Avoiding the dot.com bust: Why India’s new eCommerce boom isn’t a bubble by Jon Hansen

Posted on January 9, 2015


We are all likely familiar with the term those who fail to learn from the past are doomed to repeat it.

There is also the saying that “Insanity is doing the same thing over and over again but expecting different results.”  Just as an interesting aside, Albert Einstein is often times given credit for making this observation, however it seems to have originated with Rita Mae Brown in her book Sudden Death. I’ll take obscure literary facts and sayings for $1,000 Alex . . .

When I read the January 9th Business Standard article “Indian e-commerce to hit $100 bn value by 2019: Assocham” my initial thought was here we go again.

India E-commerce

This of course was not the first time that proclamations of unfathomable riches have been bandied about relative to eCommerce.  In the not so distant past – although it seems like another lifetime ago – during the heyday of the dot.com boom, similar headlines flashed across our collective consciousness.  This stimulated a period on unbridled and unwarranted optimism that eventually led to the Big Bust that began in 2000.

While it is estimated that 48% of dot com companies survived to 2004, when it comes down to it, reality never lived up to the headline hype.

In an effort to keep an open mind, I wanted to understand if there were any lessons learned from the mistakes of our eCommerce past or, if as one German article questioned, are we merely witnessing the “return of the boom-to-bust cycle” of another dot.com bubble?

Focusing on India – after all, the article that prompted this post referenced that country’s eCommerce prospects – I did some research, which I am happy to share with you below.

Deliberate Versus Speculative Evolution

For those of you who, like myself, experienced first hand the wild ride that was the dot.com boom and subsequent bust, the distinction between deliberate versus speculative evolution will likely resonate.  You can read about my own personal experiences during the first incarnation of the eCommerce world in my article The million dollar napkin and other lessons from the dot com boom.

Like spontaneous combustion, the market was thrust upon us with great fury and promise.  Stock prices were driven through the roof based on little more than the excitement surrounding unlimited possibilities as opposed to tangible revenue opportunities.

In short, the hype was there, but the market wasn’t.

While the focus was on technology and establishing the infrastructures to create a virtual marketplace, no one actually stopped and took a step back to see if there was any practical traction with the buying public.  It seems that similar to the movie Field of Dreams, there was an overriding “if you build it, they will come” mindset that did not mirror reality.

Eventually, and under the weight of it’s own unfulfilled promise, the eCommerce boom collapsed upon itself turning erstwhile millionaire’s into poppers and ersatz captains of industry into mere mortals.

Unlike these earlier times, the Indian market recognizes that barriers to eCommerce adoption exists.

In the following excerpt from his October 16th, 2014 post The Future of Indian eCommerce, cloudBuy’s Nilesh Gopali writes:

Despite the positive trending relating to eCommerce adoption globally, within India there are a number of barriers that must be overcome for the country to truly become part of the revolution.  This includes the disparity between those visiting online shopping sites and those actually buying goods and services online.

Gopali then goes on to elaborate on the tempered yet needed optimism regarding eCommerce in India.

Referring once again to the Nathani article, of the 89 million who visit shops online, only 14 to 15 million make a purchase.  This is a significant statistic in that it points to a number of serious problems.

To start, and unlike the US, the infrastructure to support electronic trade – including the use of credit cards – is not nearly as developed in this country.

The reason is quite simple . . . credit cards have been a major economic staple in the US for many years.  Its utilization outside of the physical bricks and mortar model has been greatly facilitated through several transformation points including catalogue and TV shopping.

In India, such facilitation has not taken place.  This has created an economic vacuum centered around an immature logistics and fulfilment process, and a lack of trust in terms of electronic payment vehicles.  This is one of the reasons why eBay has introduced their “Power ship” and “Paisa Pay” programs.  Tailored specifically to the Indian market, the hope is that such initiatives will begin to lay the foundations of reliability and trust resulting in the Indian consumer making the move from virtual window shopping to paying customer.

Other challenges cited by Gopali relating to eCommerce adoption includes the following:

In certain situations, regulatory obstacles represent another potential barrier that has to be removed before the eCommerce model can be fully embraced.  This includes a requirement in some states that buyers complete and submit a form to the seller before a purchased product can be shipped.

Of course the biggest challenge that must be faced and addressed before eCommerce in India can fully evolve, is the successful migration from the present day cash-based transaction model, to modern electronic payment systems.

In this regard, the expressed “inclusive” vision of the Reserve Bank is both necessary and welcome.

