Ronnie05's Blog

E-Commerce – The Intent would need to change from Valuations to Sustainability

Posted in Internet and Search, Revenues and Monetization by Manas Ganguly on August 16, 2012

While Flipkart and Snapdeal have soared as Consumer Internet mega-brands – there is something systematically wrong about the e-Commerce market in India. It is working on Valuations rather than Sustainability and thats not the one for long term.

Flipkart, Snapdeal, Yebhi, Myntra, Infibeam, eBay, Homeshop18 – the list of e-commerce companies in India has come fast much too fast and too many. The category is still only in its infancy stages with enough and more action waiting to happen. The 1st round of e-commerce action in India is in prime action. Most of these e-commerce portals are in the funding phase. What is concerning is the fact that all these portals seem to be promising the 3 same things – range, price and service. Heavily discounted prices , management of extensive product categories and extensive customer service could lead to a cash burn. If consumers buy only for cheaper prices, free delivery, soft trials/ no-questions asked returns and Cash on Delivery … then the question is, will anyone ever make money? I don’t think anyone has a good answer to that.

The key to the e-commerce objective is logistics management both inward and outward. Logictics in e-commerce fulfillment is the tail that wags the dog. And then there is inventory management. For a great customer service experience, an end to end integration is most advisable which means building up of infrastructure and adding headcount/overheads. (On the contrary, an outsourced supply chain will spoil the service delivery experience for the e-commerce portals. All Infrastructure/overheads would mean quantum leap in annual sales for break even. Incremental sales is one thing, Incremental profits in a heavily discounted category in a crowded market place is a chimera. The intent is to become the Amazon of India. Amazon relied on the funds from its 1997 initial public offering (IPO) to tide through the aftermath of the dotcom crash that took out most of its rivals. Without competition, it could afford to lose money on building infrastructure. It would take $2.8 billion in losses over six years before it declared its first quarterly profit in January 2002.

Unfortunately, the e-commerce market in India is heavily crowded – this doesnot offer the (pseudo)arbitrage opportunities that Amazon had in its time. Thus, the whole proposition of consumer delight only ends up burning cash and capital. As all industries there is consolidation waiting to happen even while most of the portals are trying to aggressively build up the valuations. Self sustaining business is taking a back seat in the game of valuations and investors really need to identify the horses for the long run. Else, this is one crash that is waiting to happen.

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