Description
This is a presenetation e-commerce business is just a bubble. and discuss the dot com crisis, or it is poised for higher growth
Earlier this year, there were several speculations about the e-commerce bubble finally bursting, especially with e-commerce portals like Taggle.com going out of business. Many feel that the e-commerce bubble which is being pumped with excessive cash for expansion will pop one day much like the dot-com bubble of 2000, while others are of the view that e-commerce is still the next big thing. One of the primary reasons that many regard this to be a bubble is the sky high valuations of e-commerce firms. Flipkart, India’s answer to Amazon.com, is valued at an astonishing $1 billion while having toplines of only about $10 million and the company yet to break even. This over-valuation may often give poor insights to investors as can be seen from the example of US e-tailer Pets.com that had its valuation reach astronomical heights only to quietly collapse and expire in a few years. The valuations can be attributed to accounting practices employed by some e-commerce firms based on the concept of future accrual of money. Thus with a low cost of entry attached to the e-commerce space, more venture capitalists and private entrepreneurs are funding the e-commerce business, in spite of relatively unproven gains. This trend has given rise to excessive competition in the e-commerce scene with margins thinning out, and firms being forced to compete on price. With customer acquisitions being done at the cost of selling below cost price, the industry may very well go into price wars in the future. Furthermore, countries like India are riding on the e-commerce wave without enhancing other capabilities like supply chain. This may prove fatal as the e-commerce business grows bigger. Also, the consumer mindset in these countries might prevent the e-commerce companies to actually realize all that they are set out to achieve, with a Big Bazaar still being overly preferred to a Flipkart. All these factors taken together are contributing in building up the ecommerce bubble. Yet, the advantages of electronic commerce are undeniable. E-commerce gives a distinct improvement on the previous model of brick-and-mortar companies, both on margin and reach. It has provided a quick and convenient way of exchanging goods and services both regionally and globally. One of the main reasons that one feels the e-commerce scene would not emulate the dotcom bubble is the exponential penetration of internet into the emerging markets. It is now an important part of the lives of north of 50 million users in India as compared to the limited access it had back in 2000. The number of online transactions taking place each day has increased many folds, and there has been a marked increase in its straddle, with e-commerce firms even venturing into niche categories. The e-commerce market in India is growing at an estimated 4045% on a CAGR basis vis-à-vis a global growth rate of 8-10%, and is likely to touch 50,000 crore this year. Even in the US, online retail sales are forecast to become more than half of all
sales by 20131. Yet many believe the e-commerce industry to be still in the nascent stage, and having a huge untapped market. The main drivers of this projected growth are attributed to the ever growing internet penetration, the fourth-quarter still remaining a dominant cyber-season, the success of flash sales sites such as Gilt, and customer trends shifting towards mobile shopping and social commerce. With startup e-commerce companies having rapidly stolen market share from traditional retailers in the past decade, many of these traditional players are being forced to deploy their own commerce websites. Hence, the future holds not only growth for pure-click companies, but also a transition from brick-and-mortar companies into the online space. Although these combined factors would only help boost the e-commerce market, there needs to be a consolidation and correction in the valuation of some of the players, so as to give a realistic estimate of future returns. The way forward for the e-commerce industry would be tricky, and even with a considerable amount of growth, there would be a constant weeding out of the weaker players, especially in the aftermath of the economic slowdown. Companies which have deeper pockets might be more able and would be likelier to survive. However, simply competing on price won’t do, as most firms would be offering similar price ranges. The ecommerce firms that are able to differentiate themselves from others based on other offerings and create a brand positioning for themselves shall come out on top. We may conclude that though some weak players may fade away, the e-commerce industry will continue to thrive. The proverbial bubble will not pop anytime soon. Coupled with a rapid growth rate and a transition in customer attitudes towards online transactions, ecommerce is poised to eventually change the way customers purchase things.
