Local Commerce vs. E-Commerce: A Question of Proximity

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What is local commerce? How is it different from e-commerce? Does local commerce have anything to do with technology or the internet?

One view is that local commerce is the type of commerce that is conducted between a buyer and seller that are located within a certain proximity of each other. Traditionally, before e-commerce, most buying and selling happened in person, which meant by definition that the buyers and sellers were in the same location. So pretty much all commerce was local commerce, except of course for international or regional trade.

Today, this could mean you buying a Domino’s pizza from the nearest outlet, or purchasing artificial jewellery from a local market. The type of buyer and seller does not define local commerce – proximity between the two does.

E-commerce of course doesn’t depend on proximity at all. In fact, it is built on the premise that anyone, anywhere can order and get anything – whether the seller is located nearby or not doesn’t really matter. Marketplaces such as Amazon allow a seller in Jamshedpur to sell all of India – that’s the power of e-commerce. Moreover, you no longer have to go from store to store in a mall, looking for that brand or product. You can sit at home and browse through millions of products and order them.

Theoretically, e-commerce sounds like nirvana. Any buyer anywhere can buy from any seller anywhere. But then why is there so much hype around local commerce? Because the ability to sell anywhere in India easily and the convenience afforded by e-commerce cannot trump proximity.

Why is local commerce estimated to be at least 3 times as big as e-commerce? A TechCrunch article by Mike Ghaffary on Feb 24, 2013 shows why. (Mike equates local commerce with brick and mortar stores).

Is local commerce much different than e-commerce that deals with warehouses and centralized inventory or in some cases simply a market place model where vendors just get orders and ship products to users directly? Not really. Instead of stores and malls, e-commerce companies use brick and mortar distribution centers. So then, what’s different about local commerce?

Local commerce really involves delivering that product to you from the closest nearby location, so as to reduce the logistics costs involved. Furthermore, there’s a level of trust that comes with buying from stores or merchants near you.

Another view is that local commerce is really about how consumers use web and mobile technologies to help find, interact with and eventually buy from local merchants.

Now, local commerce is of course being facilitated by the internet – a space known as O2O (Online to Offline) or ROPO (research online, purchase offline). Different research estimates suggest that O2O or ROPO is 10x of e-commerce. So this second view of local commerce starts to blur the boundaries between local- and e-commerce.

Strictly speaking, local commerce would refer to offline fulfillment (possibly payment offline too). But then e-commerce also has offline fulfillment. So again, what’s the difference? As we know, consumers don’t tend to follow or adhere to such conceptual boundaries. Users are both showrooming (looking offline, buying online) and also webrooming (looking online, buying offline). Showrooming helps e-commerce, webrooming helps local commerce. 

To make matters more confusing, E-commerce marketplaces such as Snapdeal are also tending towards local commerce, as they start to fulfill Delhi orders using Delhi sellers. Similarly, the Findable app is yet another example of how local commerce apps are tending towards e-commerce, as it also starts to allow users to just purchase online.

So how do we then keep the two distinct? (Assuming of course that we want to or need to keep the two distinct.) Local commerce must have local fulfillment, while the payment may happen online. With e-commerce, fulfillment need not be local. With Findable, the fulfillment is always locally – so its more of a local commerce player that uses the mobile phone to facilitate the connection between local buyer and local seller. Flipkart of course is more of an e-commerce player that sometimes fulfill orders locally. So local and e-commerce really are simply two ends of a spectrum more than two distinct corners.

The State of Local Commerce in India

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Local Commerce is quite the buzzword in Silicon Valley today. From startups such as Foursquare and Groupon that were posterchilds of the US tech industry before becoming the ignored foster children to sustainably successful companies such as Yelp, the local commerce space is still open to innovation and disruption. In India, while clones of Groupon and Yelp have abounded, the models that will succeed will definitely be different than in the U.S. This is largely due to the fact that local commerce has traditionally existed in very different forms in both these countries. So its hard to take inspiration from theU.S. in imagining how the local commerce game might play out in India.

JustDial has been the major success story in the local commerce space in India, but beyond that, there aren’t any bigwigs to speak about. Local classifieds such as Quikr and Olx continue to battle it out over TV and radio and outdoor hoardings, with constant appeals to either “Olx pe bech de” or “Photo khench, Quikr pe bech”. Groupon India continues to move along nicely – while players like Snapdeal that started out with local deals have moved on to greener pastures like e-commerce.

The factors that determine the success or failure of players in local commerce have been written about but there is still not a deep understanding of the models that are likely to succeed in India. Some factors that I think will be critical are:

1) Aggregating content that doesn’t exist elsewhere (like JustDial managed to do over the last decade)

2) The ability to provide the users unparalleled convenience (the way JustDial does when you call them anytime!)

3) The local retailers will have to be included, not excluded, from such a model.

4) Successful models will be built on the mobile platform, not on the web.

5) The closer the models get to closing the loop, the higher the likelihood of success.

Some interesting early entrants into this space include the Findable app and website. Any others that you have seen?