INFIBEAM INTERNET RETAILING - Towards the Knowledge

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INFIBEAM INTERNET RETAILING

Varsha Verma and Nupur Gupta wrote this case under the supervision of Professors Piyush Kumar Sinha and Barbara Marcolin solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 2012, Richard Ivey School of Business Foundation Version: 2013-02-25

Vishal Mehta, founder and chairman of Infibeam, was jubilant. He was returning from Gandhinagar after a successful meeting in February 2011 with the officials of the government of Gujarat for powering shopping at all e-Gram centres in the state of Gujarat. Through a Memorandum of Understanding (MOU), the government would make its e-Gram network, a wide network of villages provided with Internet facility and necessary infrastructures, available to Infibeam. This would provide access for 14,000 villages in the state of Gujarat to products not easily available. The product range planned for this endeavour included fast moving consumer goods (FMCGs), electronics, books, apparel and accessories. “This is a big step for us. We will become one of the first online retailers to harness these untapped rural markets,” said Mehta1. Manu Midha, vice president of planning and strategy, concurred: “I know. This will help in adding a large set of customers, especially with a very large number of families in Gujarat having their members living outside India. But it also means that we need to look at different strategies for acquiring new customers, which may increase the cost of customer acquisition substantially.” On not getting any response from Mehta for awhile, he turned and found him lost deep in thought. Mehta was thinking of what may be a completely new direction and strategy for marketing communication. Mehta knew he wanted to assess the potential of a new e-commerce marketing strategy for the company, and this required estimating the cost of customer acquisition, creating a customer lifetime value proposition, designing an appropriate marketing communication plan and carrying out the requisite organizational changes. COMPANY BACKGROUND After working for six years at Amazon.com in the United States, in 2007 Mehta teamed up with four of his colleagues and returned to India to launch an Amazon-style company there. They conceptualized Infibeam.com, a platform where customers could browse through products — books, mobile phones, gifts and apparel — place orders and have the same delivered within India within a matter of days. Mehta knew that it would not be easy setting up something like Amazon in India as the payment and physical 1 All quotes from Infibeam officials in this paper come from telephonic interviews held in April-May 2011. Do

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This document is authorized for use only by Kul Bhushan Saxena Fortune Institute of International Business (FIIB) until September 2014. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860.

Page 2 9B12M094 infrastructure for facilitating timely delivery of the product was not as developed as in the U.S. market. However, within three years, Infibeam had become a significant player and gained about 1.5 per cent share of the Indian online retailing market. Mehta made sure that Infibeam had the widest selection, cultivated the right pricing and provided the best possible customer experience (see Exhibit 1). Around 2009, many brands and brick-and-mortar retailers started Internet retailing in order to offer another channel to their customers and increase sales. Infibeam approached these companies to power their online stores and provide related e-commerce services including fulfilment and customer service. Over the next two years, Infibeam entered into successful partnerships with Shoppers Stop, FutureGroup, Prestige TTK, Indian Premier League, Hidesign, NDTV, Dainik Jagran, Anand Bazaar Patrika and many others. Currently, it had approximately 100 such partner stores. In June 2011, Infibeam launched BuildaBazaar.com, its novel “Do-It-Yourself” e-commerce store platform that allowed retailers, brands and individuals to set up an e-commerce store on the fly. The Buildabazaar platform provided a gamut of services such as product presentation, merchandising, shopping cart and checkout; web store management tools for web store administration; product catalogue content and reporting and analytics services; web infrastructure and managed hosting; and order management and processing. Infibeam planned to provide associated services such as warehousing, last mile delivery, search and social media marketing to the same set of Buildabazaar retailers in late 2012. Through the Buildabazaar platform, retailers were not only selling their own set of products through their Buildabazaar store but also sold Infibeam products in which case the sourcing and fulfilment was done by Infibeam retail. Store owners in turn paid Infibeam a transaction fee for processing these products and received a commission for every Infibeam product sold from their store’s website. Unlike international players such as vendder.com and Yahoo! small business, this was the only portal where the sellers chose their own product portfolio. Infibeam, through Buildabazaar, did not charge its clients a huge upfront cost compared to its traditional competitors such as Martjack, ATG and Novator. A minimal monthly fee was modeled to distinguish between serious and non-serious players (between 5002 and 2,500 per month). It further charged its clients on every transaction that occurred on their portal. Clients accepted the offer since they did not need to invest upfront. Further, Infibeam’s development lead time was considerably less than its competition to the extent that it got an e-commerce company up and running within a matter of days. In a unique arrangement, the products sold by the clients also showed up on Infibeam’s site. This not only provided the clients a technology platform for their own e-commerce portal but also provided a demand generator. Infibeam grew more than three times in revenue every year between 2008 and 2011 with a major proportion coming from sales to retail consumers. All this while, Infibeam kept innovating on payments and expanded into newer formats. It also acquired other businesses such as Picsquare.com, a photo printing website, and a remote cataloguing company in Delhi that gave it a head start in each of these horizontals and/or verticals. In August 2010, to target the non-resident Indian (NRI) population in other countries, Infibeam launched a U.S. website, www.Infibeam.us, through which NRI could order gifts for their friends and relatives in India. By the end of 2010, Infibeam had 250 employees with offices in Bangalore, Delhi, Mumbai, Kolkata and Ahmedabad, Mehta’s hometown where the company’s head office was located. A new concept, the Vishwagram Bazaar, planned in close association with the government of Gujarat, targeted the rural population in the state and considered the customer value proposition and preferred feature list but needed infrastructure investments. The Gujarat government expected to implement an 2 500.00 (rupees) = Cdn$9.36187 as of April 28, 2012. Do

