Decoding India’s e-commerce model

All Indian e-commerce giants are bleeding money, but are still pocketing multi million funding deals. That’s a mega paradox right there.

In 2014 alone, investors around the world fed a whopping $5 billion into Indian e-commerce. This includes leading venture capitalists like Tiger Global, SoftBank, Accel Partners, and BlackRock.

So what’s with the scramble around Indian e-commerce, and what do these investors see that we don’t?

Most industry experts believe that it’s still too early to draw a conclusion on India’s e-commerce potential. They argue that neither the automobile nor the telecom companies made any significant money in the first decade.

“The pedigree of the VCs investing in Indian e-commerce is undebatable. Each of these savvy investors would also have access to live data. They would be looking at very significant returns. Its high risks and very high rewards”, Arvind Singhal, Chairman at Management Consulting firm Technopak says.

To a layman the figures would scream that investors have completely lost their marbles chasing the Indian gold rush with the big money-big returns bait.

However, it’s important to note that the total private consumption in India including services is pegged at $7,000,750 billion. If the economy continues to grow at 7 or 8%, the real number would double in the next decade.

That’s a Trillion Dollar opportunity right there.

The current e-commerce scenario in India is a giant gamble with high rollers going all in with their big booties. Here everybody’s a whale, and everybody must pour in currency to keep playing, buy off someone else, or lose all in all and go home. It’s a long term cash brawl till all dry out of funding and a handful remain. The ones remaining will have vast riches there for the taking. The richer you are, the more you get.

In the US, Amazon and eBay are currently profitable. They are the two biggest players and neither offer ludicrous discounts. The focus has shifted from discounts to convenience.

While we may not have reached a finale with a single winner in India, the idea is a hit among investors eyeing the moolah, the companies themselves and definitely the customers. But what about the online sellers offering these discounts?

Most websites are online market-places where the website serves as middlemen to sellers who offer their products at discounted rates. Are these small time online sellers losing out on the short term? Recently six Amazon sellers complained that the company’s policies are so that Amazon controls everything.

“Most sellers are being reimbursed or funded by the website for the discounted prices they offer. The websites also have infrastructure in place to track rogue suppliers and buyers. However, it’s a buyer’s market ultimately”, Sandeep Ladda, Partner and National Leader of Technology Sector practice, PwC India says.

Indian e-tail is on steroids now, and there is no denying the fact that chasing the Great Indian E-com Dream is not for shallow pockets or faint hearts.

(Image credit: Indiatimes)