[Post # 0] What is Skilletal all about?

Trends in the internet economy in India: for marketplaces, brands, enablers, and talent

The internet economy, and specifically e-commerce in India, is only going to grow from here. Some areas of it are specifically more promising. The previous two statements might either be pretty obvious for you, or you might need some convincing (more on this later). But, more importantly, if they turn out to be true, how can you gain from this?

If you are an entrepreneur, the way to capture value from this insight is by, of course, building something new. But, what if you are not really looking to start a company of your own? How do you still gain from knowing about the direction of the future?

The answer is: by building skills as an operator (functional or cross-functional expert ready to provide services to one or more builders) in this space. For example, by becoming a functional expert in Engineering or Product management or Growth, and so on.

While this might seem straightforward, the problem with up-skilling yourself in these emerging areas is two-fold. One, the specific know-how of a cutting-edge field is often with operators out there in the field who are not educators. And, two, the knowledge being put out there by industry experts, or content platforms, is skewed way more towards entrepreneurship (perhaps relevant for 5% of the population), than about the nuances of day-to-day jobs (relevant for the overwhelming majority).

This creates a situation where entrepreneurs and hiring managers are not able to find skilled talent for specific domains and functions, despite on paper India especially having a huge pool of talent. And, on the other hand, talent faces the chicken-and-egg problem of not getting the minimal on-the-job experience to get the job.

With Skilletal, my objective is to curate knowledge held by operators out there in the industry, and help current and prospective operators learn the skills to build a great career in the internet economy. Practically, such a step jump in skill set can lead to a significant increase in your compensation level, and thus a big change in your lifetime earnings thanks to compounding. And, not so quantitatively, it can lead to a more fulfilling time at work.

To start with, I will take up Growth as a function and curate my knowledge as an operator in this field, in a series called “Firestarter”. Over the next 10 weeks, I will be publishing an essay here every Tuesday. The aim is to deliver minimum but comprehensive knowledge required to take on a new project as its Head of Growth.

The articles will be organized around 3 big topics:

1. Planning: How do you take up a new project and think through its growth strategy and roadmap?

2. Execution: What is the sufficient cross-functional knowledge to operate across different parts of growth (channels, content, product, analytics, etc.)?

3. Managing: How do you turn it all into a system made up of people and processes functioning together on shared knowledge and predictable ways of working?

For now, if the above is of interest to you as a builder or as an existing operator in e-commerce, or as someone looking to break into it, do subscribe.

If you wish to know more about the initial two statements – 1. Why is e-commerce set to grow from here, and 2. What are the specific emerging trends in the e-commerce industry – read on.

The subsequent sections will look first at e-commerce overall as a sector, and then jump to specific players in the industry:

• Marketplaces: horizontal, vertical, and unorganized

• Brands

• Enablers: Software & service tools, Creators

• Talent

E-commerce: the story so far and what’s next

It's the middle of 2020. The world has been through the unpredictable phase of the pandemic. It is now focussed on figuring the way forward. Builders and investors are on the lookout for things that are benefitting from the new normal.

Among other things, online commerce is on the up. Major behavioral shift has occurred, with millions of people shopping online for the first time. First, out of lack of choice with the enforced lockdowns, and then voluntarily, after seeing better assortment, price, quality, convenience, or a combination of these factors.

The sudden shift in baseline is very visible whether you track the part of the population that is buying online, or the volume of commerce that has moved online. Commentators are calling the step jump as “decades happening in weeks”.

In the gold rush, those selling shovels do very well. Commerce platforms, enablers, and tools get a major uplift. None bigger than Shopify. It had already established itself over time as the go-to place for setting up an online store quickly with no code. And therefore, come the global rush of brands having to go online quickly, it benefits immensely. Its stock price jumps from ~40 US Dollars in March-April 2020 to ~120 USD towards the end of 2020, and then to ~170 USD towards the end of 2021.

However, cut to the end of 2022, as I write this essay, and Shopify’s stock price is back to ~35 USD range. It is still a respectably large company valued at ~40 billion USD. But it used to be ~200 billion USD at its peak (to give you a sense of the magnitude of that number, it’s more than the current market cap of tech stalwarts like Adobe, Cisco, or Oracle). It was even being touted as a potential Amazon-killer just a year ago!

