Friday, May 31, 2013

If you are a handicraft afficionado, you must have surely come across the delightful website Today it announced that it has been acquired by Its not exactly clear what direction it will take, whether the website will completely shut down or whether sellers goods will be made available at the Snapdeal website.

We were one of the early ones to setup a shop in Unlike many others, they got a lot of things right from the beginning :

1) Respect for Sellers : There are host of websites that will call you and want you to list your products in their website, but most of them treat sellers as if they are not aware of the internet or plain dumb. There are designers and manufacturers that make great products and Shopo showed respect and tried to create an ecosystem rather than act like traders ready to make a killing

2) 15% Commission : India is a very difficult market and it is important that products are priced right. Another important part it should make sense for the whole ecosystem for products to be sold and customers to be happy - this means designers and manufacturers get to sell at a price that is good for them, marketplaces get a sensible commission and customers get a reasonable deal. Many players dont get that and want to charge 30%-40% which simply breaks the system. Shopo went ahead and fixed it at 15% with no listing fees - which was just great for everyone.

3) From Designer/Manufacturer to Seller - There are a lot of ecommerce stores that neither want to become a pure marketplace nor carry inventory. They get an order, place it to the manufacturer and then  get in their warehouses, package it again and send to customer. This is a bit ridiculous because 1) Higher chances of stock out 2) High delivery times and low customer satisfaction 3) Double the cost of packaging and higher chances of breakage 4) Higher price. However, Shopo did not fall into that trap and instead focused on enabling the seller (pickups from Fedex etc) rather than become an unwanted gateway in between.

4) Great Sense of humour - Shopo has a great sense of humour and it is apparent in their emails to sellers

There are also a few things where we thought Shopo got it wrong :

1) Logistics - If you are a seller, you can either ship it yourself or get Shopo to pick up the order via its courier partners. Though it was great for the seller and customer, I am sure this must be very expensive because it is difficult to estimate the size/volume of each product and probably it is best left for the seller to ship.

2) Marketing - Lately Shopo tried a form or marketing using which Sellers could market their stuff at Shopo's facebook page etc for a price. This is a bit strange for sellers because they are anyway paying 15% as commissions which should include marketing and payment etc.

3) Technology - Though most of what they did in terms of technology - feeds or the iPad app were really cool, the site was a bit slow at times and as a seller, your products kind of got lost as new and new sellers joined - somehow it felt that relevance and popularity lost out a bit to how new your stuff was.

Overall, Shopo was like a breath of fresh air and hopefully, these kind of services/websites dont lose their relevance when acquired by the big boys.

Best of luck to the Shopo team - you guys have been awesome.

Wednesday, May 29, 2013

Ecommerce Trends

There are various trends that are in vogue currently and as a very small company, it becomes very important to us in being extremely picky when it comes to prioritizing what we want to do. Here are some trends we are looking at very closely :

1) Videos : It is widely accepted that videos play an important role when it comes to search engine optimization. They are crawled and indexed easily though we have not been able to determine how it affects the number of queries. Creating a compelling video is hard work - no video is better than a patchy video. Videos also take significant bandwidth which means two things - 1) higher storage costs and 2) requires a good connection for the end user - it is possible that you may have a wonderful video and 90% of your customer base can't get your page to load properly because they have a slow connection. Our experience with video has been very mixed. There is no significant increase or decrease in product conversions due to videos. So we are taking it a bit slow when it comes to video - about 10% of our products have videos.

2) Mobile : Do we need a iPad add ? Do we need a iPhone or Android app? The answer at this moment for us is no. This is basically because there seems to be a lot of reluctance in india to use credit cards online so extending that, we believe that using them on a mobile app will be a bit more complicated - also payment gateway integration may not be seamless. The app strategy may be good in case of COD, but since we dont do COD, it looks like a lot of investment without returns at this point. Also with HTML5 and other things on the horizon, we believe the app thing may be a pasing fancy and a singular web based UI across device will start taking precedence in the future.

