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In 2016 over 1000 startups shut shop in India with e-commerce being one of the hardest hit. High cash burn, heavy discounts and costly logistics were stated as some of the main factors for their closure. The recent Snapdeal-Flipkart saga also reflects how volatile the market can get towards such models.
But the game for e-commerce is not over feels Devesh Rai, co-founder of online wholesale marketplace Wydr, who believes, it is a mere adjustment of market forces.
“I don’t think e-commerce is in any kind of slow down or shut down mode, it’s just a market correction that is happening , which is normal for any sector in the early years,” says Devesh Rai of Wydr. “A similar phase was seen for private telecom player when they entered, but with time the market adjusted. Similarly it’s a matter of time before companies in the sector come out of this phase” he adds.
Lessons to be Learnt
Rai, who also co-founded another prominent e-commerce player ShopClues, believes despite his positive bet on the e-commerce segment in India, there are crucial lessons to be learnt from the mistakes several players made in the past, the effects of which are being seen today.
“This is more like the second wave of e-commerce I believe where players can learn from mistakes made by the first lot of companies. The biggest takeaway I believe is the need for frugal spending, as a high cash burn model is not apt for this business model,” he said.
Need for E-commerce Models that Make Money
Most of the slowdown and losses in the sector has been blamed on the high discount strategies adopted by lead players in the market, leading to lower returns. In order to surpass competition, many smaller e-commerce players also hopped on to the discount bandwagon, without realizing that they may not have the capital to sustain such strategies.
“You need to me making money and not losing it," said Ben Mathias of Vertex Ventures, who feels unless there is revenue flowing in for each penny spent it is not a long-term business option.
Rai also resonates a similar opinion and has inculcated certain changes into Wydr’s model that prevents it from losing money. It helps ofcourse that his model is not consumer centric, but rather business centric and he wants it to stand as a pure aggregator.
“We don’t keep inventory, we don’t have any warehouses, and we don’t necessarily try and get into capital intensive commitments,” he said. “ For us the seller is the star and we want to promote him /her. It’s a platform for them to get in touch with their desired buyers, which we happily facilitate,” he added.