So, what’s going on? Are the tailwinds for online commerce over? Has the fundamental reset been undone? Where is the internet economy, and especially e-commerce in India, headed over the next decade or so?

“Prediction is very difficult, especially if it's about the future”, said Niels Bohr. All we can do is identify major trends that are emerging, attempt to understand why they might be happening, and then perhaps follow their direction to see what they might mean for the future.

Overall trend: the size of pie will grow

Before we jump into the specific trends, I need to reiterate one core argument on top of which other arguments rest: e-commerce as an industry is set to grow from here.

Why? Online commerce is just the share of commerce that’s online. So, the only two ways it can go down are: overall volume of commerce itself goes down. Or commerce volume goes up but people buy online less often.

Now, you could be bearish about the overall economy. Especially if you are convinced that there is perhaps a recession coming. And, in such a scenario, it’s not unforeseeable to have the first component, that is overall commerce volume, stagnate and perhaps even contract in the short run. However, in the mid to long run, the volume of commerce has to go up as a measure of increased consumption in the society. Once we are in the boom cycle, that is. It is bound to happen; the only question is after how long.

The second component (share of online out of overall commerce volume) is more encouraging despite the macroeconomic situation: the proportion of the population buying online, along with the kind of categories they buy and the frequency and value of their purchases, will keep increasing. The big driver for this is going to be the change in generational cohort mix, essentially the composition of the population by age groups, changing significantly. India, for example, has had a median age of ~21 right from 1950 to 2000. However, this is now close to 30 years. And, this will keep getting older and thus towards the working & earning age cohorts, not to mention digital-first cohorts, even as the overall population stagnates.

With the inevitability of the pie of online commerce growing overall (hopefully) established, let’s jump to trends for different players in this ecosystem: the marketplaces, the brands, the commerce enabler tools, the creators, and – last but the focus of this project – the talent pool.

Marketplace trends

Horizontal Marketplace: A new Meesho by 2030?

The year is 2017. The dust has settled on the heyday of 2016 when capital was available to multiple players in the same category. Consolidation is happening in both goods and services marketplaces: it is okay if you are number 1 or 2 but being number 3 or worse in a super-category means there are tough times ahead.

From that point, building a new horizontal marketplace to compete with the likes of Amazon India and Walmart-owned Flipkart would have seemed to be a climb too steep. And yet, 5 years later, Meesho did emerge as a key challenger to Flipkart. 

So, what happens next? Are we in for a trench warfare between the three players with each not losing their market share? Or are we in for a new phase of disruption? And, if the latter is the case, how?

If there is anything to learn from the case of Meesho, it is that having a significantly different business model than other players, resulting in a different cost structure, could be an orthogonal way of playing the game. Social commerce allowed Meesho to scale to a critical scale by acquiring substantially more end-customers than would be indicated by the absolute number of affiliates it was acquiring. Even after its pivot from social commerce to B2C commerce, it has tried to compete with a different cost strategy than its competitors: charging zero commission to suppliers and monetising instead with advertisement revenue.

So, what’s next? Perhaps other challengers will emerge with disruptive models. While having a different cost structure is not a strategy in itself, an innovation that makes one of the major cost heads (cost of goods, cost of delivery, customer acquisition costs, talent costs) significantly lower from that of other players is aspirational.

Another possible development could be marketplaces that are horizontal in terms of supply but are focussing on specific segments of customers in terms of demand. 

This has happened in the past with some marketplaces focussing on tier-I and tier-II cities while some on tier-III and tier-IV locales. What’s the innovation that can happen here? Perhaps marketplaces that are focussing on a different attribute of demand dimension: income levels; generational cohort; perhaps a larger consumer belief system. That is, Amazon for sustainability enthusiasts, Myntra for Gen-Z, and so on.

Vertical Marketplace: Will every super-category have its own Nykaa?

Some sheen has definitely gone off Nykaa with its stock and performance dip in 2022. However, Nykaa still remains one of the rare examples of vertical marketplaces to have broken through in the goods space. How did they do it?