1
Source: McKinsey Global Institute
doc_836006739.pdf
This is a presenetation e-commerce business is just a bubble. and discuss the dot com crisis, or it is poised for higher growth
Earlier this year, there were several speculations about the e-commerce bubble finally bursting, especially with e-commerce portals like Taggle.com going out of business. Many feel that the e-commerce bubble which is being pumped with excessive cash for expansion will pop one day much like the dot-com bubble of 2000, while others are of the view that e-commerce is still the next big thing. One of the primary reasons that many regard this to be a bubble is the sky high valuations of e-commerce firms. Flipkart, India’s answer to Amazon.com, is valued at an astonishing $1 billion while having toplines of only about $10 million and the company yet to break even. This over-valuation may often give poor insights to investors as can be seen from the example of US e-tailer Pets.com that had its valuation reach astronomical heights only to quietly collapse and expire in a few years. The valuations can be attributed to accounting practices employed by some e-commerce firms based on the concept of future accrual of money. Thus with a low cost of entry attached to the e-commerce space, more venture capitalists and private entrepreneurs are funding the e-commerce business, in spite of relatively unproven gains. This trend has given rise to excessive competition in the e-commerce scene with margins thinning out, and firms being forced to compete on price. With customer acquisitions being done at the cost of selling below cost price, the industry may very well go into price wars in the future. Furthermore, countries like India are riding on the e-commerce wave without enhancing other capabilities like supply chain. This may prove fatal as the e-commerce business grows bigger. Also, the consumer mindset in these countries might prevent the e-commerce companies to actually realize all that they are set out to achieve, with a Big Bazaar still being overly preferred to a Flipkart. All these factors taken together are contributing in building up the ecommerce bubble. Yet, the advantages of electronic commerce are undeniable. E-commerce gives a distinct improvement on the previous model of brick-and-mortar companies, both on margin and reach. It has provided a quick and convenient way of exchanging goods and services both regionally and globally. One of the main reasons that one feels the e-commerce scene would not emulate the dotcom bubble is the exponential penetration of internet into the emerging markets. It is now an important part of the lives of north of 50 million users in India as compared to the limited access it had back in 2000. The number of online transactions taking place each day has increased many folds, and there has been a marked increase in its straddle, with e-commerce firms even venturing into niche categories. The e-commerce market in India is growing at an estimated 4045% on a CAGR basis vis-à-vis a global growth rate of 8-10%, and is likely to touch 50,000 crore this year. Even in the US, online retail sales are forecast to become more than half of all
sales by 20131. Yet many believe the e-commerce industry to be still in the nascent stage, and having a huge untapped market. The main drivers of this projected growth are attributed to the ever growing internet penetration, the fourth-quarter still remaining a dominant cyber-season, the success of flash sales sites such as Gilt, and customer trends shifting towards mobile shopping and social commerce. With startup e-commerce companies having rapidly stolen market share from traditional retailers in the past decade, many of these traditional players are being forced to deploy their own commerce websites. Hence, the future holds not only growth for pure-click companies, but also a transition from brick-and-mortar companies into the online space. Although these combined factors would only help boost the e-commerce market, there needs to be a consolidation and correction in the valuation of some of the players, so as to give a realistic estimate of future returns. The way forward for the e-commerce industry would be tricky, and even with a considerable amount of growth, there would be a constant weeding out of the weaker players, especially in the aftermath of the economic slowdown. Companies which have deeper pockets might be more able and would be likelier to survive. However, simply competing on price won’t do, as most firms would be offering similar price ranges. The ecommerce firms that are able to differentiate themselves from others based on other offerings and create a brand positioning for themselves shall come out on top. We may conclude that though some weak players may fade away, the e-commerce industry will continue to thrive. The proverbial bubble will not pop anytime soon. Coupled with a rapid growth rate and a transition in customer attitudes towards online transactions, ecommerce is poised to eventually change the way customers purchase things.
1
Source: McKinsey Global Institute
doc_836006739.pdf