The Indian government has stepped in more to regulate the ecommerce Industry. They are formulating procedures that would trim the ecommerce business. The intention they say is to protect the brick and mortar stores spread all over the country. However the whole thing is absurd.
This is one classic example of how the government usually behaves with complete lack of common sense. First they allowed foreign companies to run ecommerce ventures in the country. With more than a billion consumers and a improving middle-class, foreign and local investors have poured in tonnes of money as investment. With a high-inbound of cash into the business, the firm just doesn't know where to spend the money on. Because its all online - there is not even stores/parking expenses. All they need is warehouses and shipment centers. With competition also increasingly growing and with the intention of market dominance, these ecommerce firms use investor's money to offer irrational discounts on the products they sell in their platforms. So a product that has a cost price of Rs. 70/- and a selling price of Rs. 80/- in a outside shop, is being sold for say Rs. 50/- Who pays for the difference - its the investors money.
Every ecommerce firm tries to replicate Amazon.
Amazon has been a leader in the ecommerce space globally. With unlimited investor money looking for returns, mainly sourced from low-cost borrowing rates in developed countries - it became a ideal target. Business of Amazon has been expanding for a decade now exponentially and it is always considered the phoenix bird of the dotcom boom-bust era. The way the business model works - Amazon has reported loses every quarter for most of its lifetime. The shareholders did not gain much from their investment because of the lack of profit. All earnings were re-invested to grow the business. Jeff Bezos mindset is that, grow the business wide and high, the company will eventually be profitable. In late 2015/2016 is where Amazon reported a significant quarterly profit in a quarter since their inception. As soon this happened, investors started piling into the stocks and the share has risen from low double-digits to over $2000/- since then. Recently it has corrected to somewhere around 1500 bugs. On the business side, their ecommerce business has never yielded a significant profit in spite of their long life-span in the business. The reason is this - they do not sell the products for a "profit" in their platform. They sell a lot for a loss. The loss is compensated by the new investor money.
Internally within Amazon, these products are called C.R.A.P - acronym for "Cannot Realize A Profit".
To maintain the market dominance and rival the competitors in number of purchases/revenue, not a single day goes by without a strikingly discount-sale, that no other for-profit business would do. They would ship a 30-40 pound heavy dog-food bag to your house every week that costs $40. They would sell TVs to your house, the price would be lot less than what you would find in the nearest store and on top of that, they offer the shipping to be free. On top of that, if the TV is broken en-route, they would send a replacement. The cost the consumer pays is way less than all these that make it happen.
Consumer is god damn-happy he is getting the best deal and also it is all being door delivered. He saves on the effort and cost that takes him to go to the nearest store and do a pick-up himself. They deliver to the remotest of remote part of the country. All the consumer has to do - is stand-up from his sofa and open the door when Amazon delivery guy knocks in your door. This is absolutely good thing for the consumer. No question about that.
However for Amazon and its investors its a horrible deal.
What is amazing and mind-blowing, is the ecommerce firms are able to do this for so long and making Amazon's Jeff Bezos the richest person in the world.
One sad truth - Amazon has amazingly proved that such an illogical business model can work and prosper. Any company that does this will fail. Amazon will definitely fail as well.
The latest entry to this kind of business model is swiggy and Zomato. It is very hard to miss them on the Indian city streets these days. They have hired thousands of people who deliver food to customers who order using their mobile app. The prices are significantly low - sometimes its obvious it doesn't even add up for the expense on the food and the cost it takes to deliver it to the customer. Rs. 15/- breakfast for early users is common. For comparison - this same breakfast would cost at least Rs 50/- on the floor of the restaurant. These companies also lavishly shower money on their delivery boys. Apparently they earn more than Rs. 25,000/- a month. They operate like Amazon actually - first they offer unrealistic discount to get more people on the platform, buyout the competition, take a leader role in the industry - and it so turns up - they end up never raising prices to actual cost prices. They very well know as well its customers that customers will only be in the platform only until the discounts last. In a real-price structure the business would cease to exist. Once the prices are nominal or above nominal, the customers have no incentive to stick to the platform - either they would walk to restaurants themselves or would start cooking at home, which is lot cheaper. The biggest loser in this game when it gets over finally, is unfortunately the delivery boys. They have been delivering food for years. There is nothing to show for. They didn't acquire any skills or knowledge. Finally they don't have the lavish income too.
What is very amazing about Amazon, Swiggy, Zomato kind of companies is how long they survive? A early failure is good thing. They can be good ordinary companies that are serving customers well. They can't be these extra-ordinary companies which drives competition out.
