8 simple reasons

1. PAIN vs PLEASURE

IRCTC is the biggest success in e-commerce in India. 

It democratized Railway Tickets buying - the biggest pain point in the life of an Indian. At least the Indian who travelled in the '70s, '80s and '90s.

As a young boy, I was trained to go to Churchgate station, stand in a line and buy a ticket - in an effort to teach me patience.

The 2012 e-commerce sites are presenting goods that I should buy for PLEASURE. All kinds of stuff that may give me a kick once or twice but never forever. It's not a repeatable business.

I mean just check out the fancy wares on most of these sites.

Sure, I will buy sunglasses and t-shirts once, twice, but not as a regular habit!

2. PULL vs PUSH

Most of the travel portals succeeded in India as the Internet picked up by then, by becoming accessible. 

When we began to 'search' for Mumbai - Delhi tickets, the usual travel portals began to show up and consumers began to go to those sites automatically.

That was generic PULL traffic.

In 2012, if I wanna color my hair (i don't wanna), I will NOT go to the Internet and search for 'Garnier Hair Care' Color. That doesn't make sense to me at least. It's NOT typical consumer behaviour.

If at all I need it, I will go to the nearest Kirana Shop. Thats PULL.

Now, if a rich stupid funded site comes up and PUSHES me the color dye, then it's expecting me to behave abnormally (getting PUSHED to buy).

I will, but it will really cost the e-commerce site their business!

Check out this case of my experience of buying hair color on the web.

3. BUILD vs SELL

I came across someone yesterday who is leaving his cozy career to START an e-commerce dot com that he says will BE SOLD to Someone (he did not know who will buy it and why - but because it's e-commerce, Someone will). 

His entire plan is to create a business that will sell out. To whom, and why, even God doesn't know.

When Make My Trip started out in 1998/99, Deep and his team BUILT a business they BELIEVED in. 

It took 12 years for MMT to make that vision a success; with lots of scary moments thrown in.

They were in BUILD MODE and became a 1 billion dollar company.

My personal belief is that if you start a company with a SELL mentality from DAY 1, then you circumvent REAL value creation.

You build stuff that's fluff - not anything real.

And fluff NEVER gets bought.

4. COUNTRY vs THEME

If e-ventures invested in MMT in '99 and later people like SAIF supported them, it was because they were taking a Country call.

Their call was that INDIA will be an Internet economy - and all the successes of Content, Services, Communities that make the Internet throb will thrive.

In 2012, lots of VCs are taking e-commerce as a 'thematic' bet. They think, "Oh yeah, we don't have an e-commerce play, so let's invest in a couple of Companies".

Ha!!

What may be a "thematic" experience for them, may be a nightmare for the entrepreneur.

Because the truth is - VCs can change entrepreneurs as often as they like. But entrepreneurs can't change their own businesses just because they don't like it anymore!!


5. SERIES A vs SERIES E

Look around and examine the long term e-commerce sites in the USA. Even MMT or maybe Flipkart too. Count the many rounds of capital they have raised.

Look at the Capital consumption of Amazon.com!

These are businesses built on LONG TERM capital.

I ask - how many of the 2012 e-commerce sites will ever get refuelled?

With one bad year, a couple of more sites down, will their investors want to invest more money in something they thought was a "thematic" flavor of the year investment?

 

6. ENTREPRENEURS vs COWBOYS


Meet Deep Kalra. Check out the Entrepreneur DNA in him.

Then meet the 2012 jokers of e-commerce who are coming from plastics, warehousing, petrol pumps and God knows what, just to start "e-commerce". Some of them are freshly minted MBAs pretending to be entrepreneurs!

The 2012 batch of e-commerce Cowboys remind me so so much of the 2000 batch of Internet Wannabes who jumped into the fray at that moment just to be "in the Internet" business.

One bad jhatka of the horse and these Cowboys will be on the streets.

