E-Commerce Bubble: Myth or Reality

In economics, ‘bubble’ is defined as a cycle with rapid ex-

pansion followed by a contraction. E-Commerce has been

evolving tremendously in India, which is riding on the

promise of so called upcoming ‘Ache Din’ and the smart-

phone revolution. The sector imbibed funding in range of

about $5 billion in 2014, that is about 3.5 times of what it

got in 2013. The major chunk of this money came from big

investors like SoftBank & Tiger-global. The grandeur of this

sector can be easily interpreted by this fact, while Flipkart’s

value is at $11 billion, traditional players like Future Retail,Pantaloons and Trent are valued at below a bil-

lion mark. If the scenario is so upbeat, then what about this ‘bubble’ clamour ?

"Where is Flipkart's complete business model? Forget about valuation. I want to know Flipkart’s business

model. I want to know how you will be profitable?" thundered Rakesh Jhunjhunwala in an interview to

CNBC-TV18 with fellow investors Ramesh Damani and N Jayakumar. A PWC report says, E-Commerce com-

panies have suffered aggregate losses of around $156,500,000 due to their cash-burn strategy. The author

is not so convinced with this ‘bubble-theory’. There are

150 million active internet users in India, though less

than China’s 550 million, they form a consolidated bloc.

Also two-third of them are in the age bracket of 29-35,

they are the energetic lot, having the capacity to break

or build a brand. The prime example of this is Facebook,

which clocked the fastest user growth from India. The

author agrees that Internet penetration is very dismal in

India, but it has been compensated by cheap internet

enabled smartphones to a very great extent.

Though connectivity is vital, the real growth would dawn

with the increase of purchasing power of an average In-

dian. The per capita net national income (NNI) of India at

current prices during 2014-15 is estimated at 87,748 indian rupees as compared to 80,388 INR for the year

2013-14, showing a rise of 9.2 percent. The growth from Tier 2 and 3 cities is tremendous, where people

have finite reach to brands but have high longing. As per site monitors, these towns have witnessed a 30%

to

50% increase in transactions. With the increase of double income households in India, people are finding

hard to spend time with family, so E-Commerce sites are coming very handy.

Also the worsening traffic and pollution woes in Indian

metropolises restricts frequent shopping outings. Emu-

lating China as a benchmark corroborates the argument

that Indian scenario in 2019-20 will be similar to that of

China's in 2012, clearly auguring the vast opportunities

waiting to be found in terms of E-Commerce.

Considering that the E-Commerce sector is at its nascent

phase, it is very vital to create a base of loyal customers

by giving them lucrative offers and discounts. Price has

been a crucial factor for an Indian customer and he does

not shy to change his loyalty. So this stage becomes much

tough in India. India is the only country apart from Kenya,

where Uber has a Cash on Service facility. The E-Com-

merce industry can be complementary to many offerings like education,health,hospitality and what not.

This advantage for an E-tailer over a brick-and-mortar player allows him to offer significant discounts by

leveraging the higher margins which is a

win-win proposition. In addition to e-

shopping, customers are also shopping

online for occasions like marriages and

parties, it is due to huge offerings of

items and aggressive campaigns.Creative

concepts such as ‘Big Billion Day’ are ic-

ing on the cake.

The ease of entry to the market that

proliferation of Internet has provided is

enabling many players to compete in the

market, giving Indian consumers many options and in a way making the competition throat-cutting. For the

efficient running of the E-Commerce industry, three things are crucial – handling an inventory of both short

and long tail items by the companies in the fray, providing a delightful and secure online surfing and shop-

ping experience to the customers, and ensuring a strong logistical delivery channel. Companies are com-

mitted to work upon first two criteria and they are doing great, but the third one is the criterion where In-

dia with its present infrastructural red-tapes needs more.

The advent of new government has given rise to a new hope. If an industry stalwart like Mr.Ratan Tata is

lending his trust to new E-Ventures and the Giants of E-Commerce like Amazon & Alibaba are investing for-

tunes in India, then it indicates that E-Commerce is going to stay.

Like every sector, the author agrees that not every entrant getting funding will be viable in long run. Some

consolidation will take place, especially if money is guzzled out for long. India is yet to get its own Amazon

or Alibaba, and for the investors playing prudently, the picture is rosy ahead. The ‘bubble’ may burst for

others.

References

1) Business Standard : Here's why Rakesh Jhunjhunwala is right about the e-commerce bubble,

10:03:2015

2) DNA India : E-commerce: Rs 1000 crore loss due to discounts, report says, 15:02:2015

3) http://statisticstimes.com/economy/gdp-capita-of-india.php