There’s an interesting game being played in India for a few years now. It’s called the “Last Man Standing” game. Some of the players playing this game include Flipkart, Snapdeal and more recently Amazon.
Since the second innings of e-commerce which started in India around 2007-08, several e-commerce companies have already shut shop. This has been especially so in the last 2-3 years where smaller players with shallow pockets could not sustain the deep discounting offered by the bigger players. There are others which have been forcefully merged with another company with common investors.
Simple trading logic tells us that if you buy something for Rs. 100 (including all associated costs) and Sell it for Rs. 110, you make a profit of Rs. 10.
E-commerce in India works differently. Let’s take the example of Flipkart. In the Financial year 2013-14 (Source VCCircle) , Flipkart had losses of Rs. 400 Crores on a Revenue of Rs. 179 Crores. Since Flipkart is a marketplace, Revenue refers to the actual Revenue and not the Gross Merchandise Value which is the price of products sold. So for every Rs. 1 in Flipkart revenue, the company actually lost Rs. 2.23.
Flipkart is not alone in this game. Amazon lost 321 Crores on a revenue of 169 Crores. Snapdeal lost 265 Crores on a Revenue of 154 Crores. That’s Rs. 1.9 (Amazon) and Rs. 1.7 (Snapdeal) loss per Rs. 1 in Revenue
The bottom line is that every e-commerce player in India continues to lose money and justifies that ( I believe) as a customer acquisition cost.
Nice Game! How does this continue and when does this end? Well, to continue the game, the investors need to keep pumping in more and more money till you are the only company left and then you don’t need to do it any more and can start dictating terms and hopefully make profits.
Look at how much money Flipkart has raised till now – $2 Billion.
Also notice how desperate Flipkart has been to raise more money in 2014. This game is not over yet. Those lines are going to get steeper in 2015. The amount of money that needs to be pumped into Flipkart will be several billion dollars more before we reach a stage where Flipkart can confidently say that they are the last man (or 1 of 2-3 men) standing.
While there is something fundamentally wrong with the way e-commerce is being approached in India, it is the consumer who is laughing all the way to the bank right now!!