As internet users are expected to increase from 214 million currently to 494 million by 2018, online services market is likely to double to $29 billion in the next three years. Internet companies are investing to develop the market which will result in a larger active base and higher online usage.
The e-commerce or online retail segment will be the fastest-growing one over the next few years, and online travel, which includes rail, air and hotel segments, is the most mature segment. Moreover, as digital advertising is expected to grow three times by 2018, digital media will present an opportunity to engage specific target segments in a more cost-effective way.
A Morgan Stanley analysis says that leading e-commerce companies have been doubling their gross revenues every two years and are expected to grow at around 40-50% per annum over the next three years to touch $8.5 billion for the top three companies. Interestingly, 80% of e-commerce in India relates to consumer electronics or apparel and more than 50% of e-commerce transactions are from non-metros. Online job search, real estate and matrimonials will drive e-commerce and digital advertising.
However, despite the growth potential of e-commerce, the internet time spent is still low in India (87.5 hours per month) as compared with 120.5 hours per month in China. Also, cash still accounts for 50-60% of the total payment of e-commerce orders, indicating there is a long way to go before online banking or debit/credit card usage becomes popular with users.