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Page 3 9B12M094 Internet network of approximately 18,000 e-Gram centres in each of its villages. Infibeam was to invest 2,000 crore3 in setting up the information technology platform, supply chain, delivery infrastructure and inventory and to employ around 20,000 people over a five-year period. Rural customers would be able to place online orders for various products including FMCG, apparel, books, mobile phones and electronics through the Infibeam website and have them delivered to their homes. Also, villagers began selling their produce on the same platform and, thus, created a cooperative sellers’ market. Infibeam planned to partner with India Post to provide last mile delivery and the option of a “cash on delivery” (COD) payment mechanism for purchases. Rural customers browsed the products online through the local e-Gram online store, ordered products and paid cash when the product was delivered to them. To facilitate transactions, Infibeam thought of launching the platform in Gujarati with its Vishwagram tool, and for Infibean’s efforts, its revenue model included direct product sales to end customers and commissioned sales from third-party products sold. ONLINE RETAILING IN INDIA During 2007, the year Infibeam started, e-commerce in India was still in its infancy. This was largely attributed to two facts: not many people were comfortable transacting for products online and not many compelling offerings existed in the market. This was also the time when online travel took off with offerings such as IRCTC, makemytrip.com and cleartrip.com doing significant business. Non-travel e-commerce or Internet retail grew in tandem with Internet accessibility and penetration of payment options. The Indian e-commerce industry was still in the nascent phase with only 42 million Internet users (2007) at 3.7 per cent penetration growing at 30 per cent year over year. Compare this to the U.S. market, where e-commerce had existed for more than a decade with 212 million Internet users that accounted for 70.2 per cent of the total population and growing at about 4 per cent, and China, where the market was less than five years old with 162 million users that accounted for 12.3 per cent of total population and growing at over 50 per cent4 (see Exhibit 2). Despite the economic slowdown, Internet retailing in India grew by 38 per cent between 2007 and 2009, reaching 26 billion in 2009. Internet retail offered several benefits to the customer value proposition: pricing advantage, wide selection and convenience. Better prices than physical retailers existed owing to Infibeam’s lower fixed costs and overheads by sourcing directly to manufacturers and through bulk suppliers. The buyers also benefited by comparing prices across brands and referring to user reviews before making purchase decisions. Internet retail provided wider selection than physical retail since all products on display on a portal need not be in inventory, with the Internet retailer creating what Infibeam thought of as “virtualization of inventory.” Moreover, users need not make their way through heavy traffic to the closest mall; the products were delivered at the customer’s doorstep within a couple of days. Despite these retailing benefits, e-commerce in India was still small (accounting for less than 1 per cent of the total retail market). The key reasons were thought to be the low penetration not only of credit and debit cards (31 per cent of Internet users had credit cards in 20085) but also of high quality broadband Internet service. Also, the Indian customer was still adapting to the idea of purchasing online, and many people were still wary of making online payments. The Indian Internet subscription rate was expected to grow by 17 per cent over 2008 to 2013 which, if it occurred, would increase Internet access in homes. Mobile commerce, which had led to significant

3 1 crore = 10 million. 4 Miniwatts Marketing Group, “Internet Usage Stats and Population Report,” 2009, http://www.internetworldstats.com/: http://www.internetworldstats.com/asia/cn.htm, accessed May 28, 2011. 5 JuxtConsult, “JuxtConsult India Online 2008,” 2009. Do