3) Google : Though we dont have a lot of insight into how Google works, it seems with the recent updates, Original content is becoming more and more important and the number of links especially bought links are kind of becoming less valuable. So, we have kind of stopped doing too much SEO jugglery and just put up good content when we have a new product. Traffic wise, our strategy hasnt worked very well, but at the moment we dont know of ingenous ways to build links and traffic from emails etc havent been very productive for us.

4) Social : Pinterest is not working for us in India - we get some repins etc from primarily US users, but dont seem people care much about pinterest much. Twitter brings in lot of instant traffic but cant seem to connect any conversions to twitter. We havent done much with linkedIn.Facebook is where we spend most of our social time. Our audience engagement has been pretty good and people usually respond well to smart and funny posts, pictures - e.g animals have good engagement. Our average is one post a day and anything more than two usually causes engagement rates to go down drastically. Social is great for brand building but from conversion perspective, it seems a bit overrated at this point. We may be wrong, but that has been our experience though getting accurate conversion data from facebook is very difficult.

5) Advertisement - We have an absolutely tiny budget for ads. The ROI is pretty poor but what you gotta do you gotta do. We do a little bit of google ads - only search and video, no banners. The conversion cost are very high and then some of them drop off during the payment. Video is primarily for branding - not sure if it is working - difficult to track. In Facebook, we primarily page post ads and spend about Rs 6-7 per like - Its not too bad but again it is more of a branding thing.

Hmm. Well thats all for today. If you have any ideas, do leave us some comments. Thanks for reading

Monday, May 20, 2013

Idli Profitability

In the times of ecommerce layoffs, people have started talking about something called as 'Idli Profitability'. Apparently, it is a take on 'Ramen Profitability' coined by Paul Graham and supposed to be a state where a company is supposed to generate enough money so that it can take care of its basic expenses like employee salaries and sustain the founders. For a layman unaware of the crazy ride that ecommerce in india has become, it may be somewhat puzzling why this is even a question - every business should be do that - able to manage its expenses that is. However, Ecommerce in India is like big investment pot and too tempting for large investors to ignore even if most ecommerce websites even after 3-4 years have not even become 'idli profitable'.

Profitability is a big challenge and here's why :

1) Traffic is seldom created by brand value but often bought by advertisements. This broadly means generating traffic mostly by ads in Google(search, banner) and Facebook(mostly banner). An average  click using an advertisement is roughly 10 Rupees(take a few rupees here and there). 50 clicks generate a sale. Do the math. Typically you end up spending 500 Rs for a sale (say average - 1500 Rupees). So 25% of your revenue will go as ad spend (considering you are able to generate 20% sales without ads). If you are mature ecommerce company, this percentage maybe lower but you may have probably burnt more money on TVads or in getting where you are.

2) If you manage your own inventory, you have to pay logistics - this will be 10%-20%. If you do third party courier companies or manage your own logistics - I guess it doesn't matter much because in one case it is higher operational cost and in the other, it is more capital expenditure but in the end it  a sigificant chunk. If you are a managed marketplace, you probably dont have to worry about
logistics but typically the commission is 15-20%.

Then there are discounts and returns on COD  etc. Even if you ignore them, here is what you end up with:

For every 100 Rs of business,

Inventory model : Money left :=100-40 (conservative estimate of 25 rupees of ads and 15 rupees of logistics) Typically it is difficult to sell an item at double the factory price so lets assume Cost of Goods as 60 Rs (in case of books it is reasonable to sell a 60 Rs book(from publisher) at 100 Rs after 10 percent discount to a customer but in other like electronics it may be a tricky affair). So essentially you are left with Rs 0 to pay for your salaries (100-40-60).

MarketPlace model : Lets assume the comission charges as 15%. This means you end up with 15 Rupees for every 100 Rupees sale. So Money left := 15-25(ads cost). So ou are left with -10 Rs for your salaries.

It is not hard to see why profitablity or even idli profitability is difficult if not impossible in such a scenario. There are obviously going to be exceptions who will reduce these costs either because of brand name or land grab but for majority of ecommerce players, its gonna be a long chase towards profitability.

