Flight of fancy in the digital realm
Expected to be a big part of the GDP in next 10 years as predicted by Golman Sachs, global companies like P&G believe India’s internet business will surpass most channels.
Source : Economic Times
By Sahil Chopra
The digital wave is on a crest and expected to grow many folds in the years to come. With 200+ million internet users, one cannot imagine the course of the digital tide when the numbers cross 500 million. Expected to be a big part of the GDP in next 10 years as predicted by Golman Sachs, global companies like P&G believe India’s internet business will surpass most channels. The ever increasing number of online stores promote the fact that the industry is looking to grow north in the times to come with even brands like Jockey, Rajnigandha, Kohinoor Rice entered digital. Eventually, everyone will be there.
And having the privilege and the advantage of being an industry insider, I can foresee 10x growth by service providers like – SMS, e-mail, affiliate, payment gateways etc. It does reaffirm my faith that industry is going to grow many folds in the years to come. However, there does exist the other side of the coin which has to be factored in to keep the faith and ensure that the growth maintains a steady momentum, keeping the cash flow and the industry growth poised towards the right direction.
To understand the surge of the online industry, it is pertinent to begin with the core of the segment, which is the e-commerce sector and understand the journey. While we all know of the numerous shining start that rose on the e-commerce horizon, but got lost into oblivion in their irrational quest for growth.
VCs have been the backbone of a majority of the e-commerce sectors that have flourished in the country, fuelling the starry- eyed dreams of the numerous entrepreneurs. Huge investments have been poured into some of these portals, giving the industry much-needed impetus for growth. But, the point to ponder is if the existing business model of these ventures adopts the right financial logic? Some ventures like Taggle, Timtara, 21 Diamonds, Office Yes, Bestylish and Deals and You among many more could not stay afloat despite the VC funds backing them.
I have had my concerns and reservations with investments to the tune that – does one really need to celebrate the fact that someone invested money into the company in return of equity? My belief is that the real celebration should happen when the goals one has set in the Investment pitch with the VC are achieved. The thought stems for the doubt that how many e-commerce ventures have been able to achieve any goals or even know how they will achieve them.
The bottom-line is that there is a resurgent need to understand the underlying thought that unless the business model and revenue source is not clear, e-commerce players will keep on burning this money and then demand more. If they get more money they’ll keep the show running and the moment more money is denied – they will be forced to shut down the shop and with it, a lot of careers.
My suggestion to these entrepreneurs is simple – Don’t celebrate investments, but look to celebrate once you achieve those goals. The online companies need to aim at:
Customer perception is discounts and deals – They need to change the customer perception from the existing “Discounts and Deal”. This might look lucrative to the customer but can giving discounts at VC money be a successful and long-lasting business model? A point to ponder, for sure.
Convenience and options to choose from – We all know how convenient it is to buy online – sit in your couch and get it delivered at the door, sans movement or traffic. It does raise a pertinent point of levying a convenience charge rather than discounts. It is not an alien concept and we have seen Bookmyshow/PVR doing it and surviving too.
Price point strategy – There is a dire need to have some level of a consortium which controls price and regulations. Even big brands who sell on their portals are complaining that e-commerce portals are offering discounts up to an extent that they are disturbing their offline retail and partner distributor network and channels.
Controlled costs – There is a scope for cost reduction when it comes to running the business and steering the ship with a tighter rein on resources. With expenses ranging from unreal TV ads, front paper newspaper ads, hiring 1000s of people to work, large office spaces, endorsement by bollywood starts just add on to the costs without yielding the desired results.
Focus on commodities which have better margins – Pepperfry has done it smart and I guess they’ll be the first to break even at-least. Started as a horizontal player and soon realised not easy to make money – Now, they are into home furnishing primarily and do have good margins to gradually build on.
Be careful with Acquisitions – Buying companies & setting up operations in Dubai/Singapore seems to be the biggest ego boost Indian entrepreneurs. But both are pointless, unless a clear reason behind it is known.
There are no second thoughts that the industry is going to grow many folds in the years to come. But one has to grow out of the mind-set that businesses and business model will just survive with the thought that more VC money is expected in the next round. A case in point and the source of this wisdom could well be the financial statistics of Amzon.com. They hardly make money; they don’t have profits and are the biggest player on earth. And Amazon trying drones as the delivery channel is definitely the flight of fancy for the e-commerce sector in the time to come.
(The author is the co-founder at iCubes)