 

7. PRICE vs PRIZE

Conceptually speaking, e-Commerce is supposed to make the PRICE of goods more economical for me. That's classical 'me-the-Economist' talking.

Now, this is NOT DISCOUNTS!

How do goods become "cost effective for me"?

- By reducing the COST of travel, efforts etc. that are involved to go to the physical store to buy the goods.

- By making GIFTING a Painless and Cost Efficient process (imagine buying gifts and lugging them to people the old fashioned way).

- By giving me the benefit of prices assuming that there is a mass purchase at the Buyer's end.

Sure, there are delights of buying special things that are not found elsewhere etc. etc., but routine shopping is for getting my usual things in the most cost effective (read price + saved time + saved energy) price.

Now, the 2012 gang are giving away their Goods like PRIZES!

They are discounting regular stuff, throwing price down the drain to make people BUY - even when they don't need the product.

Well, I have learnt in many businesses that the LURE of Prizes is very very short term.

 

8. VALUATION vs PROFITABILITY

Most e-commerce plays in 2012 are geared towards weird valuation metrics. They believe in things like 'Customer base', 'nos. of orders sold per day', 'value of goods sold per day' etc. etc.

These are nice juicy terms that are the season of a boom.

In a downturn, the vocabulary of valuation has only one word in it - that is VALUE.

Now, don't get me wrong. I personally run businesses that lose money but are still valuable ( I hope :-))

That's because the word 'Value' if NOT measured in money terms is in showing TANGIBLE ASSETS - like returning visitors, a leadership in the business category, an acquisition cost of consumer that is plummeting etc. etc.

If you buy a book for Rs 100 from a publisher and sell it to me for Rs 50 and write off Rs 50 as 'consumer acquisition' - that's a silly metric if I NEVER COME BACK!

It's like paying to acquire a ghost!

So, when the shit hits the turbines, all these fancy metrics are going to be put through the stress tests. Investors are going to ask WHY and not WHAT!!!

How many of these silly e-commerce start ups will be able to claim ANY value creation when they all look and smell and taste the same? If 28 sites sell the same Hair Color at the same price to consumers like me, who will never return again, then where and what is the value creation???

Also, financially, these 2012 guys have NO CLUE of the measurement of cost of acquisition of customers or the CONCEPT of lifetime value etc. The people I have spoken to believe that, "as long as we advertise, we will get consumers. These consumers will magically keep coming back to us and give us repeat buys. Via such loyalty, we will build a brand. And then on Diwali day we will get acquired".

I have never heard of a DUMBER pitch than that!

*****

Image credits - games2win.com

****

Added on the 13th of Jan 2012:

This post came up on the same day I posted this note. Its scary.

Its about how a consumer was shipped a USED BLACKBERRY when she bought a NEW ONE?

http://therodinhoods.com/forum/topics/e-commerce-the-joy-ride-bump

 

 

Tags: ., Deep Kalra, Ecommerce in India, MakeMytrip.com, The e-commerce bubble

Views: 6523

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Replies to This Discussion

Thank you. This is very, very insightful. I am a spectator to this valuation game (the group has many eCom entities) and yes, all that you say here is something very few bear in mind. And we can count those few and their successes on our fingers.. 

Looking forward to a piece on the different eCommerce models that are being followed. And your take on what works/will work and what hasn't/won't.

What do you think of players who are adding categories to up trasactions? An apparel guy gets funding and suddenly starts selling electronics...something he doesn't know jack of. Poor guy had just spent a year or so building expertise in apparel and maybe got that right! It seems like a simple idea to add categories=increase transactions. But is it viable? Or are niche models unviable in such amazon-like scenarios? Would love to hear your (and others) views.

The real issue is that it is all a Ponzi Scheme; there is always a first investor and then there is the need to multiply that investment. So the real way is to wait and watch and let it grow it's natural pace but then add greed to the mix and comes hype.. unfortunately the fools follow (more VCs, more founders, more ventures etc.).. this then leads to unrealistic justifications which I call end to a means (this is the weird metrics you refer to Alok).

