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e-Commerce in 2014 – Wave or Yet Another Dotcom Bubble
January 10, 2015

e-Commerce in 2014 – Wave or Yet Another Dotcom Bubble

With the increasing dominance and rising popularity of the Internet as a medium, the euphoria around e-Commerce and its prospects has been on the rise, not just in India but worldwide. The buzzword has caught the imagination of a vast number of entrepreneurs, investors as well as technologists. 2014, however is not the first time e-Commerce has been the talk of the town. Markets still have bitter memories of 1999-2000 when a new kid in the block – The Internet brought along with it the promise of the ability to seamlessly transact and fulfill online – e-Commerce was coined. What happened subsequently was a blind gold rush of sorts with Investors and entrepreneurs both missing the basics of business and pouring their funds into an endless pit of freebies without any firm revenue model. The resulting dot com bubble is a well known event which may mandate volumes to describe in detail.

The discussion point here though is, with the renewed interest and even success of few like Flipkart and Amazon, and many more joining in, is there a likelihood of another bubble? Or is e-Commerce Ver. 2.0 that we see today in 2014 a phenomenon marked to stay and thrive well into the future? I would like to present my views where I am inclined to believe that the phenomenon will not only stay but grow more, and set your ideas rolling as well with few quick points

Learning’s from the Dotcom bubble

Most of the sites that failed miserably during the dot com bubble burst never had a proper revenue model, apart from drawing eyeballs to advertisements. Even those sites that tried to sell online were a bit ahead of its times, specially in India where credit card penetration and online transactions were sparse as compared to what we have today.

Between 1999 and 2014, we have businesses existing as well as new which have realized that the Internet is a channel and will succeed only if the underlying systems is robust and follows the bare basics of business. For instance, a site selling designer clothes, with great website experience and secure payment, cannot simply work unless there is good logistics, stock maintenance and returns and exchange policy. Companies have learnt that and made that a part of their online commerce
Internet access through multiple devices

Perhaps the first tryst with ecommerce for most Indians, specially smaller towns has been IRCTC railway booking. People were encouraged to give up tech phobia and even access the Net through smart phones, whose cost barrier is far less than that of a laptop or a desktop. Mobile apps have also made transactions very user friendly and easy. This has effectively added to the green pasture audience for whichever business that wants to sell its wares online
Online Payments and Security

Inspite of incidents of cybercrime, people in India are getting increasingly comfortable transacting online. For those who are still averse, there is Cash on Delivery being offered as well by quite a ecommerce sites. Looking back at 1990s this was not the case
Rich User Experience

Today what differentiates website is not just pricing, but the overall user experience from viewing, comparison all the way to payment, checkout and delivery. Isn’t it a fact that quite a few of us would prefer buying from Flip kart or Amazon as compared to NaapTol.com in spite of higher prices? Apart from the pricing and the inherent reputation, you may also agree that the simple and richer user experience on the preferred sites is far superior

Risks and Pitfalls

Having elaborated about the brighter prospects of ecommerce in the coming days, it would be fair to assess some of the risk factors for ecommerce providers as well:

Risk of Failed Offers

In an attempt to lure more and more customers, ecommerce companies have doled out many offers. The greater concern for the business is that a good deal of these offers include deep discounts, and ‘No questions, money back’ return policy, which are very expensive and non-sustainable. Internet indeed got itself a bad reputation of being a “free lunch” medium, that still remains in some of its quarters.

There have been even business models like Group on and Snap deal in its original form which gave huge discount coupons to its users, and offered marketers a promotional platform. The model showed failure in the long run, since most takers would only enjoy the freebies and not return for the full price. eg. A dinner at Marriot where one-time bargain-seekers lap up a discount and are unlikely to return for the full price deal. Snap deal and its likes have ever since changed their avataar to more of a marketplace website with reasonable (not unrealistic) discounts.
End-to-end Logistics

Companies like Flip kart infused huge amounts of cash into creating and maintaining a parallel to Fedex – eKart in India. For instant and reliable deliveries, which Flip kart thought would be its USP, they believed in investing big in that. However with investments like these Flip kart had to be in red for a very long time. It was good that their investors did trust them and held on and even infused more rounds of funding. However not all ecommerce providers can be as lucky, and well they have to risk it out with the existing channels of delivery – speed post and courier. Their service can be only as good as the service of the external logistics partner.
Transactional risks

With payments happening in the virtual world, a very large chunk of complaints that providers handle is that of unmatched payments, or even defaults. Blame it on connectivity, or the quality of payment gateways, the first time success rate of e-payments is very low in India. Unless a provider has a thorough system with audit trails of payments, there will be a huge pending pile of payment disputes and bad experience associated with the brand online.

Ecommerce will grow to become an excellent opportunity for existing offline brands as well as new online ones, as long as they stick to the basics of business and all its processes, may it be marketing or customer service; and respect the online medium as a channel. Ecommerce will however continue to remain a dark ditch pitfall for those who feel it is a perpetual money making machine with lesser investment that requires no maintenance and only technical expertise to set up and run a website. With these I would like to conclude my views, and invite your opinions on the topic.

Alok Sunghay M S

Analyst, Northern Trust

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Alok Sunghay M S

Analyst, Northern Trust

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