Is The E-commerce Space All About Capital?
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When Flipkart first hit the Indian market, it was one of its kind, picking up from the success of Amazon abroad, which also started with a narrow vision of just selling books online.
Today, some of the most valued start-ups in the world are e-commerce companies as a digital push has changed the medium where consumers are spending their money.
The latest Flipkart-Snapdeal acquisition saga is, however, a testament to how mergers and acquisitions within the e-commerce industry are largely about raising more and more capital.
Latest reports also indicate that Paytm Mall, backed by Chinese e-commerce giant Alibaba, may be in talks to bid for BigBasket, the online grocery store that has grown substantially, to possibly take on Amazon that is planning big bets in the grocery section in India. The pattern shows how only some of the big players, backed by huge funding, seem to be surviving long-term.
“It’s more or less a game of those who can pour in more capital with most players offering consumers the same product,” said Mohan Kumar, of Norwest Venture Partners.“If SoftBank pumped in a handsome amount into Snapdeal, they would be up and fine and running. Similarly, other large e-commerce players are all about those who have a bigger capital to keep running their operations smoothly as the sector is logistically heavy and requires a huge network of manpower, whether permanent or contractual,” added Kumar.
The recent acquisitions and mergers in the e-commerce scene were also a result of the capital expansion plan and less to do with the acquisition of innovative products or ideas, opined Kumar. Plus the margins are low in a competitive business like this, and hence only a large capital backing can somewhat cushion the losses faced by e-commerce giants.
What makes it worse is the ongoing bargains in the from of discounts given by these companies, as there is a huge cost involved in wooing consumers online in such a touch-and-feel category.
Not Understanding the Market
While capital is a big chunk of e-commerce companies survival, at an operational level, shallow understanding of the marketplace is another problem. For instance, Flipkart is still at a marginal advantage because it understood the challenge of logistics in the e-commerce market and currently operates most of its logistics in-house.
But not all players get the market that well.
“With challenges like workforce management and low margins, it is difficult to make that kind of returns with the same old model. Most players have just jumped in the market without even understanding what the need for their company is,” said Kumar. “Yes the battle was heating up in the e-commerce space sometime back when it was fresh, but now it’s mostly about the two or three big players who possess the maximum capital amongst the crowd,” he added.
The e-commerce space may be growing by leaps and bounds but so are its losses. The combined losses of e-commerce majors Flipkart, Amazon, and Snapdeal in India at the beginning of this year stood at INR 11,754 crore.