Open FREE Demat Account

The Future of E-Commerce in India

E-Commerce is not new to Urban India but what is the Future of E-Commerce in India …Recently, we saw lot of activities in this space like Flipkart bought, announced its indirect entry in India through  & of-course PE / VC investments in various E-Commerce ventures like

Sometimes i feel, Are we going overboard in this space or Is india ready for E-Commerce revolution….Currently, India does not have any Govt Policy for E-Commerce Business and its running on Hit and Trial Method…The legal & regulatory environment is also not conducive for E-Commerce Business…Many entrepreneurs are diving into this space with their ideas without any clue on Future Business Model and plan for Long Term Sustainability…

When i analyzed this whole space, i found basically 3 Business Models have evolved over a period of time in this space and each has its own Pros & Cons…Rest all business models are mix and match of any of following 3 models..Lets study & evaluate 3 Core Business Models and find out which Business Model can survive in Future or Will be successful & Why?

Model A (EBay Model): In this model, the role of E-Commerce player is to bring buyers and suppliers on single trading platform i.e. to create a Mall or Common Market Place..Prominent player following this model is EBay so i will call it a EBay Model….Following are Pros and Cons of this Model

Pros of EBay Model:

1. Possible to create Very Large Market Place i.e. Large Product Portfolio in terms of One Stop Shop for all requirements..Also customer can select from  multiple brands.

2. Ease of Management: EBay’s role is restricted only to manage Technology and Marketing of platform

3. Competitive Rates becoz of cut throat competition among Sellers

4. Less Capital Intensive i.e. Cost of Operations is very Less i.e. No Warehouse required and Logistics is controlled by Sellers.

Cons of EBay Model:

1. Low Margins: Margins in this business model is normally between 4%-6%

2. Success of this model is dependent on external partners as EBay can only monitor the quality aspect through feedback mechanism from buyers but cannot really control the same therefore customer satisfaction is not in direct control of EBay which goes against principle of marketing.

3. High Risk in terms of Charge Backs & Disputes by Buyers: With large scale of operation and large no of sellers on board, the customer disputes will bound to increase

4. Many Seller might sell products without Bill/Invoice becoz of which they can sell at much lower rates though most of them mention it indirectly that product is under dealer’s warranty which implies that  product is being sold without paying taxes like VAT etc  and Manufacturer will not cover the product for warranty…

Model B (Flipkart Model): In this model, E-Commerce player control end to end value chain i.e. right from procurement to delivery is controlled by service provider..Flipkart works on this Model therefore i will refer this model as Flipkart Model…

Pros of Flipkart Model:

1. Scale of Operation gives high bargaining power to Flipkart therefore cost is low

2. High Margin Business: Margins in this business model are between 20-25%

3. Probability of repeat business is high becoz end objective of Flipkart by managing complete value chain is to increase customer satisfaction and reduce costs

Cons of Flipkart Model:

1. Logistics: Logistics can either be pro or con but in current scenario Logistics is a major headache for all E-Commerce players…Though Flipkart manage approx 65% logistics operations but still it has to rely on logistics of suppliers & 3rd party provider for 35% of deliveries…The biggest problem of managing logistics is that it increase the cost of operation exponentially, if not managed properly & efficiently. In long run, if Flipkart manage logistics well then it can also become killer USP for its success but only time will tell this.

2. Limited Product Portfolio: Managing own warehouse or product inventory adds to cost of operation becoz no company can create unlimited storage space. In this scenario company can only provide limited product portfolio without scaling up warehouse capacity. For any company, It is very difficult to manage Learning Curve of Procurement, Inventory & Logistics…Even a small misjudgment or miscalculation can add to cost becoz any inventory lying unsold for long not only occupy space but is also opportunity loss for company

3. High Investments: Huge investments required in such models in order to manage and control end to end value chain

Model C (Snapdeal Model): This model is totally different from rest 2 models, In this model the E-Commerce player does not sell any goods/service on its own but offers discount coupons which can be used by buyers to avail discount at the time of buying Good or availing Service from Merchant..I will refer this model as Snapdeal Model  but original concept is copied from Groupon