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Page 4 9B12M094 growth of e-commerce in the United States, though nascent in India, was expected to pick up in the next decade as only 23 per cent of mobile users currently had access to the Internet on their phones. Besides accessibility, a number of factors attributed to the relatively slow adoption of electronic commerce in India between the years 2000 to 2007. While many e-commerce companies were launched, lacklustre execution and poor customer service didn’t help win the trust of customers. Also, since customers had other choices available to them, adoption rates were drastically low. The few sites that managed to offer a clear value proposition, thus building trust and long-time customer loyalty, succeeded. Among the first e-commerce sites that were able to make an impact in India were online ticket booking portals, which had a clearly defined customer segment — time-pressed corporate travellers, as well as upper- and middle-class customers who were English literate and had Internet access. E-commerce soon grew to include hotel and tour packages; lastly, the sale of products such as books and music boosted Internet use (see Exhibit 3). Around 2006 and 2007, Internet retail in India faced several challenges when it came to the customer value proposition. One of the biggest was to manage the supply chain of products from the manufacturer to the end consumer. There needed to be seamless coordination between e-commerce companies and last mile delivery agents so as to deliver the right product as promised, on time and with accurate delivery tracking information for the customer. This required strong back-end support and faster delivery times. Another problem facing e-commerce companies was the complex system of taxation on goods being sold from one state into another. The system of paying taxes and claiming credits was hard to manage for e-commerce companies in terms of platform scale and interconnected information. In the early 2000s, e-commerce in India was dominated by marketplaces such as Bazee (now eBay), Rediff and Indiatimes shopping. In 2004, eBay acquired Bazee for $50 million and renamed it ebay.in. It had more than 12,800 sellers registered and was purely a consumer-to-consumer (C2C) marketplace. Later, many domestic retailers such as Rediff.com started gaining users by customizing their services to suit the price-conscious Indian customer. They offered discounts and promotions during festivals when Indians tend to shop the most. In 2009, Internet retail of media products showed a huge growth of 40 per cent. Media products, especially books and music, were the most popular items of purchase due to their low cost and standardized quality. COMPETITORS Flipkart Flipkart was an Indian e-commerce portal set up in October 2007 by Sachin Bansal and Binny Bansal, who had earlier worked for Amazon India Development Centre. The online store started by selling books and later expanded to other categories such as CDs, DVDs, mobile phones and computers. With initial private funding, Flipkart employed social networking websites and word-of-mouth advertising to create awareness.6 Half of their orders came from metropolitan areas such as Mumbai, Bangalore, Delhi, Chennai, Kolkata and Hyderabad. The remaining buyers were from other parts of the country. The most saleable categories were fiction, trade paperbacks and Indian writers.7 The company broke even in March 2008 and claimed to have shown 100 per cent growth each quarter. In 2009–10, the company raised US$10 million from venture capital funds Accel India and Tiger Global Management. It reported sales of 250 million for the year 2009–10.

6 Flipkart, http://www.flipkart.com/s/about, 2007–11, on http://www.flipkart.com/, accessed May 24,2011 7 Binny Bansal, “The Flipside of an E-Venture,” Livemint.com, Bangalore, Karnataka, India, May 26, 2011, http://www.livemint.com/Leisure/FjF8uSxvzGVRh9Zy6SXOEP/Binny-Bansal--The-flip-side-of-an-eventure.html,accessed May 30, 2011. Do

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Page 5 9B12M094 By 2010, Flipkart had expanded to eight categories of books, mobiles, movies, music, games, cameras, computers and other electronic gadgets. In the same year, it invested heavily in a television advertising campaign. As of October 2010, the company had 500,000 users. Books were their top selling product category. The company reported revenues of 75 crores for 2010–11. The management projected revenue of 400 crores in 2012–13 and planned to be a billion rupee company by 2014–15.8 Hailed as India’s Amazon.com, Flipkart was close to raising $150 million in a private equity (PE) round of funding from General Atlantic Partners in one of the biggest deals ever for an Indian Internet firm, making it the first Indian Internet company to sport a billion dollar valuation.9 eBay India10 In 1995, eBay Inc. launched its website eBay.com, which became the first and largest global online marketplace where practically anyone could trade anything. It offered a platform for the sale of goods and services by a diverse community of individuals and businesses. The website offered both auction and “Buy it Now” options for purchase of articles. eBay owed its popularity to the fact that it offered honest user feedback and reviews and allowed direct communication between buyers and sellers. This in turn encouraged honest dealings as higher user ratings increased the seller’s business. User response was also considered critical in website design and category planning. As of 2011, the eBay community included more than 90 million active users from all around the world. At any given time, eBay worldwide hosted almost 200 million listings, with new listings being added at a rate of approximately 6.6 million per day. The categories on eBay, in excess of 50,000, included articles ranging from collectibles, antiques and sports memorabilia to computers, IT and even stamps. Other popular categories were glass, photography, electronics, jewellery and gemstones. Company operations were localized in about 30 countries with the United States being the largest market. In 2004, eBay India was launched and soon became one of the most popular online shopping websites in that country. By 2010, it had 2.5 million registered users including about 12,800 sellers in 2,471 cities. Worldwide, eBay advertised through different media and also employed social and viral marketing. In India, print and television were the main channels used. Indiaplaza11 Indiaplaza, launched in 1999, was one of the first e-commerce portals in India targeting the NRI segment with Indian products. In 2007, Indian e-commerce venture Fabmall.com acquired Indiaplaza and continued the operation under that name. It offered over 7 million products including books, music, videos, cameras, mobile phones, appliances, apparel, flowers, cakes, toys and many more. To increase customer satisfaction, it provided 24-hour customer service and also ran promotions such as rewards and loyalty programs for banks, airlines and IT companies. In addition to its e-commerce portal, Indiaplaza was also involved in powering shopping portals of other companies. This was similar to Infibeam’s

