This classic poem just came to my mind with name changes:

Bezos was in his counting house,
Counting out his money;
The VC was in the parlour,
Eating bread and honey.
The E-Com Investor was in the garden,
Hanging out the clothes,
When down came a blackbird
And pecked off his nose...

I was thinking of the 2 Billion of Amazon vs. 1 Billion of Flipkart discussion last week and was applying my mind to figure - what was the fight really about?

This led me to pull out Amazon's financials of the past 10 years, which (not surprisingly) is a story in itself: (click on the chart to expand)

These are the KEY takeaways:

Data: Amazon last raised (seems returned) money from the PUBLIC market in 2008 (that's the orange line shown by the black arrow when 8 million seems to have been returned (bought back). Note, the grey band is a 'recession' cycle in the USA.

Point: Amazon is a massively successful MARKET CAP Company that does NOT raise money from anyone. It spends what it EARNS. So skeptics - please note that Amazon DOES make cash - it just doesn't show it so easily.

Data: Look at the Purple Line - that's the CASH Amazon has on its books. Check how it gallops quarter on quarter.

Point: Amazon MAKES /INVESTS / LOSES (?) A TON OF CASH every quarter - See the light green line. This is the cash that Bezos throws around as and when Amazon wants to 'activate a market' etc.

Question is = Kaun Banega Kangaal?

In the case of Flipkart, I ASSUME that with the massive success of Alibaba's float, FK will list on NYSE/Nasdaq and provide a massive exit (with 1000 multiples) to the early investors and triple digits to other latter investors.

The question is, how will FK or any other Indian E-com business FINANCE itself AFTER the listing if these businesses (as we read and understand) continue to LOSE CASH every quarter (which is why they raise money in the first place)?

And, if these companies DON'T go public, then what will be the appetite of VCs to keep funding a cash war fight?

Question - in the next few quarters, can we imagine any of the current Indian companies to have a financial performance streak like Amazon's above?


- Amazon is NOT JUST E-COM! It operates the largest Cloud Services business in the world, whose profits (losses?) it does not break out!

- It has a MASSIVE digital business that delivers digital goods to digital devices (books, etc) that do not lose money like the delivery business here.

- It HAS a strong & POSITIVE Annual cash flow that Bezos operates like a shower and turns it on and off as per his pleasure...

Question is - will retail investors understand this when they buy new E-Com stock?!


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I think if Flipkarts Top Line show a profit, where it can benefit from is lower SG&A, because of the low labour and marketing costs in India (CPC for Indian traffic is horrible). Then again, that's debatable. Also if it can put significant pressure on the government, COD can be banned (in guise of it being a tool to siphon black money) which can significantly lower it's operational costs (at the cost of lowering business of course). Playing the devil's advocate. Personally I hate flipkart and love Snapdeal (gives better prices)

Nice thinking on COD... 

Check what I wrote on this


Yeah, so this is my first contribution to The Strategist of the Business Standard (10.9.2012)!

The complete article appears after the image :

Cash on delivery has been identified as one of the culprits responsible for the troubles of e-commerce establishments.

But the experience of Domino’s Pizza shows why this line of argument is all wrong!

I have been reading the horror stories about how the cash on delivery model of payment touted by the e-commerce companies in India is the root of all their troubles and may ultimately lead to their ruin. It is almost funny how one of the most innovative ideas of our time is getting blamed for the things it is not really responsible for.

I would say cash on delivery is actually one of the best things that has happened in e-commerce, or for that any form of commerce. Here is why:

I just flipped through the 2011 balance sheet of the publicly listed company that operates Dominos India and was amazed to note some jaw dropping statistics.

- This company shipped about 3.7 crore pizzas in the year, equaling to 1 lakh pizzas sold per day.

- The pizzas sold for a total of Rs 600 crore, translating into an average price of Rs 162 per pizza.

- The business operated via 380 stores in 90 cities; that is, approximately four stores per city.

- Each store sold approximately 1 lakh pizzas a year or about 300 pizzas a day. That’s about 25 pizzas an hour.

- The company recorded a net profit of Rs 90 crore. This equals to Rs 25 per pizza or a 15 per cent margin on the sale price.

I think this is awesome, considering that this business is entirely managed as a cash-on-delivery business. Also, if you review the size and scale of the operations they have, it resembles any gigantic e-commerce business.

So how can anyone blame cash on delivery as the culprit that ruined a business?

Actually, the pizza business in India teaches five important lessons to those who intend to execute the cash on delivery business model.

1. Cash is guaranteed when collected from home:

No one can run away from home. There is a Marwari saying that “If you run away with my money, I will come to your house to collect it.”

Imagine people giving you their home addresses to deliver and collect money. Can you get any more upfront? I doubt if anyone would like to rescind on a pre-placed order and kick up a fight in front of their neighbours over a small amount.

Lesson: getting called home is an assurance of getting paid. Leverage it.

2.  Personal sales provide the best reference check:

In the weary world of business, people are unreliable. Companies are even worse. Who can fight a big legal battle with corporations whose karma has clogged up the Mithi river (a river in Mumbai that infamously gets clogged and
causes floods)?

Now cash on delivery is a foolproof method of establishing creditworthiness. 

Once your name and home address is in the system, the seller quickly establishes if you have ever defaulted on your 
payment. If you have played truant, then you will not be supplied the pizza or the shoe you ordered. That’s too bad because it’s not easy to change your name or the place you live in at the drop of a hat.

