Online retail is booming

internetLast year, Alibaba’s Jack Ma remarked that he believed online shopping would soon become as natural as breathing. “I hope 15 years later, people forget about ecommerce – because they think it’s like electricity,” he said in an interview at Davos.

If his prediction is true, it’s important to remember that this goes for more than just massive countries like India and China. In fact, if there’s anything that the two notoriously difficult markets have proven, it’s that ecommerce is an idea that’s attractive and malleable enough to fit anywhere in the world.

A prime example is the small island of Sri Lanka, where online retail is booming. Takas.lk, one of the country’s most popular ecommerce sites, expects the sector to be worth US$1.5 billion by 2020. Takas is planning to raise US$3-$5 million in the next few months in what’s considered to be the largest round of funding in the country’s startup history and has already raised US$800,000 in three rounds of funding.

“Ecommerce in Sri Lanka is at the point where there are already different types of startups here,” says Rajan Anandan, managing director of Google Southeast Asia and India and a native Sri Lankan. In Sri Lanka, he’s launched Blue Ocean Ventures, a venture capital fund that’s invested in Takas. “There are several horizontal players, including Kapruka, an ecommerce site that focuses specifically on non-resident Sri Lankans, Deals.lk, a major classifieds site, and Wow.lk, a daily deals site. Takas.lk is a marketplace, and for us, that’s really interesting.”

The obvious move – and Rajan does not hesitate to do this – is to draw parallels between Sri Lankan and Indian ecommerce. “I think of Sri Lanka as India five years ago,” he says. Although only 700,000 of Sri Lanka’s 21 million residents live in its capital city of Colombo, most of Takas’ reported transactions remain inside the city and the site reports that nearly 80 percent of the payments it receives are completed by cash on delivery. Furthermore, following the South Asian trend of getting cellphones before any other type of hardware that connects to the internet, nearly half of all transactions happen through mobile.

Still, the differences between the two countries are what make Sri Lanka’s ecommerce sector interesting. Compared to the deeply negative unit economics of Indian ecommerce startups (fueled mostly by the really expensive logistics of moving goods around the country), Sri Lanka seems like an easy ride. “This is a market that’s actually profitable,” Rajan laughs. “Sri Lanka is small and beautiful, 100 miles by 200 miles, the entire country is the size of Delhi’s National Capital Region, roads are great, and, in the next two years, Takas will have managed to cover the entire country. ” Unlike India, Sri Lanka also has very few restrictions on investments and where they come from. “Doing business in Sri Lanka is really easy,” he says. “There are not nearly as many entry barriers as there are in India, and setting up a startup here is simple.”

The early state of Sri Lankan ecommerce means that the best way to figure out its next few years is to look at a “revenue run rate,” or a prediction that maps out the future revenue of a company based on a sample size. For example, a company that has made US$25 million in revenue in its first quarter will claim a revenue run rate of US$100 million for its entire year. “Here, the revenue run rate averages around US$3-5 million,” says Rajan. “I’d say it’ll take another five years to get to where India is and where Indonesia was a year-and-a-half ago.”

While Sri Lankan ecommerce is at a nascent stage, there are plenty of lessons to learn from history. Rajan agrees wholeheartedly with this mindset: “The exciting thing for me is to think – what if I could turn back the clock five years ago in India? How would I operate differently and what would I invest in?” (Techinasia)

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