8 Livemint.com, “Flipkart Eyes Rs. 4500 crore,” March 6, 2011, Mumbai, Maharashtra, India, http://www.livemint.com/Companies/0ZhEdiwSK5RlgViDgs9OhP/Flipkart-eyes-Rs-4500crore-turnover-by-FY-15.html, accessed May 30, 2011. 9 http://thenextweb.com/in/2011/07/29/flipkart-may-have-just-become-the-first-indian-billion-dollar-internet-company/, accessed November 10, 2011. 10 ebay.in, “Company Overview 1995–11,” http://www.ebay.in/, accessed May 26, 2011. 11 Digital Inspiration, “Online Shopping Portals – Are Valuations Enriching?,” June 3, 2007, http://www.labnol.org/india/knowledge/online-shopping-portals-are-valuations-enriching/214/, accessed April 15,2011. Do

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Page 6 9B12M094 infrastructure business model. Indiaplaza was known for its low prices and reliable operations. It recorded a turnover of around 20 crore in the year 2007. Rediff12 Rediff.com, which in 1996 started primarily as a news and information site, soon provided a plethora of services from online shopping to travel planning to news and chat sites over and above free email and search engines. The company was headquartered in Mumbai, India, with offices in New Delhi, India and New York. Shopping.rediff.com was one of the first e-commerce portals in India and attracted 15 million visitors every month. The website offered products ranging from books, car accessories, hardware, health and beauty, jewellery, kitchenware, apparel, electronics to toys. Its revenues were $ 14.6 million in 2009–10 and 17.94 million in 2010–11. In 2010, the company started a new initiative called “Deal Ho Jaye!” (Let’s have a deal) where it provided attractive deals on new consumer services available in each city through postings on the website. This facility was available in metropolitan areas across 70 categories with discounts in the range of 30 to 60 per cent. Indiatimes shopping13 Ranked number 158 worldwide among the top 1,000 most popular websites, shopping.indiatimes.com, supported by the Times Group, was primarily known for its wide range of consumer electronic items (contributing 20 per cent of revenues) at competitive prices in addition to other categories such as branded apparels, accessories (watches and bags), jewellery items and gift items such as flowers, chocolates and cakes. Leveraging on the parent company’s brand image, Indiatimes was able to reach a wide base of customers. A good distribution network and different payment options to customers had also contributed to the popularity of the portal. Indiatimes used the latest encryption technology and strict privacy rules to protect credit card information in order to build customer trust. In 2010, it reached 47 million users and recorded 199 million page views per month. Its estimated monthly revenues were 26 million. INFIBEAM.COM ONLINE STORE Infibeam.com was designed with a viewer friendly interface. The left navigation bar allowed potential customers to narrow down their search of products by city, price, brand, colour and other product specific features. In 2008, Infibeam added 11 new categories of mobiles, health equipment, mobile accessories, cameras and photographic imaging. In July 2008, the Gift Store was added where people could order cakes, flowers and other gift items for special occasions to be delivered to their friends and family. Separate stores were launched for popular festivals such as Diwali and Christmas. Nine more categories were added to the website between 2008 and 2010. In March 2011, Infibeam launched the Magic Box, where customers were offered one specific product every day at a very heavily discounted price. It then launched a personalized version of the Magic Box, where people could add specific products to their Magic Box and Infibeam promised to surprise them within 72 hours with the best deal on that product. Between 2008 and 2011, success outcome measures were positive. The number of visits to the site grew by over 300 per cent year over year with minimal marketing efforts and no advertising. In the same 12 Rediff.com, “Rediff.Com Reports Results for the 4th Quarter and Fiscal Year Ended March 31, 2011,” May 24, 2011, http://investor.rediff.com/earreleasesDt.asp?path=2011%5C5%5Cer245201119335.html&y=2010, accessed May 24, 2011. 13 Statshow, “Summary of shopping.indiatimes.com,” http://www.statshow.com/shopping.indiatimes.com, accessed April 27, 2011. Do