Pros of Snapdeal Model:

1. E-Commerce player is only Technology Provider therefore very less hassles in business operations…Normally a team of 2-3 sales executives are hired in each city to tie up with brands for discounts

2.  Cost of Operations is very Low compared to other models

3. Very Easy to Set Up Business Operations

4. Lot of upcoming Brands / Merchants are available for tie up

Cons of Snapdeal Model:

1. Ultra Low Margin Business: The margin in this business is very very thin and can be as low as 25 Rs per coupon

2. Unknown Brands: Normally heavy discounts are offered by brands which are new or not known becoz they want to build their customer base by offering huge discounts..Known brands would not like to tie up with these websites becoz it actually devalues the service and products.

3. Discount is available otherwise also: In Most of the cases customer find that discounts are available without buying discount coupon also…I will take my e.g. wherein i purchased discount coupon from 1 well known site and when i reached restaurant, i came to know similar offer is also available for other customers under some festival offer of Restaurant…

4. Managing coupon logistics is difficult as it require lot of coordination with merchants so that same coupon cannot be used multiple times.

5. Profitable Business only if Huge Volumes can be committed to merchants: Merchants are keen to provide discounts only if high volumes are committed else they find it difficult to manage as front office staff is not intelligent enough to handle or understand this model at merchants end

6. Marketing cost to generate traffic on website is high

7. E-Commerce player should understand the Local Flavor well so that deals are appealing and relevant

After analyzing all 3 Models, we can conclude that Ebay Model has very high probability of being successful becoz of its inherit advantages in terms of of Ease of Managing the business, Cost Advantage by creating competition among sellers, Reliability Factor by incorporating Sellers Feedback Mechanism & Peace of Mind to customer that supplier will get money only after he will receive the product else amount will be refunded back to buyer…All these factors are very important for Indian Customer Psyche and according to me EBay Model is best suited for Indian Markets & is Future of E-Commerce in India.

Copyright © 2011-2012 Nitin Bhatia. All Rights Reserved.

Notify of
Newest Most Voted
Inline Feedbacks
View all comments
12 years ago

Hi Nitin,

An interesting post. However I have some views of my own.

First of all there is no snapdeal model … Coupons business model has failed globally as well as in India. Reasons being less than pleasant customer experiences at merchants and also a fact that merchants never get long “term customers” since a customer from deals site always looks for a deal.

Infact snapdeal has also realized this and has changed its business model and started focusing on traditional ecommerce business.

Coming to Ebay Model
Ebay has been there for quite some time. Ebay’s model (B2C) is very difficult to work in India because in India people are more comfortable to buy from someone who is ready to give a guarantee. Usually sellers are so small in scale and they always seem to be dubious after reading through all the descriptions/specifications/product pictures. Also ebays sells new as well as second hand products. Indians sometime dont realize this they go after the cheapest product and they later complain that they have got “used” product.

Ebay model can work very well in India for B2B segement (Alibaba is doing that in China). However this is already being catered by in India. I believe even after its recent push (another effort) ebay will fail to gain traction.

Lastly Flipkart
Flipkart is going ahead of times. It is investing hell lot of money in warehouses … employees(fixed cost) and was thinking that it will be able to sustain an exponential growth trajectory. But the fact is that ecommerce is a cut throat competition model. Each product is available at 10 different websites out of which 9 will be offering it at a rate cheaper than flipkart. Flipkart went too fast in investing into logistics and distribution which is killing them now. Fundings have dried up … flipkart is burning almost $3.5 million per month … with approx $70m it got from Tiger (my estimate :) ) … it has already given $10-12m to letsbuy (y?) and some in inventory and some in Logistics. I believe they have cash enough for 10-12 months and can be one of the biggest failure in ecommerce space.

Some additional business models
Vertical ecommerce plays
Most of the vertical ecommerce plays in India (offering one product category) are at breakeven. But the problem is that by pumping more money they are able to get more customer per additional customer acquisition cost is super high… so they still remain at break even. No doubt investments required here are less as compared to a horizontal player and any investor in vertical model in my opinion is banking on some bigger foreign player buying them out for India entry/expansion in next 2-3 years. But I dont think returns will be anything spectacular here also.

