Tax on online advertisements bring discontent to e-tailers in Bangalore
August, 11th 2014
With Budget 2014 re-introducing service tax on online and mobile advertising, e-commerce industry facing the direct brunt of it has now adopted a wait and watch strategy. But they feel that the government needs to go extra mile to support the nascent industry which has got immense potential.
"It would have been encouraging for the industry, had the tax holiday continued a little longer like other sectors including software industry," emphasised Hitesh Oberoi, CEO of naukri.com, country's leading job search portal. "We have loads of small clients advertising on our platform who will now have to shell out more, which will call for renegotiation or fall in frequency of advertisements because budgets have to be maintained."
Sharing similar sentiments, Praveen Sinha, co-founder and MD of Jabong.com, a well-known fashion and lifestyle portal said, "Our industry is new and yet to stablise. None of the ecommerce companies are profitable till today. Government should play the role of an enabler for our industry that holds the future." For Jabong, ad revenue doesn't play a significant role as they don't entertain any kind of ads or promotions from companies outside their platform. "We have a huge member base and as a policy, we don't want outsiders to leverage from our platform. We do negotiations with members while deciding on commissions that include branding," points out Praveen Sinha.
Naukri on the other hand gives weightage to third-party ad revenue. "We have advertisement clients from education, real estate, marriage portals, SMEs and big companies. Our advertising revenue share is around 20 to 25 per cent and online marketing in marketing mix holds 70 per cent share," says Hitesh Oberoi. Snapdeal.com, claimed to be the largest online marketplace, has been into third-party advertising on its platform from the very beginning, but wasn't organised though. Just nine-month back, snapdeal launched its advertising platform- Jump Ahead, that has attracted over 30 big brands like GM, Airtel, Mircosoft, L'Oreal, American Express, Adobe, VISA, Tata Docomo and Emirates.
"With Jump Ahead, we will be able to accelerate our advert revenue share which otherwise is wholly dependent on commissions. For this, we will be focusing on technology, finance and FMCG sectors,"Sandeep Komaravelly, senior vice-president- marketing of Snapdeal highlighted.
Jump Ahead enables brands to advertise and promote their products and services to over 25 million Snapdeal members. The advertising solutions include premium in-content banners on homepage, banners on category storefronts, customised direct mailers and run-on-site banners across the key categories.
Shopclues, a two-year old portal has primarily been into brand campaigns but recently tried its hands into third-party ads. "Online is a powerful medium, more agile and cost-effective and all industry sectors are experimenting with it. Since it is not yet as organised as broadcast media, margins are very variable. Service tax might pinch some clients but given the popularity of the online medium, it is not likely to make a long-lasting impact on the ad business," says Radhika Ghai Aggarwal, Co-Founder & CMO.
Two years back in 2012-13, online and mobile adverts were added to the negative list of service tax, thereby exempting the medium from tax. Broadcast media including radio has always been under service tax and print has always been exempted. As per Internet and Mobile Association of India or IAMAI, the online advertising market in India is estimated to be over Rs3000 crore, growing at 35 per cent in last few years. Spends on digital media have steadily increased from just over 1 per cent of total Indian advertising spent in 2005 to nearly 10 per cent in 2013. "We have not looked at exemption of service tax as a competitive advantage over broadcast media, but as a growth tool for the nascent online and mobile advertising industry. The share of advertising on mobile and social media is expected to go up whereas spending on display and email will decline due to this shift," reveals Dr. Subho Ray, president of IAMAI.
Top four big spenders on online advertising continue to be BFSI, Auto, Telecom and Travel, although ecommerce players spent significant amounts on customer acquisition taking their share in online ads to over 10 per cent in last two years.
Prominent e-commerce players, though believe that in the mid and long-term such external factors like service tax will not dent their business. Hitesh Oberoi of naukri.com is of the opinion that, "Mobile penetration is already way higher than banking or internet in the country, so there is immense potential in online and mobile space, which if captured rightly will give infinite volumes. So, for us our marketing mix won't change and will keep focus on digital platforms."
Praveen Sinha of Jabong feels that marketing strategies need to be flexible. He says, "Based on competition and time of the year, the mix-match between traditional and new mediums happen. Even though online and mobile are future, and can never be sidelined strategically."
Snapdeal marketing head, Sandeep Komaravelly giving another perspective explains, "For early startups, online marketing is inevitable and the appropriate platform because it comes cheap and can be controlled. For established players, it is about the bandwidth even if it comes with a little price."