationships, category

expertise

Samsung, Nokia, Westside, Woodland, Pantaloons, Shoppers Stop, Dabur,

Geetanjali Jewellers, Tanishq

Adding ‘brick’ to click

• Online players are establishing offline

presence to increase brand awareness

and allow touch and feel of the products

Yatra.com, Makemytrip.com, Lenskart.com, Inkfruit.com,

Jewelsnext.com


Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3





Customer loyalty, under-developed logistics and payment process are impediments to the growth of e-commerce in India

Lack of consumer loyalty

Infrastructural challenges:

Logistics and Supply Chain

• High customer acquisition costs and aggressive marketing budgets

• Competitive space with multiple players in each category

• Underdeveloped last mile logistics • Cash on Delivery increases logistic

costs

Infrastructural challenges: Payments

• Drawbacks of COD – higher rejection rates, increased working capital requirements and additional logistical processes.

• Businesses need to differentiate and offer a strong value proposition to tap the strong underlying consumer demand

• Variable cost contracts and volume discounts can bring costs down

• Managing reverse logistics is critical.

• Incentivize e-payments.• Develop innovative payment methods

such as Alipay, which allows people to make payments through an escrow account.

Challenge Outlook


Contents

Digital Ecosystem

Digital Media

Key Trends

Business Models

E-commerce

Key Trends

Business Models

1

2

3





Concluding Remarks

...Certain factors acting as key catalysts to the change:

Business Models

Consumer Loyalty

Payment options

Device Usage

Measurement systems

Mobile connectivity

Growth through consolidation

Product differentiation

With evolution in digital ecosystem, E-commerce and Digital media in India is finally at the cusp of realizing its promise...

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International.

This document is meant for e-communications only.

ecommerce digital media_and_convergence_promise_oct_10_final_v2

Business

indian smartphone users

rural india source

indian registered partnership

yrs total time

yrs smartphone ownership

claimed internet users

internet usage

mobile phone users