Description
Three days ago, the big giants like Flipkart, Amazon received a serious threat from the Maharashtra Government itself. Some leaders of Swadeshi Jagran Manch (SJM) which is an economic policy front of RSS had met the Finance minister Arun Jaitley and sought a ban on ecommerce portals as they are killing the domestic business
Case Study on Loophole for Giants -
FlipKart, Amazon & Snapdeal
Three days ago, the big giants like Flipkart, Amazon received a serious threat
from the Maharashtra Government itself. Some leaders of Swadeshi Jagran
Manch (SJM) which is an economic policy front of RSS had met the Finance
minister Arun Jaitley and sought a ban on ecommerce portals as they are
killing the domestic business.
This was in the news, however somewhere, it is true that the e commerce
giants like Flipkart, Amazon etc. are really affecting the domestic businesses.
Many of us, assumes that these giants actually uses the loopholes in the
laws and leveraging the Indian markets. Let us understand the actual
concept behind this, the idea, the revenue, the peak and the downfall.
Through the present of these companies is all time high, but the future is
really in the dark. Lets us have a look:
Evolution of the idea
Traditionally, when businesses were not able to sell their products, offers
discounts to increase their sales, however businesses were never happy to
offer the discounts because it not only sometimes reduces the profit, but
also results in losses. Discounts were basically the tool to clear the piled
stocks. However, in the modern age, some business thought that if the sales
really increases in the discounting period, then why not give discount every
time and why not leverage the increase sales every time. And that’s how,
the discount based model of business came into picture and since, the
market is always a price sensitive, then it was a fact that these businesses
will attract the customers. They adopted the discounts based models and
created a online market place, where anyone can come but the last price
will be controlled by the market place by offering discounts and other
schemes.
The High Engine Growth
After the evolution of this idea, the traditional cycle gets punctured and this
new means of doing business is creating havoc in the Indian markets. With
70,000 crores valuation, flipkart is actually leading at all fronts. Flipkart was
doing aggressive marketing, the one day delivery, high discount offering and
many more. At the same time, the Amazon, snap deals were also keeping
high. Revenues of all these companies are launching, reaching the billions of
dollars, and their commission income was also very high. Let us look at their
real incomes.
As per the table, flipkart is leading with 179 crores, next is amazon with
168.9 crores and then is snap deal with 154.11 crores. These figures reflect
that the battle for the top is really hard and it also suggest that the spending
on the discounts will increase to remain on the top and to be in business.
The unfold trap – the biggest threat
Everything looks good when we see these above figures, the valuation, the
publicity or anything except when we look at the audited balance sheets of
them. The most interesting fact about these giants is that no one has tasted
the profits yet. And surprisingly, the company which is on the top at the
revenue table, is also top at the losses table. Flip kart is having a loss of 400
crores, second is amazon at 321.3 crores and at last is snap deal with 264.6
crores.
Now, let us analyze these figures, the reason of these big losses, despite
having hefty net revenue, is the discount which attracts the customer. The
main component of the losses is actually due to discounts and advertising
expenses. Flipkart offers it the most and that’s why its losses are the
maximum. But the main problem is that flipkart, despiting knowing of this
fact, cannot do anything because this is what their business model is is all
about. If they had to be on the top, then they have to offer much discount
to let their prices less in comparison to other competitors.
Due to this trap, these companies creates a deficit between the revenue and
expenses and which ultimately met by the VC’s funds.
Other problems
Besides these traps, the government is now also in a mood to regulate these
e commerce portals. In India, FDI in multi retail is banned, however, these
companies are actually doing that online and this is actually a loop hole in
the law but it is never that intention of the government and therefore, it will
expected that in the next budget, the life cycle for e commerce players will
get tougher and tougher.
The Dark Future
With all the pros and cons of these e commerce giants, it looks like the
future is very dark. Despite having the high valuation, no business can
survive on losses. There will be an end. The discount based model will have
to discontinued, otherwise, the stakeholders in future may face a dot comm.
Bubble once again.
The Survival
Now, the question is how long will this system survive? Not too long.
