2017: the tides will turn in e-commerce

Looking back, a lot happened in 2016. This year was a brutal one for a lot of e-commerce companies. There were a lot of headwinds for e-commerce — starting the year with a lot of negativity around discounts in e-commerce, venture capital funding drying up for most, a slightly muted Diwali compared to 2015, and a cliff fall in the latter part of the year because of demonetisation. Still, a lot of leading e-commerce companies survived, not necessarily because of significant changes in business health but because they had enough in the war chest to last through 2016.

While no one can fully predict the future, something can still be said about 2017 based on this year and earlier trends of downturns seen in India. Following is a list of what I can foresee will be a few highlights of 2017:

1. Funding cycle upturn: Funding will continue to be low in e-commerce (at least in the first half of the year) as a lot of companies hanging by a thread will likely shut down in the early and middle part of the year. This will further affect the sentiments of VCs and the negative spiral will continue to make e-commerce a slightly unpopular sector to invest in.A funding upturn is likely to happen in late 2017 and early 2018 for e-commerce once the dust settles. The VCs, then, will be left with a few good assets to further back them.

1. Hyper competition in horizontal e-commerce to end: The hyper competition between horizontal e-commerce companies will wane in 2017 (especially in the latter half) as a lot of them will run out of fuel. Amazon will continue to dominate, forcing others to either pivot or merge. Alibaba will likely lay low till they sense "a natural demand" inflection point in Indian e-commerce. Walmart will most likely stay away from India given the losses and relatively small size of the Indian e-commerce space.

1. Vertical e-commerce to shine brighter: 2017’s shining stars will mostly emerge from the vertical e-commerce segment. A few vertical e-commerce companies offer customers a differentiated value proposition, which will allow them to charge their customers some premium and therefore they will not bleed in the process. This is the segment that is less affected by capital and competition. This is also the segment where it is unlikely that a foreign company will come to India and throw millions/billions of dollars to acquire customers. Most likely, vertical e-commerce companies will get more total cumulative funding in 2017 than horizontal e-commerce companies.

1. B2B e-commerce will rise: Given the landscape of retail in India, there are millions of retailers who are as disconnected from supply as customers. B2B e-commerce will likely become very effective to these retailers in giving them access to supply which otherwise was not available to them. They will also give them the pricing efficiency not available in the current retail supply chain. Alibaba may decide to play more in this space than consumer e-commerce in India, given that their initial success was in the B2B space in China.

1. Rural e-commerce will grow exponentially: If you ever visit rural India, you will realise how hungry the rural Indian consumer is for access to a variety of products not available in his vicinity. Clearly, the next big potential wave for e-commerce is in reaching rural India (if we can improve internet and logistics connectivity). This, unfortunately, cannot happen unless our government plays a crucial role in building infrastructure and improving linkages to rural India.

Irrespective of whatever happens or does not happen in 2017, the next year is going to be more definitive for e-commerce than 2016 was. We should expect more positive sentiments in the latter part of 2017 (even funding madness again) and better overall business health metrics in e-commerce. Definitely expect the tides to turn again in 2017.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)