On the business development side, they captured under-served demand with differentiated supply by getting great global brands onboard. They executed their private label strategy well. They did some truly innovative work in content marketing: they were one of the first major marketplaces to really lean into the influencer space, but coming at it content-wise from a very different angle (education to an already engaged base, albeit on a different platform). And meeting table stakes when it came to post-purchase experience.

So, what will be the playbook to create new vertical marketplaces? Or inversely, which categories lend themselves to vertical marketplaces more than others? 

Of course, we can look at Nykaa playbook for larger themes. Differentiated supply. Marketing channel innovation. Focus on specific segments of people. Picking any of them as an angle, a new vertical marketplace can emerge and rapidly gain market share from the category counterparts of its horizontal marketplaces. 

And, in which categories? Following the Nykaa example again: categories which are deprived of certain kind of supply (lack of specific brand, global supply, premium supply, etc.); categories which lend themselves well to innovation in the content used for merchandising and promotion (sports, decor, parenting, etc.); categories for a specific segment of audience (e.g. art and decor for high net worth individuals, or sports equipment and experience for physically active individuals).

Unorganized commerce over content and social media platforms: Are Instagram-first brands here to stay?

While ecommerce got a step jump in the overall market size only recently during the pandemic, content and payment apps have almost started running out of users, having grown rapidly since the combined disruptive effects of Jio, demonetisation, and India Stack. 

On a side note, technology becoming part of the common culture so rapidly has really been quite a story. The ubiquity of WhatsApp across all parts of India, geographically and demographically, and the acceptance of payment QR codes in all sorts of places, seems so static that it is quite mind boggling to imagine that none of this existed to this scale 10 years back.

But why are we talking about content and payment platforms here? Because it has led to the creation of a large unorganized space in online commerce too. It can be over Facebook groups, WhatsApp groups, and Instagram accounts, with transactions happening over messages and with UPI payments.

Instagram brands have been a thing now for some time: they start out just as an instagram account, post images of unique assortments not readily available on the regular horizontal platforms, move direct messages from interested shoppers to WhatsApp at times, and close the transaction online with UPI app payments. Consumers, on the other hand, not only treat these destinations as discovery platforms, but, at times, as search engines too, further aiding the rise of such brands.

Now, with Jio getting Meta as investor, and getting an in on the most ubiquitous app on Indian phones (i.e. WhatsApp), it has a unique opportunity to capture a lot of value by organizing some share of the organized market. And yet, there will always remain unorganized commerce over content platforms, which will come up with every new content and communication platform that wins some market share. Once again, most likely with generational cohort changes.

Brand trends: A thousand million-dollar brands or A million thousand-dollar brands?

Hot take: 2020s are going to be more exciting for those building and operating in brands than marketplaces. Why? Since the scope of value creation to the ecosystem is still way more for brands. 

One reason for so many whitespaces in different categories could be that historically Indian brands have played the game on one dimension of retail, that is price. However, brands can now increasingly play for different ways to win specific segments of market, if not the entire market. This would happen through brands prioritizing other attributes like quality, specific assortment, and unique experience, not necessarily just price.

For example, BlissClub approached an already thriving category and approached it from a different angle: optimize for quality and experience, rather than price, and reaped the rewards by gaining a significant market share from specific customer segments.

That is to say existing leaders in consumer categories would not necessarily be completely disrupted, but within different categories multiple playing fields will emerge rather than just one of price.

Due to factors stated before – low barrier to entry with distribution over social media platforms, easy set up with no-code solutions, and unique business model with focus on specific customer segments, differentiated supply, and clear positioning – the number of small and mid sized brands will go up massively.

Historically the Indian market, at least the organized sector, has been the land of few big players. However, the transition to a developed economy is signified by a booming consumer market, leading to a thriving ecosystem of small and medium sized businesses finding critical mass in different niches of the consumer market. That has started happening in India finally. Which leads me to the next point.

Commerce Enabler trends: India as a software market finally?

Traditionally the mantra of the Indian SaaS industry has been: build in India, sell in the West. This was due to the lack of critical mass of mid-sized industries which have the ability to pay for solutions that help them grow or be more efficient. Looking to the West for getting customers has been the way to go for the tools enabling the commerce industry too.

