The e-commerce companies, that once boasted of mind-boggling valuations and funding, have now stumbled to reality! It’s not all rosy in the e-commerce space as investors are becoming cautious about funding decisions in this sector and have begun to scrutinize business models more rigorously.
This year saw India’s unicorn Flipkart bruised with several markdowns from its investors and its U.S. counterpart wasn’t spared as well. Tiger Global Management slashed its stake in Amazon Inc. Industry experts believe that ecommerce startups (both big and small) should work on their business models, in order to win back investors’ support and get “real” traction on cards.
Lower customer acquisition costs; in-short stop splurging on discounts
E-commerce startups, which have been on a spending spree, need to take a step back and check on their cost of acquisitions. Several investors today, aren’t willing to place their bets on a model that uses absurd amounts of cash to gain customers.
“The primary reason is that cost of customer acquisition along with the discounts is far greater than margins or profit you can generate on a transaction. Hence more transactions to drive the top line resulted in even greater loss. They have to drive the cost of customer acquisition down , stop deep discounts and focus on customers who will be loyal and do repeat purchase. This will drive the top line down significantly but maybe you can show a path to profitability,” Mohan Kumar, Partner at Norwest Venture Partners said.
Companies need to think about what works for them and what doesn’t. Recently, Myntra announced that it would bring back its desktop platform back, realizing that the app only model was unable gain traction with customers. Understanding what works in an Indian environment will really help them get the right product out in the market.
Attempting to do the same, Snapdeal, run by Jasper Infotech Pvt. Ltd, launched a new version of its advertising platform Snapdeal Ads, which aims to help sellers target shoppers on the site based on behavioural data collated by Snapdeal.
Show some margins
One of the key criterias that will help get some investor love is margins. Investors are being very critical regarding unit economics and overall costs. This is clearly evident as companies like Jabong have let go of their low-margin brands, which includes three-fourth of their private labels.
Buying out your competition – the best option?
In a series of deals we’ve noticed that large unicorns are trying their best to amass market share by chasing companies that could help them do so. According to a report by Kotak Institutional Equities to company said, “We believe this (e-commerce) shake-up may intensify further, leading to the emergence of one or two strong companies within each sub-sector.”