e-Commerce Scene May Seem Booming But

The e-commerce scene may seem booming but most of these websites won’t be profitable before 2020

For once, the verdict isn’t out. It is a rare moment of suspended animation when people are looking at something and are being stared back at by two diametrically divergent realities. While some are looking at India’s fledgling e-commerce sector to see immense potential and counting down to the deluge of wealth, others are reading signs of an impending disaster and a collapse as bad as the dot com bubble 15 years ago.

Exhibit A: Flipkart. The two co-founders of India’s largest online shopping empire are just one step away from turning billionaires. With yet another batch of investment on its way towards them that values the online retailer at $14-$15 billion, co-founders Sachin Bansal and Binny Bansal will turn billionaires with a net worth of between $1.05 billion to $1.12 billion each for their equal 7.5 per cent stakes, news reports say.

Rakesh Jhunjhunwala, however, would say different. The celebrity investor, who has a fan club website of his own, frequently exhorts how the industry is running on fumes. And it’s not like he doesn’t have a point.

“Where is the business model of Flipkart? Forget the valuations; I want to know their business model. I want to know how the company plans to turn profitable,” he frequently thunders on TV shows.

For all eight years of its existence, the company has never turned a profit. Deep discounts and a myriad of expenses have taken a toll on its balance sheet and it’s anyone’s guess when that will turn. And that is the entire industry’s trend. A recent study by a financial consultancy says that the most e-commerce websites in India won’t be profitable before at least 2020 and for till that time, most of the companies will run on in the red.

The start-ups

In its most popular definition, the e-commerce scene in India kicked off with ebay launching operations with the acquisition Avnish Bajaj’s baazee.com, which was India’s largest online auction portal at that time. The first major e-tailer to plant a flag in the Indian ecommerce industry was then Flipkart, started in 2007 two IIT-Delhi and ex-Amazon employees Sachin Bansal and Binny Bansal who invested Rs 2 lakh each to set up the online book retailer.

Over the next couple of years, e-commerce players like Flipkart and Myntra tuned innovations such as cash on delivery to maximise their reach to the usually reluctant Indian online shopper. With snapdeal in 2010 and Jabong and 2012, the first phase of Indian ecommerce ventures ended on a high.

Since then, the promise of online retail in India has seemed to have reached a new high. Beginning with Amazon entering the fray in June 2013, there was the Rs 2,000 crore Flipkart-Myntra deal in May. That was followed by an eye-popping round of fresh infusion of funds that saw Amazon India rake in $2 billion and Flipkart $1 billion.

Dangerous realms

That enthusiasm has drawn investors to venture into more dangerous realms such as that of perishable goods and groceries. Even though selling groceries is a business with margins less than 10 per cent, and requires expensive investments to build high-end front and back-ends, the lure of an uncharted treasure island.

The first player in the grocery space, BigBasket attracted a funding of $10 million from Ascent Capital in 2012, and more recently, Rs 200 crore from Helion Venture Partners and Zodius Fund II with Avendus Capital. A number of other players, who are equally new, have received funding in similar numbers and now there are several players in market such LocalBanya, ZopNow, EkStop, AaramShop, MyGrahak, VeggiBazaar, Fresh N Daily and Farm2Kitchen.

The timeline

2004-2007: eBay acquired bBaazee.com and entered the fledgling India market. Flipkart and Myntra were start out at the same time

2010: Flipkart pioneers the cash-on-delivery (CoD) model, increasing the reach of e-commerce dramatically. Myntra expanded its catalogue to retail fashion and lifestyle products.

Flipkart acquired WeRead (a social book discovery tool). SnapDeal acquired Grabbon.com (A group-buying site).

2011: Flipkart acquired Mime360 (a digital platform company).

2012: Flipkart acquired Letsbuy.com (that specialised in electronics) for an estimated $25 million cash-&-stock transaction, rumoured to be facilitated by the common investors Tiger Global and Accel Partners. Flipkart launched Flyte Digital Music Store, which was later shut down in 2013 due to lack of expected traction.

Fashionandyou acquired Urban Touch for an estimated $30 million cash & stock transaction in a bid to consolidate.

Indian postal services undertook a major IT project to modernise its operations and be a preferred partner for e-commerce players to reach the widest number of PIN codes across India.

Rocket Internet backed-Jabong started operations in 2012.

Myntra acquired the SherSingh private label created by Exclusively.in. SherSingh specialised in sports-inspired lifestyle apparel while Exclusively.in specialised in ethnic wear

Junglee was launched by Amazon.in as a price aggregator and comparison tool. This marked Amazon’s low-cost baby steps in the Indian market, especially at a time when the FDI regulations were in a state of flux.

2013: Myntra acquired San Francisco-based Fitiquette (virtual fitting room) in an undisclosed cash-&-stock deal, to solve the online fit/size problem of fashion retailing.

Myntra piloted a one-hour delivery system in Delhi and Bangalore for delivery addresses located within a km radius of their warehouse by process innovation and reducing lag time.

Amazon, which does not provide cash-on-delivery facility in any other country, started providing this option in India to keep up with the market norm.

Flipkart launched its own payment gateway to third-party customers under the brand name PayZippy.
Jabong launched its third-party logistics firm JaVAS and later sold it off to Gurgaon-based QuickDel Logistics.

2014: Flipkart acquired Myntra for an undisclosed sum and shortly thereafter revealed that they raised an additional $210 million led by DST Global. This was followed by Flipkart raising another $1 billion at an enormous valuation of $7 billion.

Flipkart was given a notice by the Enforcement Directorate for potential violation of the FEMA norms while accepting FDI. Potential penalty is Rs 1400 crore.

Myntra launched their private label Roadster with mega-budget campaigns that were hitherto run only for branded goods.

SnapDeal acquired Doozton, a product discovery platform that enabled personalised way of listing and recommending merchandise.

Amazon tied up with Bharat Petroleum Corporation Limited (BPCL) in Mumbai and Delhi and local grocery stores allowing customers to pick up their packages from the retail chain In&Out run by BPCL at select filling stations, and quietly expands to all categories that major retailers are present, and stocks 15 million products, five million more than Flipkart.

Amazon tied up with Narayana Murthy through his private investment firm Catamaran Ventures, aiming to bring offline small sellers and small and medium-sized businesses online and take advantage of the fast growing online customer base in India.

Amazon announces plans to invest $2 billion in building out the Indian operations.

Snapdeal and Flipkart expand their categories to include adult toys, sexual wellness etc.

Be safe online

Short for Web of Trust, WOT is an Internet browser add-on or extension that helps identify websites that may be a potential harm to your computer. After installing this plug-in, if a website that is not safe is opened, WOT displays a message over the website indicating it is not safe and should be avoided. If you think the site is safe, this message can also be ignored. Through its community generated content, WOT against online threats that only real life experience can detect, such as scams, untrustworthy links, and rogue web stores.