Actually this battle between the e commerce portals has become a war of
funds. Since, the deficit is actually borne by the VC funds, therefore, larger
the pool of funds, the longer they will survive.
doc_534079723.pdf
Three days ago, the big giants like Flipkart, Amazon received a serious threat from the Maharashtra Government itself. Some leaders of Swadeshi Jagran Manch (SJM) which is an economic policy front of RSS had met the Finance minister Arun Jaitley and sought a ban on ecommerce portals as they are killing the domestic business
Case Study on Loophole for Giants -
FlipKart, Amazon & Snapdeal
Three days ago, the big giants like Flipkart, Amazon received a serious threat
from the Maharashtra Government itself. Some leaders of Swadeshi Jagran
Manch (SJM) which is an economic policy front of RSS had met the Finance
minister Arun Jaitley and sought a ban on ecommerce portals as they are
killing the domestic business.
This was in the news, however somewhere, it is true that the e commerce
giants like Flipkart, Amazon etc. are really affecting the domestic businesses.
Many of us, assumes that these giants actually uses the loopholes in the
laws and leveraging the Indian markets. Let us understand the actual
concept behind this, the idea, the revenue, the peak and the downfall.
Through the present of these companies is all time high, but the future is
really in the dark. Lets us have a look:
Evolution of the idea
Traditionally, when businesses were not able to sell their products, offers
discounts to increase their sales, however businesses were never happy to
offer the discounts because it not only sometimes reduces the profit, but
also results in losses. Discounts were basically the tool to clear the piled
stocks. However, in the modern age, some business thought that if the sales
really increases in the discounting period, then why not give discount every
time and why not leverage the increase sales every time. And that’s how,
the discount based model of business came into picture and since, the
market is always a price sensitive, then it was a fact that these businesses
will attract the customers. They adopted the discounts based models and
created a online market place, where anyone can come but the last price
will be controlled by the market place by offering discounts and other
schemes.
The High Engine Growth
After the evolution of this idea, the traditional cycle gets punctured and this
new means of doing business is creating havoc in the Indian markets. With
70,000 crores valuation, flipkart is actually leading at all fronts. Flipkart was
doing aggressive marketing, the one day delivery, high discount offering and
many more. At the same time, the Amazon, snap deals were also keeping
high. Revenues of all these companies are launching, reaching the billions of
dollars, and their commission income was also very high. Let us look at their
real incomes.
As per the table, flipkart is leading with 179 crores, next is amazon with
168.9 crores and then is snap deal with 154.11 crores. These figures reflect
that the battle for the top is really hard and it also suggest that the spending
on the discounts will increase to remain on the top and to be in business.
The unfold trap – the biggest threat
Everything looks good when we see these above figures, the valuation, the
publicity or anything except when we look at the audited balance sheets of
them. The most interesting fact about these giants is that no one has tasted
the profits yet. And surprisingly, the company which is on the top at the
revenue table, is also top at the losses table. Flip kart is having a loss of 400
crores, second is amazon at 321.3 crores and at last is snap deal with 264.6
crores.
Now, let us analyze these figures, the reason of these big losses, despite
having hefty net revenue, is the discount which attracts the customer. The
main component of the losses is actually due to discounts and advertising
expenses. Flipkart offers it the most and that’s why its losses are the
maximum. But the main problem is that flipkart, despiting knowing of this
fact, cannot do anything because this is what their business model is is all
about. If they had to be on the top, then they have to offer much discount
to let their prices less in comparison to other competitors.
Due to this trap, these companies creates a deficit between the revenue and
expenses and which ultimately met by the VC’s funds.
Other problems
Besides these traps, the government is now also in a mood to regulate these
e commerce portals. In India, FDI in multi retail is banned, however, these
companies are actually doing that online and this is actually a loop hole in
the law but it is never that intention of the government and therefore, it will
expected that in the next budget, the life cycle for e commerce players will
get tougher and tougher.
The Dark Future
With all the pros and cons of these e commerce giants, it looks like the
future is very dark. Despite having the high valuation, no business can
survive on losses. There will be an end. The discount based model will have
to discontinued, otherwise, the stakeholders in future may face a dot comm.
Bubble once again.
The Survival
Now, the question is how long will this system survive? Not too long.
Actually this battle between the e commerce portals has become a war of
funds. Since, the deficit is actually borne by the VC funds, therefore, larger
the pool of funds, the longer they will survive.
doc_534079723.pdf