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Page 7 9B12M094 period, the number of customers increased by over 400 per cent. With consistent additions to the product portfolio, Infibeam was able to increase customer satisfaction, resulting in an increase in the number of transactions occurring on its portals. Infibeam also had higher than industry repeat customer purchases and among the highest conversion rates. Consumer Profile Infibeam targeted the community of Internet users who were currently online. Demographically, online retailers appealed to customers who had easy access to the Internet. Internet shopping penetration rates, as a percentage of online population, increased from 47 per cent in 2007 to 59.2 per cent in 2010. Most Indian online shoppers were in the age group of 18 to 49 years, with the dominant group being college going students (30 per cent) and young men (28 per cent)14 (see Exhibit 4). They had an average annual income of 11,48,850.15 An increase in income levels would increase personal consumption and in turn also increase online purchasing. Situation segmentation also affected Internet shopping. A recently conducted study15 in the United States found that most online shoppers used the Internet to make purchases because they found it convenient to use. The survey also found that 30 per cent of online shoppers liked the ability of shopping in their own homes and that 25 per cent liked the fact of being able to shop at any time of the day. Popular e-commerce sites provided a satisfying experience to consumers that encouraged them to return. For Internet retail to be successful, it was important to appeal to customer values by building trust. A survey15 of bank account holding Internet users between ages 18 and 49 in India indicated that secure payment (87 per cent), price (84 per cent) and convenient payment methods (83 per cent) were the most important factors during online purchase. Other important factors were speedy transactions, website reputation, customer care and delivery charges. Pricing Across categories, Infibeam tried to maintain low prices for its products throughout the year. This was one of its key value propositions. Prices across competition websites were monitored regularly and target purchase prices were set accordingly. Like Amazon, Infibeam’s strength lay in handling well the supply chain of the tail products (unique items with relatively small quantities sold of each), which were not easily available elsewhere offline. Merchandising Infibeam offered to its customers a wide variety of products across many categories as seen in Exhibit 5. Customer Service Infibeam provided customer care through 24-hour phone support, email and detailed information through its help page on the website. It provided a full refund or replacement for all damaged goods or incorrect 14 I-CUBE 2009–2010 Report, “I-CUBE 2009–2010 Internet in India,” 2010, IAMAI, IMRB, http://www.digitaltribe.in/digi-data/icube_2009-2010.pdf, accessed May1, 2011. 15 Master Card Worldwide, “Master Card Worldwide Insights,” 2008. http://www.masterintelligence.com/upload/260/181/APMEAOnlineShopping-V4A-S.pdf, accessed June 1, 2011. Do

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Page 8 9B12M094 deliveries. Incidences of such cases were less than 1 per cent on orders, which was the lowest in the industry. Most complaints received were resolved within a day. Supply Chain Management Infibeam had invested substantially in expanding its supply chain. The company’s distribution network consisted of five warehouses in Delhi, Bangalore, Ahmedabad, Mumbai and Calcutta. Starting with only a few hundred SKUs being sourced from less than 50 suppliers, it was sourcing more than 12 million SKUs from around 700 suppliers for its own portal by 2011. The average lead time was less than one day for most suppliers. Items purchased by consumers were delivered through multiple courier agencies including Fedex, BlueDart, Aramex, FirstFlight and many local courier agencies. The average delivery time taken by these last mile delivery companies was close to two days. Inventory Management Infibeam managed its inventory in each of its warehouses based on the following parameters: 1. Probability of sale. 2. Expected demand volume. 3. Vendor lead time into the nearest Infibeam warehouse. 4. Supplier terms. 5. Obsolescence factor of the product category. Based on these parameters, products were either stocked at the Infibeam warehouse or were sourced as demand arose. The two ways of sourcing were called “Predictive” and “Reactive” sourcing. In all cases, Infibeam tried to optimize on the overall customer experience and minimize on the amount of obsolete inventory sitting on the company’s books. Infibeam also had channels such as the Magic Box and Hot Deals section where it could liquidate its excess inventory at regular intervals of time. Delhi was the main centre of operations. A new 20,000 square foot warehouse was set up to cater to the increasing demand. Mumbai was also an important hub for sourcing, shipments and marketing. Infibeam’s technical team was located out of Bangalore, Ahmedabad and New Delhi. New offices were planned to be set up in Hyderabad and Chennai. Marketing Infibeam had not yet undertaken a major marketing campaign. In April 2010, it offered its Social Connect feature. Users could now use their Facebook, Twitter, Yahoo, Google, Flicker, Blogger or OpenID accounts to access the website. It sponsored Confluence, the annual international business school summit organized by the Indian Institute of Management, Ahmedabad, the top management business school in the country. Infibeam often did joint promotions with large corporate employers, for instance, in the banking and airlines industries, where it offered special discounts to customers and employees. The bulk of the company’s marketing efforts was focused on its present registered users by direct emails containing information about latest deals and promotional offers. Do