As a company with an Ecommerce front end, we face the same challenges and we are just about 10 percentage points away from idli profitability - sad but true. However, we have taken some hard decisions and said no to significant percentage of sales by adopting a NO COD and No discounts policy. We dont have a wherewithal to do a lang grab neither do we have a big marketing spend. We are trying to get around these by optimizing our manufacturing process, hoping ad costs go down in the long run and we are able to build a brand slowly. If I had to take a wild guess about who would win the ecommerce race, I would bet my money (theoretically - not that i have any :) ) on courier companies

Friday, May 17, 2013

Discounts and ECommerce

A lady called us yesterday and asked for discounts. We asked her if she was interested in any particular product and she said that she hadn't made up her mind but was wondering if there were any discounts. This is a common happening for us - every other day we get inquiries for discounts. We had toyed with the idea about discounts quite a few times and had done some experimentation around it. Unlike most other ecommerce retailers, we also manufacture or handcraft our own products in house. Following were some of the things that came into our mind.

1) Discount in the Overall Price : Suppose a product has been priced at 100 Rs and we give a discount of 20%, the price becomes 80 Rs. Why not give it at 80 Rs itself ?

2) Standard Price : There are some items that have an MRP : example a book or a phone. When a discount is given, it is valuable for the customer. But for niche items like lamps, there is no way for the customer to know the actual price, So it is possible for some vendors to just hike up the price by 50% and then give a discount of 20%

3) Marketing Ploy : Indians love discounts and it is usually a great marketing ploy. However, consider the high customer acquisition costs, we think it is more important to get the trust of a customer for repeat purchases or referrals than trick him or her for a quick sale.

Based on the above, we have decided on a no discount policy for single purchases. Its been a tough one and once in a while, we may re-look at things like seasonal or inventory based discounts, but we would rather give a very low price than a hiked price with a discount. Lets see how it goes
Moving our E commerce cart to Amazon Web Services

We are a small company with our basic foundations in handicrafts and small scale manufacturing. We launched our eCommerce store a year ago and it has been a learning experience. Though we started our online sales with Ebay and other market places, we realized that having our own store would give us good value in terms of control, branding, pricing, customer acquisition and last but not the least some independence. The online market is quite fluid and its kind of good to spread your eggs in different baskets. Putting up an ecommerce store in India has its own hassles, primary among them is the payment gateway setup with individual banks giving their approval before they appear in our list of payment options.

For our DNS and Hosting, we chose Godaddy initially which is a pretty good place to start with in terms of ease and cost. They have different types of hosting options available :

1) Dedicated Hosting : You have your own server and you can put what you want. This is pretty expensive so obviously we could not afford it.

2) VPS : This is primarily shared hosting with a dedicated RAM and CPU reserved.

3) Shared Hosting : This is the cheapest and you share a server with multiple other websites.

Based on our limited resources, we thought it would be wise to use Shared Hosting and see where it goes and upgrade as necessary. It is pretty cheap and for the first few months, it was just amazing value for the money we spent. However, shared hosting has its share of limitations, some of them pretty difficult to get by - for one, you dont know how many websites share your server and what kind of loads they have. Secondly since the CPU and memory is shared, you may get a big chunk of it or none. Then one bad website can bring many others down. All in all, it is a good option to start or experiment with but it does not cut it for good professional websites.

At this point in time, we looked at if we could go towards a larger infrastructure, VPS or maybe dedicated. Our traffic is still pretty low compared to high traffic sites, so putting in a lot o money for traffic we would not  get rightaway seemed a bit excessive. Also, we didnt want to change our infrastructure every six months just to scale based on our traffic.

That's where Amazon Web Services came in. We had heard too many good things about Amazon and since we are very small company with technology enablement being only a part of our overall spend, we were kind of wary about the costs. Amazon has a significantly different model than the others - it provides different types of units for compute, storage, load balancing and other tasks as opposed to a monolithic server infrastructure by other hosts. This was both bad and good - bad because each unit had to estimated for cost separately and math can be a bit difficult to predict ; good because you can just start with the very least and scale as you go up. The key was that Amazon provided the opportunity to scale as we grow with very little change in architecture or infrastructure - which seemed quite difficult earlier.