In the end the success rate keeps going down and only a few succeed and most fail. A true entrepreneur would understand how to separate the wheat from the chaff and will not just follow the crowd.

P.S. I am not an entrepreneur so the above is subject to my best understanding

+100000000 :)

Right on dot Alok !!!

Its not really that game. The valuations are going to be real. The Indian market is so big and use of internet so exploding that there is real big business opportunity in this area. Lots of e-commerce startups born in last year but those are definitely not by cowboys, there are serious brains behind most of these and these are the ones who have identified opportunity in the market. Its not valuation game for all of them, they are serious and committed to build long term sustainable business.

If you buy a book for Rs 100 from a publisher and sell it to me for Rs 50 and write off Rs 50 as 'consumer acquisition' - that's a silly metric if I NEVER COME BACK!

They are not selling book below prices they have got, but business model allows them to sell below MRP that is priced at retail shops. They don't have overheads of managing retail store, staff, supply chain etc. and these are all national players they directly deal with manufacturer with so much margins that they actually can afford to sell at discounted price and still make profits on it.

I hope u r right my friend! Would love to be proven wrong on this one... I wish I Am wrong!

Other costs that e-comm sites are absorbing into the system

The logistics companies need to be paid. Its FREE shipping for the customer, but not for the e-comm companies. 

COD- And again the best quote I have got for Cash On Delivery from any of the better logistics companies is Rs50 or 2% of invoice value. And then if its COD, you better call the customer before you deliver, which means the cost of a call too.

And for a product company which wants to use the e-commerce model and make profits, it gets real tough.

Because the customer asks for FREE SHIPPING, COD and "WHAT OFFERS ARE YOU HAVING NEXT"

Pratik, what is your background my friend?

Err.. Pratik ... give us an Indian ecom case as example to your logic [ except flipkart]

Its quite irritating to hear assumptive statements. How on earth are these guys can negotiate a better price than , per se Big Bazaar ?.  The logic is that the ecommerce sites, do not have the overheads of a offline retailer and that benefit is passed on to the customer. Most of the time ecommerce players procure stuff at a higher price than the offline players, purely because of the volume game that offline retailers play.

A bit of sarcasm here : The problem with Indian Internet Industry is that everyone with a gmail account or a blog thinks that he is part of Industry and starts giving dotcom lessons. I personally suggest most of you MBA students/freshers to give opinion only if you have seen it happening and not reading it in medianama or alootechie :

I do agree with the take on most ecommerce startups. But with regards to Healthkart I must bring out that they had products which most don't stock. I had a running injury due to which I needed a specific support which I could not even get at the QI Physiotherapy Centre(probably the best in mumbai) but got it from HealthKart within a couple of days. A lot of products for sports injuries, fitness etc would probably be easier to buy online than through a shop due to the wider range available. 

though i see a see a bit of denial about e-comm in u. this post will surely create some awareness about the burst effects to all wanna be entrepreneurs.cheers.. ;) 

Agreed ! Ecom is Bubble and will bust all the cow boys and people showning jugglery in accounts will be sent home ,As per my prespective i feel only the Offline Big Retail Gaints like Future Group bigbazar,aditya Birla Group retail etc.

Can make it through in ecommerce space in india as they are trusted retail brands offliine,and can easily build offline customers to make purchase online as such their CPA would be ZERO and most customers will Purchase for facality

The Price Riots that newbies have created will soon END as 90 % will Bleed to death and 5 % will make TOPI to INVESTORS and 5% will be onces who will actualy Survive and Create value in Long term.
i strongly belive among that 5 %

20 % will be sites like ebay,flipkart and who have survived previous Bubble etc and 80 % will be Big OFFLINE RETAIL BRANDS selling Online.
As Mentality of Indian Customers is much Diffrent then US or UK customers here people are More Paranoid .



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