Why Indian e-commerce sites cannot replicate the Amazon success story
After burning billions in venture capital, Indian e-commerce companies are now realising that there’s no such thing as unlimited funding, impressive losses are a thing of the past and they need real profits. They must make available to their shoppers a wide selection of great merchandise at attractive prices delivered reliably and conveniently. And they have miserably failed on this accountanalysis Updated: Apr 05, 2017 13:45 IST
After burning billions in venture capital, Indian e-commerce companies are now realising that there’s no such thing as unlimited funding, impressive losses are a thing of the past and they need real profits. Investors who were hitherto encouraging entrepreneurs to acquire customers at any cost and show meaningless GMV (gross merchandise value) have all flipped in a snap and are now pushing the same entrepreneurs to urgently become profitable and the entrepreneurs are like deer in the headlights.
This situation is not surprising at all.
With so much capital and resources at their command, Indian e-commerce firms should have focused on building delightful customer experiences using the simple CAPS framework — Convenience, Availability, Pricing and Selection. Simply put, e-commerce sites must make available to their shoppers a wide selection of great merchandise at attractive prices delivered reliably and conveniently. And the harsh truth is they have miserably failed on this account despite promising so much. Today they are facing a relentless onslaught from Amazon — the gold standard in online shopping globally who is rapidly luring away all people through excellence in customer experience — and probably ruing the fact that they could have done things differently.
As a shopper, can you think of a single reason why you would shop at a Flipkart or Snapdeal over Amazon. Higher quality merchandise? Unique stuff? Better laid out website? Faster app? Lower prices? More reliable deliveries? Amazon’s increasing market share in India will provide the answers.
In reality, Indian e-commerce firms have been distracted from the core principles of online shopping. Have you ever wondered why electronic commerce is popularly referred to as e-commerce and not electronic-c? This is because despite all the technology hype surrounding electronic commerce, the business was, is and will always remain about the commerce. When you fly from Mumbai to Delhi, do you choose an airline that has convenient timings, low prices and a reputation for good service? Or do you evaluate carefully between Boeing and Airbus aircraft powered by Rolls-Royce or Pratt & Whitney engines? Will you shop regularly at a site that offers great service experiences or at a competing app which employs more computer programmers at high salaries?
There is an apocryphal story about a bright student, furiously writing his examinations, getting distracted by an irritating mosquito. He immediately squashes the mosquito resulting in bloody smears on the answer paper. A neighbouring student, blindly copying from this student gets flustered by this sudden action and immediately starts searching for another mosquito to squash on his answer paper as well.
Indian e-commerce firms have taken a similar approach in trying to do whatever Amazon is doing. Instead of building business moats around their ventures, they have gone down the anachronistic path of building a technology start-up because Amazon is a tech company by hiring a bloated staff of highly overpaid engineers, including from Silicon Valley, to aid them in their goal of building a very high tech consumer internet firm. This narrative also found enthusiastic favour with global investors who were happy to write big cheques supporting “consumer technology” firms because it was part of their portfolio strategy instead of funding entrepreneurs building sustainable ventures.
So, what’s the problem? Haven’t the likes of Amazon and Ebay built successful e-commerce businesses by being a consumer tech firm? Yes, they have. The problem is the timing. When Amazon and Ebay pioneered global e-commerce in the mid 1990s, they had no choice but to build their own technology platforms by hiring teams of engineers and they continued with this strategy as they expanded. Two decades later, thanks to the popularity of low cost (almost 1/1000th), fully featured, high quality SaaS (software as a service) platforms, hiring large teams of expensive engineers to build e-commerce engines is passe.
Worse, the mindset becomes a challenge. You think in a certain way when you start a technology firm with unlimited funding and then suddenly, against your wishes, you are dragged kicking and screaming to make a transition to a frugal merchandise and operations focused retail firm. This is a challenge that can destroy most organisations, which is what we are currently seeing all around us.
All’s not lost though. Indian e-commerce firms can still regroup and build business differentiators that Amazon will find hard to match. This is not impossible and they can learn from unarguably India’s best e-commerce company, IRCTC, who have nailed the principles of successful e-commerce — great problem solving and convenience with exclusive merchandise. Sure, we can be cynical and point out to government monopolies but that will be simply missing the point.
Which is exactly what’s been happening in India so far.
K Vaitheeswaran is the founder of Fabmart.com, India’s first e-commerce company and the author of the forthcoming book Failing to Succeed.
The views expressed are personal