Doing things in AWS can be a bit daunting if you are used to the tools that Godaddy provides where you can just ftp files and run scripts through a UI and you are pretty much done. However this is what we did :

1) Database : Ours is a mySQL database. Migrating the database was pretty easy. Amazon has a service called RDS. We basically did these steps :

a) start a new RDS mySQL instance with user names, passwords of choice.
b) Godaddy has tool for managing mySQL - myPhpAdmin. Click the export button and you get a dump of the table metadata and data.
c) The next step is to use a tool from your desktop (may something like myPHPAdmin) I think we used mySQLworkbench to connect to the RDS instance and dump our data in the new RDS instance.

Databases as we understand can be vertically scaled to a point - increase the storage in the instance. Horizontally, it is much trickier. Replication may be the way. However, at this point, we dont see our database to be too large - we are a niche store with a small catalog of products. So that's that.

2) PHP Server : Our is a PHP application (which ecommerce cart isn't - alright there are some but you get the drift). For our server, we did the following :

a) We initiated a Amazon EC2 instance. This is like a small empty box somewhere out there in the wild. We had to install two things for our cart to run - 1) apache web server - httpd basically 2) php.
b) Next was to transfer the application files. A good tool to do this is Filezilla
c) Using Filezilla, we transferred the application files to /var/www/html folder.
d) Make appropriate changes to database names, passwords and other configuration items as necessary
e) One handy tool to connect to your EC2 instance is Putty. Using this you can connect and run commands. For our website to start, we had to start our apache instance.
f) The last part is having a load balancer. We created a load balancer using the Amazon ELB service and pointed it our Amazon EC2 instance. This part is really cool as now our application can be easily horizontally scaled. This means we can create a new image of our EC2 instance and create new instances and attach them to our load balancer. One tricky part in this is syncing things like your images folder that needs to be somewhat persistent - you can probably do a NFS mount to share the folder from your master instance or run a job to sync it across servers - a good interesting thing to solve in case of lots of servers but I will leave it at that.

3) DNS : We didnt find any reason to change our DNS. Amazon Route 53 looks to be awesome but we stuck with Godaddy here. Setting up the DNS pointing them to Amazon is a breeze too. All we did was point the DNS records to our load balancer. Our new site was on Amazon.

Everything looks good right now. In short, we just think Amazon may be chose the wrong name - they should have called themselves Amazing.

Wednesday, May 15, 2013

Why we don't do cash on delivery

Cash on Delivery is one of the most common ways for ecommerce delivery and we know customers love it. We would love to have Cash on Delivery as one of our options for payment but we can't unfortunately because of the following reasons :

1) Increase in Prices : Cash on Delivery requires our delivery partners to go collect cash or card during delivery. This requires them to equip their delivery men with swiping machines and additional logistics for collecting cash and transferring back. Also, sometimes multiple trips are required to collect cash. Because of this, they charge 50-200 Rupees extra per package. This will translate into our products becoming costlier to the customer by 10%-20%. Currently we offer free shipping and it wont be possible to do that in case of COD.

2) Delivery rates : We have a proud record of 100% deliveries. In case of COD, based on trial data, delivery rates are sometimes poor which means wrong address and identity issues. This is unfortunately not sustainable for us as we are a small company and anything less than 100% deliveries will mean we wont be able to pay our employees on time.

3) Location availability : Currently a lot of our customers are from small towns in India. Most courier companies support only a limited set of Pin codes when it comes to cash on delivery.

4) Size of items : Our items are very large in size when packaged - typically between 3 - 10 kgs in terms of volume(not weight). This typically means that we plan for quick and reduced delivery times which is always not possible in case of cash on delivery.

5) Sustainability : As a small company, one of our primary goals is to make sure our employees, artisans get their salaries on time. Cash on delivery as a mechanism is a slow cash flow function which is difficult for us to sustain.

We know Cash on Delivery is one thing that our customers ask for all the time and at some point in time, we may reconsider our ability to provide COD. However, till then, we would like our customers to trust us with traditional modes of payment. We also have a store at Ebay which follows a strong customer feedback mechanism : Do check our feedback at

Thank you for all the love and trust