The Future of E-Commerce in India

E-Commerce is not new to Urban India but what is the Future of E-Commerce in India …Recently, we saw lot of activities in this space like Flipkart bought Letsbuy.com, Amazon.com announced its indirect entry in India through Junglee.com  & of-course PE / VC investments in various E-Commerce ventures like Snapdeal.com

Sometimes i feel, Are we going overboard in this space or Is india ready for E-Commerce revolution….Currently, India does not have any Govt Policy for E-Commerce Business and its running on Hit and Trial Method…The legal & regulatory environment is also not conducive for E-Commerce Business…Many entrepreneurs are diving into this space with their ideas without any clue on Future Business Model and plan for Long Term Sustainability…

When i analyzed this whole space, i found basically 3 Business Models have evolved over a period of time in this space and each has its own Pros & Cons…Rest all business models are mix and match of any of following 3 models..Lets study & evaluate 3 Core Business Models and find out which Business Model can survive in Future or Will be successful & Why?

Model A (EBay Model): In this model, the role of E-Commerce player is to bring buyers and suppliers on single trading platform i.e. to create a Mall or Common Market Place..Prominent player following this model is EBay so i will call it a EBay Model….Following are Pros and Cons of this Model

Pros of EBay Model:

1. Possible to create Very Large Market Place i.e. Large Product Portfolio in terms of One Stop Shop for all requirements..Also customer can select from  multiple brands.

2. Ease of Management: EBay’s role is restricted only to manage Technology and Marketing of platform

3. Competitive Rates becoz of cut throat competition among Sellers

4. Less Capital Intensive i.e. Cost of Operations is very Less i.e. No Warehouse required and Logistics is controlled by Sellers.

Cons of EBay Model:

1. Low Margins: Margins in this business model is normally between 4%-6%

2. Success of this model is dependent on external partners as EBay can only monitor the quality aspect through feedback mechanism from buyers but cannot really control the same therefore customer satisfaction is not in direct control of EBay which goes against principle of marketing.

3. High Risk in terms of Charge Backs & Disputes by Buyers: With large scale of operation and large no of sellers on board, the customer disputes will bound to increase

4. Many Seller might sell products without Bill/Invoice becoz of which they can sell at much lower rates though most of them mention it indirectly that product is under dealer’s warranty which implies that  product is being sold without paying taxes like VAT etc  and Manufacturer will not cover the product for warranty…

Model B (Flipkart Model): In this model, E-Commerce player control end to end value chain i.e. right from procurement to delivery is controlled by service provider..Flipkart works on this Model therefore i will refer this model as Flipkart Model…

Pros of Flipkart Model:

1. Scale of Operation gives high bargaining power to Flipkart therefore cost is low

2. High Margin Business: Margins in this business model are between 20-25%

3. Probability of repeat business is high becoz end objective of Flipkart by managing complete value chain is to increase customer satisfaction and reduce costs

Cons of Flipkart Model:

1. Logistics: Logistics can either be pro or con but in current scenario Logistics is a major headache for all E-Commerce players…Though Flipkart manage approx 65% logistics operations but still it has to rely on logistics of suppliers & 3rd party provider for 35% of deliveries…The biggest problem of managing logistics is that it increase the cost of operation exponentially, if not managed properly & efficiently. In long run, if Flipkart manage logistics well then it can also become killer USP for its success but only time will tell this.

2. Limited Product Portfolio: Managing own warehouse or product inventory adds to cost of operation becoz no company can create unlimited storage space. In this scenario company can only provide limited product portfolio without scaling up warehouse capacity. For any company, It is very difficult to manage Learning Curve of Procurement, Inventory & Logistics…Even a small misjudgment or miscalculation can add to cost becoz any inventory lying unsold for long not only occupy space but is also opportunity loss for company

3. High Investments: Huge investments required in such models in order to manage and control end to end value chain

Model C (Snapdeal Model): This model is totally different from rest 2 models, In this model the E-Commerce player does not sell any goods/service on its own but offers discount coupons which can be used by buyers to avail discount at the time of buying Good or availing Service from Merchant..I will refer this model as Snapdeal Model  but original concept is copied from Groupon

Pros of Snapdeal Model:

1. E-Commerce player is only Technology Provider therefore very less hassles in business operations…Normally a team of 2-3 sales executives are hired in each city to tie up with brands for discounts

2.  Cost of Operations is very Low compared to other models

3. Very Easy to Set Up Business Operations

4. Lot of upcoming Brands / Merchants are available for tie up

Cons of Snapdeal Model:

1. Ultra Low Margin Business: The margin in this business is very very thin and can be as low as 25 Rs per coupon

2. Unknown Brands: Normally heavy discounts are offered by brands which are new or not known becoz they want to build their customer base by offering huge discounts..Known brands would not like to tie up with these websites becoz it actually devalues the service and products.

3. Discount is available otherwise also: In Most of the cases customer find that discounts are available without buying discount coupon also…I will take my e.g. wherein i purchased discount coupon from 1 well known site and when i reached restaurant, i came to know similar offer is also available for other customers under some festival offer of Restaurant…

4. Managing coupon logistics is difficult as it require lot of coordination with merchants so that same coupon cannot be used multiple times.

5. Profitable Business only if Huge Volumes can be committed to merchants: Merchants are keen to provide discounts only if high volumes are committed else they find it difficult to manage as front office staff is not intelligent enough to handle or understand this model at merchants end

6. Marketing cost to generate traffic on website is high

7. E-Commerce player should understand the Local Flavor well so that deals are appealing and relevant

After analyzing all 3 Models, we can conclude that Ebay Model has very high probability of being successful becoz of its inherit advantages in terms of of Ease of Managing the business, Cost Advantage by creating competition among sellers, Reliability Factor by incorporating Sellers Feedback Mechanism & Peace of Mind to customer that supplier will get money only after he will receive the product else amount will be refunded back to buyer…All these factors are very important for Indian Customer Psyche and according to me EBay Model is best suited for Indian Markets & is Future of E-Commerce in India.

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