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Page 9 9B12M094 Customer Acquisition Pattern Infibeam had almost equal share of orders coming from northern (29 per cent), western (30 per cent) and southern (31 per cent) India. Eastern states had a share of 10 per cent of the total orders received. Exhibit 6 lists the states ranked according to share of the overall traffic received on the website. In 2011, traffic on the website had increased 100 per cent over 2010, and the portal received more than 4 million unique visits per month. Exhibit 7 shows the pattern of customer visits to Infibeam and its competitors. Also, the average time spent on the website, called browsing time, increased by 50 per cent during 2010, indicating more page views per user. The number of registered users increased the compound annual growth rate (CAGR) by 360 per cent over 2007–11. Buying Patterns Infibeam received more than 4 million visits to its site Infibeam.com per month with the number of visits peaking in the mid-week and relatively less traffic over the weekends. This was in contrast to brick-and-mortar shopping patterns where weekend traffic was observed to be the highest. The average transaction value was between 1,000 and 1,500 during fiscal year 2010. This varied across time and across categories. Customer Acquisition Strategies Since its inception, Infibeam had relied solely on word-of-mouth advertising and promotions on its websites. It ran several blogs about its new offers on other websites that targeted Internet savvy 20- to 35-year-olds. Unlike other companies that were spending between 1,500 to 2,000 per customer as acquisition costs, Infibeam spent less than 100. The portal’s most popular promotion was the Magic Box. One deal was put up every day, according to 10 parameters including new launches, aspired products and deals being offered by sellers. User reviews and the number of visitors looking at a particular product were also factored in. Infibeam used data from the Wish List (Shopping Cart) to decide on the success rate of the deal. Other than the Magic Box, the portal carried a Hot Deals section that offered attractive discounts on a number of products across categories. BACK AT NEHRUNAGAR, AHMEDABAD OFFICE “We gained customers very quickly due to our partners and now we must find a way to maintain our 360 per cent year-over-year [YOY] growth in customer acquisition,” said Mehta. “The most important task ahead for us is to acquire customers by converting them from offline sales mode to online sales mode and by increasing Infibeam’s market share and profitability. We acquired a significant base of customers and need to create more awareness, generating a wider stream of adaptors. An advertising campaign would need to be created, but this will push our customer acquisition cost significantly higher. The current customer spend was about 100 compared to the industry average of approximately 1,000.” Midha had previously noted that Infibeam was relatively less known in the offline customer marketplace. However, Mehta hesitated to make an investment to capture this offline market when there was still a lot of scope in the online buyers market. Midha insisted that Infibeam needed to target both, but in a phased manner. Current online customers helped build sales through increased repeat orders, while new offline Do

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Page 10 9B12M094 customers drove future growth by switching to online buying at a later time. Starting to create awareness and build trust among Indian shoppers was the first step for building both these markets. The decision before Mehta and his team was to decide to invest 5 crores in advertising across different avenues over the next year (see Exhibit 8). Mehta concluded, “Call up some of the leading ad agencies. I need a plan with clear objectives and a course of action that outperforms and not outshouts others. Although we are among the first two retailers on Google and we perform almost as well as Flipkart in terms of unique visitors, our offline awareness needs more work. Also, we must keep in mind that we have to raise 2,000 crores, and marketing communication tends to have a critical role in India towards this purpose. E-Gram for us is a golden opportunity.”

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Page 11 9B12M094

Exhibit 1

INFIBEAM HISTORY

Date Initiative

Feb. 2008 Infibeam offers rent-a-car service. Service currently available in all major cities, namely, Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Mumbai and for all locations in Gujarat, Rajasthan and Maharashtra.

March 2008 Infibeam out of Beta mode. Infibeam launches mobile store.

May 2008 Watches, health equipment and mobile accessories launched.

June 2008 Infibeam.com opens cameras and photographic imaging products showcase.

July 2008 Infibeam.com launches apparel, jewelry, beauty and perfume products. Gift store launched.

Aug. 2008 Apparel accessory and furnishings stores launched.

Sept. 2008 Deal of the Day offer launched. Gift certificates available on Infibeam.com.

Oct .2008 Diwali store launched. International shipping made available.

Nov. 2008 Home appliances, toys and games stores launched. Acquisition of picsquare.com.

Dec. 2008 Christmas and New Years gift store launched. Launch of Presentsir.com.

Jan. 2009 Religion and spirituality store and valentine gift store launched. Hot Deals with discounts and Free Offers on specific purchases introduced.

Feb. 2009 FutureBazaar book store powered by Infibeam.com. Camera accessories store launched.

March 2009 Kitchenware and home entertainment store launched.

April 2009 Picsquare.com launches designs from leading designers to print on t-shirts, mugs, calendar, posters, key-chains, etc. in.com co-brands its bookstore with Infibeam.com.

April 17, 2009

Infibeam.com joins the Nano fever by collating Tata car dealers spread across India in a bid to provide hassle free online booking to customers. Customers can avail the Tata Nano details provided on the site and book the car online by furnishing their contact details. They will then be contacted by the customer care team at Infibeam.com and the respective Tata dealers to complete the booking process.

May 2009 Travel store launched. New features added to automobile store such as information on dealers across India, latest used car value, car insurance calculator, etc.

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Page 12 9B12M094

Exhibit 1 (continued)

June 2009 Magazine, movie and music stores launched.

Sept. 2009 Infibeam’s Executive Gift Voucher launched.

Oct. 2009 New user interface of Infibeam.com site.

Jan. 2010 Prestige TTK website powered by Infibeam. Unified Search option made available on Infibeam.com. eBook store launched. Pi launched (India’s first eBook reader).

March 2010 Official IPL store powered by Infibeam.

