Flipkart's triumph over Amazon India during seasonal sales may still be in the realm of conjecture, but India's e-commerce pioneer is worried for the homegrown online retailer for other reasons too.
The founder of India's first e-commerce platform Indiaplaza does not see Flipkart turning profitable - ever.
"Both are burning cash to acquire customers during their respective sale festivals, but I would worry more about Flipkart," says K Vaitheeswaran. "Amazon runs a profitable business worldwide and has a steady flow of cash to take on newer markets. They can afford to lose money - not Flipkart," he adds.
With e-commerce possibly not the bulwark for the Seattle-based company that runs a successful on-demand cloud computing platform, it may be a tall order for a ten-year-old startup to compete on both financial and technical grounds.
"In addition to AWS, its e-commerce vertical is also successful in many markets across the world," he goes on to add. "And the company will do whatever it takes to win this market too. Even if it comes at the cost of losing money for the next 10-15 years, it will not greatly impact their bottomline anyway," he adds.
According to Vaitheeswaran, what Amazon is spending in India is just a small fraction of what it is making around the world. "It is Flipkart which continues to go into a bottomless pit," he says. "Although they raised $2 billion recently, their spending structure puts them in a difficult position from a financial point of view," he adds.
Why sales are logical, but risky
Vaitheeswaran's entrepreneurial experience taught him that consumers have two kinds of spending habits - one that is need-based and the other which is impulsive. And festive season is when 40% of impulsive buys of the year happen - an opportunity e-commerce players cannot ignore.
"This makes it an apt time for them to acquire new customers, who can be lured with good merchandise at discounted rates," .. he says. "So on the face of it, it makes sense. But most of them are temporary customers who will move away from the platform when deep discounts disappear," he adds.
He expounds thus: "Say, a company spends a lot to acquire 'x' number of customers. When discounts stop, at least half will go away from the platform. When that happens, the cost of acquiring those customers doubles. Even without that, it is very difficult for a company like Flipkart to ever make profits."
However, according to the author of 'Failing to Succeed', customers who appreciate the unmatched convenience that an e-commerce platform offers would transact even without discounts and deals.
"These customers prioritise selection and ease of delivery over pricing," he says. "But a sale typically brings in more temporary customers, and that is my worry," he adds.
How to build a profitable business
According to Vaitheeswaran, e-commerce businesses should be built organically. This means that every transaction that is made on the platform should be profitable.
"This can be done by focusing on selection, convenience, delivery and great customer experience," he says. "In other words, a company should build its business based on permanent customers. One cannot build a sustainable business around temporary ones," he adds.
The founder of India's first e-commerce platform Indiaplaza does not see Flipkart turning profitable - ever.
"Both are burning cash to acquire customers during their respective sale festivals, but I would worry more about Flipkart," says K Vaitheeswaran. "Amazon runs a profitable business worldwide and has a steady flow of cash to take on newer markets. They can afford to lose money - not Flipkart," he adds.
With e-commerce possibly not the bulwark for the Seattle-based company that runs a successful on-demand cloud computing platform, it may be a tall order for a ten-year-old startup to compete on both financial and technical grounds.
"In addition to AWS, its e-commerce vertical is also successful in many markets across the world," he goes on to add. "And the company will do whatever it takes to win this market too. Even if it comes at the cost of losing money for the next 10-15 years, it will not greatly impact their bottomline anyway," he adds.
According to Vaitheeswaran, what Amazon is spending in India is just a small fraction of what it is making around the world. "It is Flipkart which continues to go into a bottomless pit," he says. "Although they raised $2 billion recently, their spending structure puts them in a difficult position from a financial point of view," he adds.
Why sales are logical, but risky
Vaitheeswaran's entrepreneurial experience taught him that consumers have two kinds of spending habits - one that is need-based and the other which is impulsive. And festive season is when 40% of impulsive buys of the year happen - an opportunity e-commerce players cannot ignore.
"This makes it an apt time for them to acquire new customers, who can be lured with good merchandise at discounted rates," .. he says. "So on the face of it, it makes sense. But most of them are temporary customers who will move away from the platform when deep discounts disappear," he adds.
He expounds thus: "Say, a company spends a lot to acquire 'x' number of customers. When discounts stop, at least half will go away from the platform. When that happens, the cost of acquiring those customers doubles. Even without that, it is very difficult for a company like Flipkart to ever make profits."
However, according to the author of 'Failing to Succeed', customers who appreciate the unmatched convenience that an e-commerce platform offers would transact even without discounts and deals.
"These customers prioritise selection and ease of delivery over pricing," he says. "But a sale typically brings in more temporary customers, and that is my worry," he adds.
How to build a profitable business
According to Vaitheeswaran, e-commerce businesses should be built organically. This means that every transaction that is made on the platform should be profitable.
"This can be done by focusing on selection, convenience, delivery and great customer experience," he says. "In other words, a company should build its business based on permanent customers. One cannot build a sustainable business around temporary ones," he adds.
Secondly, they must ask themselves what they can do to make people shop with them 'instead' on their rival's platform - not 'also'.
"This is the fundamental question which has bogged me for the last 10 years," says Vaitheeswaran. "The answer to that will have a mix of merchandising and convenience and never pricing," he adds.
Thirdly, a company should go back to the boardroom and decide whether they want to make profits at all.
"This is the fundamental question which has bogged me for the last 10 years," says Vaitheeswaran. "The answer to that will have a mix of merchandising and convenience and never pricing," he adds.
Thirdly, a company should go back to the boardroom and decide whether they want to make profits at all.
"I vaguely remember reading something about Flipkart not even planning to make profits, and seeing burning money as part of the strategy. I am not saying that they will make profits if they plan to - but what I know for sure is that they will never stand a chance to make profits if they do not plan it," he says.
Commonly dubbed the founder of India's first e-commerce company, Vaitheeswaran seems absolutely sure that its top rival in India will continue to provide outstanding customer experience. "They are not going to run out of money. More importantly, the key reason why Amazon has succeeded in building non-ecommerce businesses as well is because they truly are a tech company. They are creating things and innovating along the way - Flipkart is not," he says.
Commonly dubbed the founder of India's first e-commerce company, Vaitheeswaran seems absolutely sure that its top rival in India will continue to provide outstanding customer experience. "They are not going to run out of money. More importantly, the key reason why Amazon has succeeded in building non-ecommerce businesses as well is because they truly are a tech company. They are creating things and innovating along the way - Flipkart is not," he says.
He also does not see Flipkart growing a profitable global business outside its turf such that they will be able to subsidize its e-commerce business in India.
"Flipkart essentially has been reproducing and in a sense copying what Amazon has done in other parts of the world," he adds. "And even if it were to branch out to non-ecommerce businesses, I cannot see Flipkart creating a business that is so innovative which the Amazons or Googles or Microsofts of the world have not thought of already. It may be possible theoretically, but practically impossible," he further adds.
"Flipkart essentially has been reproducing and in a sense copying what Amazon has done in other parts of the world," he adds. "And even if it were to branch out to non-ecommerce businesses, I cannot see Flipkart creating a business that is so innovative which the Amazons or Googles or Microsofts of the world have not thought of already. It may be possible theoretically, but practically impossible," he further adds.
No comments:
Post a Comment