However, with the rise in the number of brands with ability to pay, as well as the costs going down with the breakthroughs in technology, enabling tools are set to benefit from the overall growth in the ecosystem.

What are some of the trends that we can foresee coming up?

One is that software plus services will increasingly have an edge over pure software or pure services. Software providers can capture more of the value chain, by solving the hard problems and providing services along with software to make the brand’s life easy. And thus becoming the go-to choice for mid and small sized brands. And with commoditization of software features (with marginal cost of code development decreasing), the differentiation will boil down to how much overall value they are providing. Often by making the business owner’s life of running it easier.

Another trend that should emerge on that very line of thought is that more full-stack turnkey ops solutions should come up. Want to start a business? Just plug in with them. And they will, in turn, plug in with all turnkey software plus services that already exist in the system but for specific use cases (content management or promotions or operations or payment or compliance). Let me explain.

Shopify is the big no-code turnkey solution for all front end and catalog management. But then you need to plug in with a payments partner, set up your warehousing and operations, partner with some agency for some custom changes and features and requests, and, biggest of all, you have to set up your own distribution and crack one or more marketing channels. Not an easy task for a small or mid sized brand on its own. And this is where these full stack services might start kicking in. To take care of it all for a small brand.

As a second order effect, the rise of such services which make building and operating a new brand easier might attract even more creators who already have massive distribution (for example, ones with above a million social media followers). In the current scenario, a few creators are creating their own commerce brands, but most creators are not diversified or future-insured in their revenue sources and are often dependent on the revenue from the paid promotions.

My advocacy for full-stack solutions is not to say that vertical solutions will stop coming up. Software & services which help brands in one of the big buckets (production, promotion, operation, talent) or the smaller buckets (tech, compliance) will continue to get built.

Tools which enable creators to produce better content, to plug with the rest of the commerce system better, and monetise better, in general, are poised to come up during the next decade. While the current focus in the ecosystem is on rationalizing costs, in the longer run, tools which help brands grow by using a full-stack pool available with firms that provide turnkey ops talent solutions will do well.

Work trends: Atomisation of firms and rise of mercenaries?

While companies rely on multiple customers for their revenue sources, employees have historically depended on only one employer as the source of their cash flows. Of course this one-to-one mapping has its logical advantages for the firm. 

Imagine if you had to build context with your colleagues every time you needed to start a new project, or a new discussion. The reduction in transaction costs in terms of overall productivity is significant.

The inverse of this is that if the transactions are more or less standard across different companies, that work does not necessarily need to have a captive in-house talent. This has been happening for a long time, however. Customer support, last mile delivery, bulk content production, etc., have been among the popular functions to be “outsourced” by a firm. Up the value chain, engineering has the advantage of being more standardized than other other functions, and therefore, working with talent outside the firm is a route companies often take.

Will this trend increase in magnitude? Will this trend spread to other functions? 

Let’s consider the possibility of tens of thousands of small and medium sized internet economy-first companies getting built over the next decade. Some will pick and choose which functions which ones they want to do themselves and which ones they want to do away with. Some, however, will prefer to just plug into a turnkey solution which provides, among other things, high quality talent as a service. My hypothesis is that at both kinds of firms, full stack skill sets should be in demand.

On a larger scale, beyond even the internet economy that is, apart from the seasonal back and forth on ideal ways of working (to work from home or from office, or both), the bigger trend to emerge has been companies allowing the talent to work on other projects too. This also means there is a market that accepts these services. 

Could this lead to atomisation of firms where companies will increasingly plug in talent collectives for business-as-usual as well as ad-hoc projects, instead of considering full-time hiring as the only option. And could this also finally mean the acceptance and rise of corporate mercenaries? Time will tell.

About Skilletal

My bet, incidentally, is on the overall talent market for the internet economy, including online e-commerce, being more lucrative than the traditional economy. Which would present the talent pool with a financial upside by acquiring a set of skills in different parts of the value chain. 

These skills are learnt on the job and used by many practitioners in the industry today and the knowledge exists in silos. The objective of this project is to curate those skill sets and bring it together in one place. To begin with, I will attempt to document the knowledge I’ve gained from my experiences. See you next week.