April 2010 Launch of the social connect feature. Users may now use their Facebook, Twitter, Yahoo, Google, Flickr, Blogger or OpenID accounts to access the website.

May 2010 Hidesign.com powered by Infibeam.

May 12, 2010 Infibeam Launches Books Digitization Services, Print On Demand. The digital books would initially be sold through Infibeam.com’s eBooks store, which would also act as a digital distribution channel for other websites, as well as print on demand functionality. This was available as both free and paid services: the free digitization service would involve Infibeam getting exclusive online and physical distribution rights of the books, which would be sold on a revenue share basis.

June 2010 NDTVshopping powered by Infibeam.

June 2010 Android 2.2 powered Pi launched in answer to Amazon.com`s Kindle. Official FIFA merchandise made available in Infibeam.com. Strategic alliance to manufacture mobile phones.

Aug. 2010 Infibeam.us launched.

Oct. 2010 Infibeam.com becomes India’s largest bookstore with 10 million titles.

Dec. 2010 Cash on Delivery option made available on Infibeam.com.

Jan. 2011 Enters in MOU with Government of Gujarat to power Vishwagram.

Jan. 2011 Pi-square launched.

Feb. 2011 ICC World Cup products launched.

March 2011 Infibeam launched a Daily Deal section called the Magic Box.

April 2011 KKR store powered by Infibeam. KKR was one of the 10 franchises of the Indian Premier league. Infibeam partnered with KKR to launch a wide range of KKR merchandise.

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Exhibit 2

E-COMMERCE IN THE UNITED STATES AND CHINA E-commerce in the United States: Amazon.com Launched in 1995, Amazon.com (Amazon) initially offered its web customers the convenience of browsing a selection of millions of books in a single sitting. During the first 30 days of business, Amazon fulfilled orders for customers in 50 U.S. states and 45 countries — all shipped from a garage in Seattle, Washington. With technological innovations, Amazon grew to offer more product categories such as DVDs, CDs, MP3 downloads, computer software, video games, electronics, apparel, furniture, food and toys. Amazon operated retail websites and offered programs that enabled third parties to sell products on its websites. It also provided services for third-party retailers, marketing and promotional services and web services for developers. In addition, it operated other websites, including www.a9.com and www.alexa.com, which enabled search and navigation, and www.imdb.com, which was a comprehensive movie database.1 Amazon also started offering e-commerce platforms to other retailers and individual sellers, enabling them to leverage its platform. In 2010, Amazon recorded revenue of US$34.204 billion with a net income of US$1.152 billion.2 E-commerce in China: Alibaba3 Founded in 1999 in Eastern China, Alibaba group had over 60 million registered users in all its marketplaces across 70 cities and regions, including China, Hong Kong, India, Japan, Korea, Taiwan, the United Kingdom and the United States. Taobao, launched by Alibaba, reported more than 370 million registered users as of 2010 and hosted more than 800 million product listings. In 2003, only 5.3 per cent of China’s population was using the Internet. In 2004, eBay entered China with plans to dominate the market. Alibaba group was a local privately owned Internet-based business, offering services such as business-to-business international trade, online retail and payment platforms and data-centric cloud computing services. The company helped small- and medium-sized enterprises to conduct business online. Alibaba launched a new Chinese language website named Taobao — meaning “digging for treasure” — in 2003 for online auction and online shopping in a proposition similar to eBay and Amazon. The offering provided a platform for business retailers and individual entrepreneurs to help them open online retail stores that would mainly cater to customers in mainland China, Hong Kong, Macau and Taiwan. Unlike eBay, which charged its sellers for listing and transaction fees, Taobao was free to use and attracted a lot of attention among the local Chinese population because of its name, causing more and more users to switch from eBay to Taobao.

1 Amazon.com., “Mediakits: Overview.” February 2011, http://www.amazon.com: http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-Mediakit, accessed May 20, 2011. 2 United States Securities and Exchange Commission, “Amazon.com, Inc. January 27, 2010, http://www.sec.gov/Archives/edgar/data/1018724/000119312511016253/d10k.htm, accessed May 18, 2011. 3 Forbes.com., “How eBay Failed in China,” September 12, 2010, http://blogs.forbes.com/china/2010/09/12/how-ebay-failed-in-china/, accessed May 28, 2011. Do

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Exhibit 2 (continued) Taobao understood its customers well and, thus, reached higher satisfaction levels compared to its competitor eBay. Taobao’s listings were more customer-centric while eBay’s listings were more product-centric. At the time, China had about 300 million cell phone users versus 90 million Internet users. Taobao offered instant messaging and voice mail to mobile phones for buyers and sellers because Chinese users were cell-phone savvy rather than computer savvy. By March 2006, Taobao had outpaced eBay to become the leader in China’s consumer-to-consumer (C2C) market, with 67 per cent market share in terms of users; eBay had only 29 per cent market share. There were three prime reasons for the globally renowned eBay’s failure to dominate China and for the local business company Taobao to become the market leader. First, eBay failed to recognize that the Chinese market and the business environment are very different from that of the West. Second, because eBay’s top management team didn’t understand the local market, they spent a lot of money doing the wrong things, such as advertising on the Internet in a country where small businesses didn’t use the Internet. The fact that eBay had a strong brand in the United States didn’t mean it would be a strong brand in China. Third, rather than adapt products and services to local customers, eBay stuck to its “global platform,” which again did not fit local customers’ tastes and preferences.

