The opportunities and challenges for India's social commerce start-ups

Last week, Google’s YouTube acquired Delhi-based vernacular social commerce media start-up simsim, which serves as a platform to connect local businesses, influencers and customers. With this, simsim, which is currently available in Hindi, Tamil, Bengali and English, joins a list of growing start-ups in the sector that are making headlines in India.

Experts say while the opportunity is huge, video-based social commerce, especially livestream-based e-commerce, will take a few more years to mature. There are currently three main models of social commerce in India, according to consulting firm RedSeer.

The first is the “reseller model”, where the app user (called the reseller) shares products listed on the social commerce app either with his or her network or on social media, earning a profit with every sale. Meesho, Mall91 and Shop101 are examples of start-ups working with this model.

The second one is “group buying”, which involves hosting videos of influencers and celebrities who suggest suitable products to match the requirements of the target audience. An example is DealShare.

The third is “live commerce”, which includes players like Bulbul and simsim. A Medium post by Mukul Agarwal, a product manager, explains the concept of live commerce: “The format involves a trusted influencer also referred to as KOL (key opinion leader) who is a celebrity or company hired talent, explaining a product to users over live video, trying out the product herself, responding to live questions and, yes, above all providing an entertaining and affinitive environment.”

According to RedSeer, the reseller model market in India was worth $600 million in 2020; group buying stood at $40-50 million; and live commerce made for less than $100 million.

Apart from the more structured start-ups and companies built on the social commerce model, there is also a network of sellers and influencers who use their Facebook or Instagram presence to sell products.

According to a joint report by consulting firm Bain & Company and venture capital firm Sequoia Capital last year, the overall social commerce opportunity in India is expected to touch $16-20 billion by 2025, compared to around $2 billion last year. RedSeer has a more conservative estimate of $8-10 billion five years from now.

Driving the growth of this sector is an increased preference for online shopping and greater investment in underlying platforms such as Reliance Jio, which saw investments from both Google and Facebook last year, says a report by India Brand Equity Foundation released in May.

Social commerce players in India, especially those looking to tap into video-based business, can draw lessons from the success of Alibaba’s Taobao Live platform in China, which drives most of the live commerce there, says Mukesh Kumar, engagement manager at RedSeer. Taobao Live, he adds, transformed from a short video platform to a live commerce business once it recognised the opportunity. Indian players can “emerge and start providing these live commerce products” eventually. According to Alibaba, the conversion rate on Taobao Live (Alibaba’s main live-streaming platform) was 32 per cent — 320,000 items added to cart per one million views in 2019.

Industry experts say there are, however, some basic hurdles that video-based commerce needs to overcome to be successful in India.

“Video commerce is going to take a little time... I think it will take five to six years to succeed in India, because on ground it does not work,” says Jasmeet Thind, co-founder of CoutLoot, an offline-to-online social commerce firm. “Why it doesn’t work is because there is a limit to what people can use on phones and the internet. Smaller players will not be able to match the optimisation that YouTube and Facebook have done. Also, users don’t want to pay for watching videos and losing all the data to a third party platform,” Thind adds.

Besides, India is still a long way off in terms of its global position in the segment.

The growth of social commerce in China has been nothing short of phenomenal. According to a World Economic Forum post by Matthew Quinlan, managing director, Accenture, “China is a powerhouse of social commerce. Sales generated from Chinese social commerce are projected to reach $363 billion in 2021, up 36 per cent year on year and more than triple what they were in 2018. Social commerce will account for 13 per cent of total e-commerce sales in 2021.”

In the US, the same market is expected to be $36.1 billion.

What is, however, undeniable is investor interest in these companies, given that India is largely considered the next big internet market.

Earlier this year, social commerce platform Meesho became a unicorn with fresh funding led by SoftBank Vision Fund 2. This round valued the firm at $2.1 billion. Meesho had hit the headlines in 2019 for being the first company in India that attracted investment from Facebook. Earlier this month, social commerce platform Trell raised $45 million led by financial group Mirae Asset, H&M Group and co-led by LB Investments.

Clearly, for social shopping, the outing has only just begun.