At
Ishan Institute of Management & Technology, the top PGDM college in Delhi
NCR, the academicians are still trying to come to terms with the reality of a
possible bursting of the Indian ecommerce bubble. Given that there had been a
mad rush of venture capitalists towards ecommerce companies over the last five
years it was a bolt from the blue when the faculty and students of the top
business school in Greater Noida woke up to the unfortunate pieces of news
flowing in from the print, electronic and digital media. The incident that we
are talking about is the deferring of joining of fresh hires from IIM A by a
renowned Indian ecommerce company. Yet
this is not an isolated event and is preceded by a trail of events that has led
to this mishap. In fact very recently Morgan Stanley has downgraded the company
valuation of an Indian ecommerce firm from USD 80 million to USD 58 million in
its filings submitted to the Securities and Exchanges Commission (SEC). In April 2016 there was top talent flight
from a major Indian ecommerce company who had been hired from Google for managing
product development. Amidst the flurry of all the bad news pouring there has
been an euphoria over the boom in the Indian ecommerce vertical for some time
now and it seems that euphoria is finally over and people have begun to wake up
and smell the coffee.
The
faculty team at Ishan Institute of Management & Technology, one of the top
MBA colleges in Delhi NCR have got into the act of data collection and
analysis. While it is too early to make concrete statements on the debacle in
the absence of reliable sources of information on the functioning of many ecommerce
companies operating in India, we have observed the following as the prima facie
evidence and reasons behind the debacle. Take a look.
User
Experience
Ever since Steve Jobs, the late Apple founder had
emphasised on user experience it had become the buzzword for product based
companies. Some of the big names in the ecommerce business vertical in India
let go user experience and traded it for price competition, making the user
extremely price sensitive and a bargain hunter. When a user replaces user
experience with bargain hunting, customer loyalty goes for a toss and sales
volumes from repeat purchases of existing customers goes down. It shall not be
an exaggeration to assert that many Indian ecommerce firms were actually
delivering best bargains on specifically one product line- smart phones. Focus on
a single product line while selling online, offline, on the web or through app
is a crime. The user is guaranteed to leave the company once he has had the
best bargain and move over to another online shop that offers him a better bargain.
More over the levels of product range, product quality and customer satisfaction
were compromised upon for a long time. Some Indian ecommerce enterprises used
to splash their names for all reasons like crowd funding, investment from VCs,
IPO and on boarding of top management level talent from Silicon Valley firms
but not for user experience. The product reviews on the websites of Indian
companies and those on the websites of its global competitors are poles apart.
Need we say anything more?
App
Only Strategy
In continuation of the anecdotal evidence furnished
above, the app only strategy of the top Indian ecommerce firm also comes out as
yet another recipe for disaster. The app only strategy does work well in
matured ecommerce markets like South Korea, USA, United Kingdom and China, but
certainly not in an emerging economy like India that was until few months back debating
on the utility of freebies like “Free Basics” from Facebook. While the smart phone
revolution in India is a reality, there are other metrics that tell the
complete story. There are some key technological drivers for an app only
strategy to succeed like high downloading speed, high surfing speed, coverage
of 3G network, density of payment gateway development and usage among smart
phone users for cashless transactions. These technological drivers hold the key
to an app only strategy to gain traction and critical mass. Sadly the realities
of India are not on the same page.
Gross
Merchandise Value
Perhaps the mother of sins was hidden in the revenue
model of major Indian ecommerce firms that stuck with gross merchandise value
(GMV) as a revenue parameter. While GMV has been a favourite with many
ecommerce firms in the recent past, there are serious flaws in the usage of
this metric. GMV uses the selling price as the revenue equivalent while
overlooking selling costs, advertisement and promotional costs, etc. This has
the effect of inflating the revenue side of the balance sheet and correspondingly
the profit margin. While this may work well in the short run to allure FIIs,
PNs, and VCs, people are smart enough to see through it as is evident from the
actions of Morgan Stanley and Fidelity investments. One year back when the top
PGDM and MBA colleges in Delhi NCR were busy doing case studies on the
investment boom little did they notice that the seeds of self destruction had
been sown and that these ecommerce companies were sitting on a time bomb of “deep
discounting” to compensate for the losses arising out of discounted sales with
VC funds.