Lesson: use cash on delivery as a means to establish creditworthiness. And when the market is ready, cross-sell that creditworthiness across business verticals so that it becomes a win-win.

3. Use cash on delivery to check ‘Intent’:

Consider the pizza sales again:

If 3.7 crore pizzas were sold just by one company, it’s very generous to say that at least 2 crore unique households in India bought a pizza (2 million crore x 2 pizzas = 4 crore pizzas per year).

Now, those who buy pizza in India are typically e-shoppers.

The numbers state that e-shoppers represent about 1 crore in India. And this is the same affluent, upwardly mobile community that can afford pizzas and printers delivered at their doorstep.

So while none of these households return a pizza that has been ordered, why do a staggering 45 per cent (according to a recent media report) of the same set of households refuse to take delivery of online goods purchased, when the courier reaches them?

If you do not return one out of two pizzas you buy, why would you return one out of two books you have e-ordered?

Lesson: New businesses using the cash on delivery model may want to collect small token amounts in advance to check ‘the intent’ of these happy-to-reject customers to ensure they pay up.

4. The 30-minute curfew works for pizzas, not for books:

If I am hungry and want to eat, it makes sense to promise me a pizza in 30 minutes or a free pizza if the deadline is not met.

But I ask, what is the urgency to ship a book with the same demonic speed while executing a book delivery? Will it matter if the book reaches me in a few days and not minutes? And hey, if I am so ‘hungry’ to read my newly ordered book, then ask me to pay double the regular charges for ‘instant delivery!

Lesson: New businesses relying on cash on delivery need to step back and ask themselves if they can spend less money on speedy delivery.

5. Cross-sell and cross-sell like crazy:

I am sure at one time or the other, we have indulged ourselves with those sinful garlic bread sticks and dipped them in that irresistible co-conspirator, the ‘cheesy dip’ that comes along. Coke and pizza get along famously and hence ordering a bottle of coke is logical when you order a pizza.

Another example. Haven’t we all seen those mini shampoo and moisturiser sachets embedded in women’s magazines? Or that perfume strip we carefully peel off and inhale as if it was pure ozone?

The point is that with every package delivered to someone’s house, there is a great opportunity to cross-sell domestic products which the same set of consumers could be encouraged and let me add, delighted to sample.

In the case of e-commerce companies, this is not a goldmine kind of opportunity; it’s a veritable diamond mine. Cross-selling and delivering samples do not cost anything extra in deliveries (the same courier boy achieves both jobs); rather it can easily change the fortunes of the fledgling e-commerce companies who say they lose money when they execute cash on delivery!

Given the myriad kinds of goods e-commerce companies ship out (books, electronics and home appliances), even a failed direct marketing student can build a simple ‘ASL’ or age–sex–location business model offering outside brands to ride on the e-commerce deliveries headed to consumers.

For example, if a microwave is headed for Mrs Sharma in Noida, the package can surely contain packs of free popcorn and ready-to-drink soups sponsored by other brands that would happily pay to reach their target audience directly. 

Let me add, Mrs Sharma will bless you.

This is why desserts and appetisers bundled with pizza deliveries work so well.

Lesson: allow partner brands to piggyback on the cash on delivery transaction. Extract money from them for home delivering to their target audiences. Even cross-sell that extra as a surprise for the buyers.

Cash on delivery must be examined as a business opportunity rather than a titanic blunder. There are very few businesses in the world that actually invite brands and companies within the sacred portals of their homes. Leveraging what is not easy but can be highly profitable.

So if you want to master the cash on delivery model for your business, then maybe you should start by getting onto a pizza diet.


Thanks! :) Nothing kills E-Com faster than COD not even OCD! :)

I love the credit worthiness idea. I think Myntra and other E-Commerce platforms already do that. And one of the reasons Flipkart acquired it included the database of rejects (because Myntra dealt in apparels the biggest COD reject category). Food i think people pay for, because they can't stay hungry. Early stage COD was cool, because it helped build the market. But now that the focus needs to shift to profitability without which we will see the famous term"Bubble", the market needs to be pulled away from it. I liked the EMI strategy they used. But even that is not sustainable, (and the banks being business minded that they are got the government to bring out a notification to make interest compulsory). One can be a limit on the transaction value. Like nothing below 1000 can be through COD as a rule. This is not that risky, because for something costing less than 1000 people won't bother to go to another website to try it from there just because of COD (this is debatable). For expensive things, people prefer going for EMIs. So that will leave a much narrower channel of products which will work on COD.

Really like the way this post is put together. Also, people who think Amazon doesn't make money should look deeper (as I pointed in another post).

Coming back to FK, it's a very tough situation they are in. Had they sold out couple of years ago, I'm sure people would have called the founders "sell outs" and given them "yeh to hona hee tha" crap. Had they not raised money with increasing pressure from Amazon's entry (which is financially much more stable and has the leverage to do whatever it takes to grab market share), they'd have died. Had they gone public soon, without raising money from VCs, its stock probably would have tumbled in a couple of years for lack of "returns". I personally think the founders did the best thing in such a scenario by raising more VC money -- and as for IPO, I guess it won't happen soon after the $1B funding. It's just too many questions in case of FK, but I think outsiders probably are not the best judges of what they ought to be doing. Whatever the outcome will be in few years, I would applaud the founders for having the b*lls to pull off something of this scale and sticking to their guns.


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