Earlier this year, the Reserve Bank of India’s Chief General Manager, Department of Payment and Settlement Systems, Vijay Chugh’s made the following statement regarding “an urgent need for all stakeholders to collaborate to enable access to an efficient payment  system for the unbanked and under-banked population”.  Being able to provide this capability at an “affordable cost” is critical for not only eCommerce success, but the growth of the Indian economy as a whole.

“Despite these challenges,” Gopali concludes that “there is little doubt that India is truly on the cusp of a major retail paradigm shift.”

I am inclined to agree.

Recognizing The Link Between the Real and Virtual Worlds

At the height of the dot.com boom in 1999, technology was everything.

It was the focal point of the entire eCommerce evolution.  Whether or not the technology actually worked or was readily accessible to the general market, was little more than a secondary consideration.  The overriding belief was that one day soon, all buying would be done online.

Those bold enough to raise issues beyond the technological prowess spectrum, were often labelled as naysayers, relegated to being voices of nuisance as opposed to reason.

As is often the case with hindsight, yesterday’s naysayers are now viewed in a much different light.

In a post I wrote titled “Is eCommerce bad for the economy?” I made reference to the 2013 Elaine Pofeldt Forbes article “The Rise Of The Million Dollar, One-Person Business.”  In it Pofeldt observed that “technology is probably helping some entrepreneurs break sales records that they might not have been able to achieve before the internet era by expanding their reach.”

I have no doubt that eCommerce and the technology that serves as its engine, levels the playing field between small and large business enterprises. However, and like Rock n’ Roll and death and taxes, bricks and mortar businesses are here to stay.

A Houston Chronicle article by Stacy Zeiger seems to second my thinking, when she points out the fact that certain products and services are better suited to being “sold through a physical storefront.”  Included in this list are “high-value” items such as “designer clothing, antiques, jewelry, furniture and cars.”

In the end eCommerce, according to another Gopali post, “brings together more effectively than any other vehicle in history, the different yet complementary strengths of large and small businesses respectively.”  He then goes on to write “By enabling each business model to play to its strengths, it is clear that everyone benefits.”

Within the Indian marketplace, Gopali is not alone in terms of his thinking.  The prevalence of this balanced view of both the impact and integration of eCommerce within both the virtual as well as physical realms, is critical.  By eschewing the ubiquitous assimilation mindset that, with the earlier boom, had predicted the demise of bricks and mortar business, the harmonious blending of multiple sectors within the Indian economy will be facilitated.  I will talk about this in greater detail in the next section of this post.

In short, technology is not the exclusive domain of the virtual world. The recognition of this fact means that more people will have their feet firmly planted on the physical ground so to speak, regarding the utilization of eCommerce platforms.

A Clear Link To Economic Harmony

Over the years I have made extensive references to the Clark and Fourastie “three-sector hypothesis of industry” (which has been extended to four with the advent of knowledge-based industries) and how, under a “general pattern of development,” a wealthy nation progresses through each phase.

For those unfamiliar with the hypothesis, which was developed by Colin Clark and Jean Fourastie, it includes the extraction of raw materials (Primary), manufacturing (Secondary), services (Tertiary) and knowledge-based (Quaternary) sectors.

Referencing my 2009 post Will Britannia Rule the Waves of the Vast Sea that is the Global Economy?, Effectively managing this progression is critical to what Fourastie referenced in his 1949 publication “The Great Hope of the Twentieth Century” as “the increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanization of work, and avoidance of unemployment.”

In that same post I had made specific reference to India because their proficiency in developing the country’s Tertiary and Quaternary sectors resulted in double-digit wage growth for much of the 2000s.

Now at this point one might suggest that service and knowledge-based sectors are synonymous with eCommerce, and as such India’s success going forward means ignoring the other two.

However, and in line with the balanced view referenced in the previous section, the Make In India initiative – which seeks to increase the manufacturing sector’s paltry 1.6% of the country’s present GDP to 25%, demonstrates a clear understanding of the role that each sector plays in driving the economy.

The Indian approach demonstrates that the true progression of a nation’s economy does not mean developing one sector at the expense of another. What it does mean is identifying the role that each sector plays in the overall economic picture, and the then leveraging the strengths of each to enhance growth and performance across the board.  For example, eCommerce and in particular the merging of the B2B and B2C worlds, will undoubtedly play an important part in the success of the Make In India program.

This harmonious link was notably absent in the 1999 boom era.


While I am still somewhat cautious in acknowledging that our enthusiasm this time around is warranted, I do believe that India’s approach – as well as those countries following a similar track – places them in a far better position than we were in the late 90s, to realize the true potential of eCommerce.

Only time – and results – will tell.


Posted in: Commentary, Economy