Don’t let the ecommerce bust fool you

It seems that past 6-9 months have played out a full boom and bust cycle as far as ecommerce in India is concerned. Where as in july-august timeframe, 10 million dollar fundraises were being inflated to 40, and investors seemed to be willing to pay 5-8 times the gross merchandize value as premoney valuations, suddenly the world seemed to turn cold over past three months. What does this mean for entrepreneurs?

  • Customers continue to buy: Not unlike 1999/2000 experience, customers seem unaffected by all the kolaveri around. Keep the focus on customers and deliver great consumer experience – that is the essence of building a great business
  • Build a business, not transactions: The only currency of a good ecommerce business till now has been transaction volume. Now is the opportunity to answer more fundamental questions – why would customers buy from you (apart from getting products below your cost price), what really differentiates your business from the guy next door (no, really!), what will drive profitability in your business, which customers do you want to target and who do you want not to, etc. “Internet is cheaper than retail stores” is not enough anymore.
  • Time for innovation: Premium will shift back on great teams with propensity to innovate, rather than the best search engine marketer. If you do have a customer proposition that goes beyond discounting, can you run the business at 25%+ gross margins (including logistics costs)? How can you build a business without investing $100M in inventory, and still ensure great consumer experience? Whats uniquely Indian about ecommerce?
  • Investment is still available: Ecommerce in India is not a space that investors can ignore (even Mahesh is investing in ecommerce now :)) – they just seem to be correcting themselves to look at the right things.

Lets get back on the roller coster. The party has just begun!

11 Responses to “Don’t let the ecommerce bust fool you”

  1. Hrishikesh Desai says:

    While there is a great potential for e-commerce in the country it still needs to overcome several hurdles before making big money for investors. Infrastructure problems – abundance and penetration of payment platforms and poor logistics networks/fulfillment centers are major hurdles.

    Furthermore, most of the Indian e-commerce companies are focused on increasing transactions and not on building customer loyalty or increasing customer lifetime value. While discounts are a good way to attract traffic I am not sure they are a sustainable way to build business. A successful e-commerce business hinges on the customer returning and transacting on your site again and again. Whether many companies are worrying about this right now is questionable. Its just a mad race to offer free shipping, discounts, promos, offers and COD (this really obliterates margins) in the name of customer acquisition.

    For e-commerce to grow these things need to go or overcomed through some innovation.

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