Ecommerce digital media_and_convergence_promise_oct_10_final_v2

The E-Commerce, Digital
Media and Convergence
Promise:
Are we there yet ?

1© 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
Tablets
Smart phones
E-Books
IPTV
Onlinevideo
Online advertisingOnline shopping
Evolving models
Internet connections projected to grow to 400
million by 2016
Downloads
Applications
E-tailing
Online travel
Social media
Emailing
Internet
Online music
Livestreaming
Mobilehandsets
Online gaming
Online music
Digital TV
Applications
E-commerce
Wireless
Broadband
Digital cinema
DigitalTV
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
57
63
71 73
78 82 85
92
99
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
39%
48%
7%
3% 1% 2%
0%
10%
20%
30%
40%
50%
4-5 times
a day
Daily 3-4 times
a week
Once a
week
Once in
15 days
Once a
month
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
12,000
3845
2009 2012
- 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
5%
13%
8%
8%
8%
5%
Under 18
yrs
18-24 yrs
25-30 yrs
31-35 yrs
36-40 yrs
Above 40
yrs
Smartphone ownership among age groups
(as a % of mobile phone users)
...and augmenting the adoption of media
devices
5%
13%
8%
8%
8%
5%
Under 18
yrs
18-24 yrs
25-30 yrs
31-35 yrs
36-40 yrs
Above 40
yrs
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
639
101
Television (Users)
Video (Unique
Users)
Audience 2011 (Million)
Source: Comscore, KPMG in India analysis

What are users doing today…?
Urban Population 2012
339 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 2012
833 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
8146
14030 16600
21700
28500
40300
55600
77100
107800
0
20000
40000
60000
80000
100000
120000
2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
INRCrores
E-Commerce market in India Numbers of users transacting online
3
5
7
9
11
15
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
Noofusers(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
banking
30%
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, v
ideo….

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
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
Mobile
80%
Laptop/des
ktop
13%
Tablet
7%
Primary Access device
46%
43%
40%
Communicatio
n
Entertainment
Information
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
80
101
0
20
40
60
80
100
120
2010 2011
Million
Online Video: Unique Users
4.8
7.6
0
2
4
6
8
2010 2011
Hoursperuserper
month
Online Video: Time spent
21 %
58 %
8
17
20
21
0 10 20 30
India
UK
Germany
US
hours per user per month
Time spent watching Video online
79
74 70 69 66
55 55 52
42
33 33
25 23 23 22 21 20 20 19 15 15
Search
Social…
Appstore
Webmail
Chat
Video
Maps
VASportal
Content…
News
Adult
Portal
TV
BSFI
Travel
Sports
Shopping
Entertain…
Blogging
Weather…
Mobile…
% 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
Content
70%
Other
30%
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
20
50
0 10 20 30 40 50 60
Purchased an e-book during last 6
months
Likely to buy an e-book during the next
6 months
% of respondents
As per Bowker's survey in India (Feb 2012)
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...
TV
39%
Print
46%
Radio
4%
OOH
6%
Digital
Advertising
5%
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
Player
Subscription
(Paid/Free)
Monetization/Pricing
Spotify 2.5 M; 10 M
Free with ads; USD 4.99 per month for web; USD 9.99 / month for web
and one mobile device
Deezer 1.4 M; 20 M
Ad supported free streaming (Eur10 m); free, medium tier (4.99 Eur) and
premium tier (9.99 Eur)
7Digital
3 M registered
users
Free 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 M
Free 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 M
Freemium model with limited free content and tiered pricing ranging from
$4.95 per week to $8.59 per week (which varies considerably across
geographies)
MusicVideoPrint
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 Travel
80%
Online Retail
7%
Online Financial
Services
6%
Online Digital
Downloads
2%
Online Other
Services
5%
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
3.3 3.7
5.5
8.5
12.1
17
20
24
27
31
Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12
Rural 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
107
485 470
0
100
200
300
400
500
600
2010 2011 2012 (till Sept)
US$mn
4.5x
Deal
Volume
25 81 69
Company
Investment
(US$ 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
Myntra Source: 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 capital
Series 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
Consignment
Model
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, Shop
pers 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, J
ewelsnext.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.

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