My previous post talked about how E-commerce in India might just be the next (late 1990s styled) bubble, with companies getting sucked into a quicksand sinkhole of perpetual discounting. Fickle brand loyalty in tandem with the looming fear of big conglomerates jumping the bandwagon is a serious threat to the existing players. Read the complete previous post here: Will E-Commerce Survive?
The reason for this mess is the inability of the e-tailers to differentiate themselves and create any sort of brand preference that goes beyond price competitiveness. This is a scenario where the products seem homogenous and competition is immense. It resembles a quasi perfect-competition situation which Peter Thiel would dismiss as the opposite of a monopoly business (like Google), the latter state being the ideal profit-making body every business should aim to move towards becoming. The survival of these loss-making competitive firms therefore is hugely dependent on the cash-laden cushion of VC funding. But, VCs themselves are investors who eventually want to seek returns from these start-ups. Eventually, VCs will pull the plug on those who couldn’t make it worth their while and these start-ups will either shut down or be acquired by the big fish. Market consolidation seems to be most obvious path ahead which will leave a few big firms in the game. Therefore, the E-tail industry will move towards becoming an oligopoly with a few big firms who will disengage from mutually destructive price wars and we will see non-price competition emerging at the backdrop of uniform and sticky prices.
The strongest players right now are undoubtedly Amazon and Flipkart. Let’s look at Amazon and Flipkart head-on. Amazon might already have a slight lead over Flipkart. Looking from how things are right now, the market is likely to consolidate around these two. In my opinion, Amazon is better placed right now to be the sustained market leader once the market matures:
First, its customer service is celebrated and people are more certain of replacements and after sales services when they buy from Amazon. Amazon operates guided by its well-known vision of being earth’s most customer centric company. Social media and Quora are full of praise for Amazon’s superior customer service. Look at this for example: Quora. The importance of exceptional customer service can not be understated for an industry that is disrupting a $ 600 billion offline retail industry that has existed since time immemorial. New customers hesitate and are always suspicious of the quality of product, warranties, replacements, misfit sizes and refunds. Amazon has been successful in placating anxious customers well.
Second, Flipkart lacks innovation. Not only was the entire idea of Flipkart a blatant imitation of Amazon by the Bansals who were former employees at Amazon, but also things like Flipkart First, bookseller turned all-purpose retailer, pseudo-inventory based model (see the next post for details) etc have been borrowed from Amazon. Innovation and disruption are ultimately what leads to success for a company in the long run. And between Amazon and Flipkart, I will definitely place my money on Amazon- also the one with the greater experience.
Third, sellers like Amazon over Flipkart. Flipkart competes with all other sellers through WS Retail. Though, Flipkart officially does not own WS Retail anymore, it is often alleged that has circumvented the law to show separate ownership of WS Retail (I’ll talk about this is in a future post)
Fourth, Amazon is partnering up strategically. Recently it partnered with the Future Group. “Under the partnership, Future Group’s current portfolio of over 40 brands will be retailed exclusively online through the Amazon.in platform, the companies said in a statement.” as per a Reuters report. Though this is not to say that the others aren’t doing the same, but Amazon has really hit iron where it is the hottest with its partnership with Future Group (yeah, I just made up an idiom).
Fifth, CASH. Amazon has much more cash to burn than Flipkart. Moreover, Amazon has always been willing to postpone short term gains for long term growth: Did you know Amazon has never posted a profit in all the years that it has been in business? It is not because Amazon is not profitable, it is because it ploughs back almost all of its earnings continuously into expansion and growth. On the other hand, Flipkart survives on VC money who eventually would want an exit-option to cash in their investment. Brand loyalty and differentiation are the ultimate panaceas of e-commerce as I had noted earlier. But the ability to invest into more products, acquire smaller players, adopt new technologies and big data analytics and so on needs sustained cash outflows atleast in teh short-term.
Though, at the end of the day, whosoever may survive this battle, the customer surely is bound to win!
Read up on how various companies have strived to one-up the rest, how they can differentiate themselves and what will drive profitability in a time when burning cash is the going catchphrase: Winning the E-Commerce Battle
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