China Internet Usage

YEAR Users Population % Penetration 2000 22,500,000 1,288,307,100 1.7 %

2001 33,700,000 1,288,307,100 2.6 %

2002 59,100,000 1,288,307,100 4.6 %

2003 69,000,000 1,288,307,100 5.4 %

2004 94,000,000 1,288,307,100 7.3 %

2005 103,000,000 1,289,664,808 7.9 %

2006 137,000,000 1,317,431,495 10.4 %

2007 162,000,000 1,317,431,495 12.3 %

2008 253,000,000 1,330,044,605 19.0 %

2009 384,000,000 1,338,612,968 28.7 %

2010 420,000,000 1,330,141,295 31.6 %

Source: Miniwatts Marketing Group, March 26, 2011, http://www.internetworldstats.comstats.com/stats3.htm, accessed May 22, 2011.

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Exhibit 3

MOST PREFERRED ONLINE SHOPPING WEBSITES (OTHER THAN TRAVEL)

Website % Use on Preferred

Basis (2007) Increase over 2006

Ebay 34% -4% Rediff 25 -4 Google 8 5 Yahoo 7 -0.5 Indiatimes 7 -4 Futurebazaar 6 6 Sify 2 0.6 Shopping 2 0.4 Amazon 1 -0.1 Indiaplaza 1 0.6

Total online shoppers in 2007: 19.1 million.

2008 TOP 10 MOST PREFERRED ONLINE SHOPPING WEBSITES (OTHER THAN TRAVEL) Website % Users Ebay 33 Rediff 19 Google 17 Indiatimes 8 Futurebazaar 8 Yahoo 6 Indiaplaza 4 Sify 3 Homeshop 18 2 Amazon 0.9

Total online shoppers in 2008: 28 million.

2009 MOST PREFERRED ONLINE SHOPPING WEBSITES (OTHER THAN TRAVEL)

Website % Users Change Over Previous

Year Google 24% -9.9% Ebay 21 -0.6 Rediff 15 -2.3 Yahoo 13 -0.4 Indiatimes 6 2 Homeshop 18 3 2 Indiaplaza 2 0.7 Sify 2 0.2 In.com 1 Futurebazaar 1 -2.9 Amazon 0.5 -0.5 Bookmyshow 0.5 NDTV 0.1 Others 10

Total online shoppers in 2009: 34.5 million. Source: JuxtConsult. (n.d.). www.marketreports.com: http://www.marketreports.com/TOC/Juxt/Juxt_India_Online_2009 _Main_Report_TOC.pdf, accessed June 10, 2011.

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Exhibit 4

PROFILE OF INTERNET USERS IN INDIA

Age Group Active Internet Users

E- mail

Chat Information Entertainment E-commerce

Others

School going kids 14 20 10 45 20 3 2

College going 30 30 9 37 12 5 7

Young men 28 52 8 16 8 5 11

Older men 13 52 3 25 4 7 9

Working Women 8 46 5 26 3 9 11

Non-working women 7 43 8 21 10 8 10

Total 100 40 8 29 11 4 8

Survey conducted in 31 cities of active Internet users (data from September 1, 2009). Total claimed Internet users: 81 million. Active Internet users: 60 million. Source: Internet and Mobile Association of India, Report, 2009.

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Exhibit 5

MERCHANDISING AT INFIBEAM

Product Categories % Share of Orders

1. Books and Magazines 50%

2. Electronics 25%

Home entertainment and appliances 38%

Computers, cameras and peripherals 34%

Mobiles and peripherals 28%

3. Lifestyle 25%

Apparel and accessories 49%

Home lifestyle 32%

Gifts 12%

Others 7%

Source: Company files Exhibit 6

SHARE OF TRAFFIC AT WEBSITE

State % share of overall traffic

Maharashtra 19%

NCR 15%

Karnataka 14%

Tamil Nadu 10%

Andhra Pradesh 8%

Uttar Pradesh 6%

Gujarat 5%

Others 23%

Source: Company files. Do Not

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Exhibit 7

USER VISITS PATTERNS Infibeam.com

Flipkart.com

eBay.in

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Exhibit 8

ADVERTISING CONVERSION RATES

Media Channel Reach/ Rs. 100,000 Conversion Rate

Television / Direct Mail 1,000,000 .01

Internet 100,000 .05

Email 100,000 .07

SMS 50,000 .06

Source: Company files.

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INFIBEAM INTERNET RETAILING - Towards the Knowledge

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