This is one classic example of how the government usually behaves with complete lack of common sense. First they allowed foreign companies to run ecommerce ventures in the country. With more than a billion consumers and a improving middle-class, foreign and local investors have poured in tonnes of money as investment. With a high-inbound of cash into the business, the firm just doesn't know where to spend the money on. Because its all online - there is not even stores/parking expenses. All they need is warehouses and shipment centers. With competition also increasingly growing and with the intention of market dominance, these ecommerce firms use investor's money to offer irrational discounts on the products they sell in their platforms. So a product that has a cost price of Rs. 70/- and a selling price of Rs. 80/- in a outside shop, is being sold for say Rs. 50/- Who pays for the difference - its the investors money.
Every ecommerce firm tries to replicate Amazon.
Amazon has been a leader in the ecommerce space globally. With unlimited investor money looking for returns, mainly sourced from low-cost borrowing rates in developed countries - it became a ideal target. Business of Amazon has been expanding for a decade now exponentially and it is always considered the phoenix bird of the dotcom boom-bust era. The way the business model works - Amazon has reported loses every quarter for most of its lifetime. The shareholders did not gain much from their investment because of the lack of profit. All earnings were re-invested to grow the business. Jeff Bezos mindset is that, grow the business wide and high, the company will eventually be profitable. In late 2015/2016 is where Amazon reported a significant quarterly profit in a quarter since their inception. As soon this happened, investors started piling into the stocks and the share has risen from low double-digits to over $2000/- since then. Recently it has corrected to somewhere around 1500 bugs. On the business side, their ecommerce business has never yielded a significant profit in spite of their long life-span in the business. The reason is this - they do not sell the products for a "profit" in their platform. They sell a lot for a loss. The loss is compensated by the new investor money.
Internally within Amazon, these products are called C.R.A.P - acronym for "Cannot Realize A Profit".
To maintain the market dominance and rival the competitors in number of purchases/revenue, not a single day goes by without a strikingly discount-sale, that no other for-profit business would do. They would ship a 30-40 pound heavy dog-food bag to your house every week that costs $40. They would sell TVs to your house, the price would be lot less than what you would find in the nearest store and on top of that, they offer the shipping to be free. On top of that, if the TV is broken en-route, they would send a replacement. The cost the consumer pays is way less than all these that make it happen.
Consumer is god damn-happy he is getting the best deal and also it is all being door delivered. He saves on the effort and cost that takes him to go to the nearest store and do a pick-up himself. They deliver to the remotest of remote part of the country. All the consumer has to do - is stand-up from his sofa and open the door when Amazon delivery guy knocks in your door. This is absolutely good thing for the consumer. No question about that.
However for Amazon and its investors its a horrible deal.
What is amazing and mind-blowing, is the ecommerce firms are able to do this for so long and making Amazon's Jeff Bezos the richest person in the world.
One sad truth - Amazon has amazingly proved that such an illogical business model can work and prosper. Any company that does this will fail. Amazon will definitely fail as well.
The latest entry to this kind of business model is swiggy and Zomato. It is very hard to miss them on the Indian city streets these days. They have hired thousands of people who deliver food to customers who order using their mobile app. The prices are significantly low - sometimes its obvious it doesn't even add up for the expense on the food and the cost it takes to deliver it to the customer. Rs. 15/- breakfast for early users is common. For comparison - this same breakfast would cost at least Rs 50/- on the floor of the restaurant. These companies also lavishly shower money on their delivery boys. Apparently they earn more than Rs. 25,000/- a month. They operate like Amazon actually - first they offer unrealistic discount to get more people on the platform, buyout the competition, take a leader role in the industry - and it so turns up - they end up never raising prices to actual cost prices. They very well know as well its customers that customers will only be in the platform only until the discounts last. In a real-price structure the business would cease to exist. Once the prices are nominal or above nominal, the customers have no incentive to stick to the platform - either they would walk to restaurants themselves or would start cooking at home, which is lot cheaper. The biggest loser in this game when it gets over finally, is unfortunately the delivery boys. They have been delivering food for years. There is nothing to show for. They didn't acquire any skills or knowledge. Finally they don't have the lavish income too.
What is very amazing about Amazon, Swiggy, Zomato kind of companies is how long they survive? A early failure is good thing. They can be good ordinary companies that are serving customers well. They can't be these extra-ordinary companies which drives competition out.
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