So the question is what is profitable and which model to follow?
I would say a model which has less inventory and other fixed costs. How it can be achieved is also tricky. To achieve this it has to be a combination of ebay and flipkart model. A company owns the ecommerce website and is selling all the products under its name. But at the backend there are some 20-25 distributors across India who are supplying the products to the customer actually. You will save on logistics as well as fixed costs. You can focus on attracting customers. You have to work very efficiently with a team of note more than 200 employees and manage all the operations centrally. Gradually you can build your own logistics.

Let me know what do you think on

Nitin Bhatia
Nitin Bhatia
12 years ago
Reply to  Saurabh

Hi Saurabh, thanks for sharing insights and i really appreciate your deep understanding on topic..

As i have seen ECommerce operations quite closely therefore i can take liberty to share my views on model suggested by you

1. Normally big distributors play volume game and work on minimum commitment model…If i am an Ecommerce player then its very difficult for me to commit volumes until unless i have very large scale operations (which again is very difficult to acheive as u rightly mentioned there are so many sites providing same product).

2. Real Estate in India is too costly and managing a ware house in big cities is too costly affair, which only increase your cost…Secondly E commerce player can’t work on Low inventory as it delay the shipments and can cause dissatisfaction among customer..Today customer can’t wait even for 3-4 days & want delivery within 24 or 48 Hrs

3. India is vast country and even global majors in logistics like DHL etc are not able to crack the logistics mystery of India so we cannot expect this from players like Flipkart…If Flipkart manage front logistics still reverse logistics is not in its control therefore its not feasible at all to manage end to end logistics becoz in India no one has invested to create sustainable and reliable Supply Chain management System..The players who tired have failed.

Sometimes back i read a book from Sun Tzu “The Art of War” & is very relevant for business…It mentioned that if u open too many war fronts then u r bound to loose as u cant focus on any..Similary for E Commerce player, the war fronts are many like To generate website traffic through marketing, Manage Warehouse, Manage Logistics, Manage Distributors or vendors, Manage customer complaints, manage E Commerce Platform etc therefore its asking too much..My personal opinion, they should only focus on Marketing & providing technology

In order to succeed, its better to outsource like the way Walmart did and put in place checks to control quality..Now E Commerce player has to choose whether to control entire chain and increase customer satisfaction or to Manage only front end by putting quality checks in place…I will bet for 2nd one becoz as an E Commerce player, i would like to focus more on generating traffic and managing customer issues…I will out source rest all operations to 3rd party and over a period of time, i will have learning curve based on customer feedback mechanism depending on which i can decide which all sellers i will retain and which all i need to dump…

Before writing this post, i ordered multiple items with all 3 i.e. Snapdeal, E bay and Flipkart…On Ebay, i purchased through Power Sellers and these people are very much concerned about feedback and they also mention numerous times to raise concerns (if any) before posting feedback…In one of case, the seller refunded back the amount paid as i was not happy with product to avoid any negative feedback from my end…Also we know on Ebay the feedback is shared by only actual users…Secondly in this case Ebay is not concerned about logistics and inventory and only job of Ebay is provide platform to buyers and sellers…Lastly EBay provide guarantee that payment will not be released until customer receive the shipment and also all shipments are time bound i.e. if customer don’t receive within 5-7 days then amount will be refunded but actually the delivery is received within 2-3 days ..I think in Indian scenario, this is the best they can offer…

I will still bet for EBay becoz its a Mall kind of shopping experience and as a shopper i myself can choose the Seller of my choice based on feedback…If u check rates on both Ebay and Flipkart, The rates of Ebay are lowest becoz of competition among sellers & at the same time we cannot rule out dubious sellers initially but they will be out of business soon as they will not be able to survive in cut throat competition.

Pls let me know ur views on same..Tks

9 years ago
Reply to  Nitin Bhatia

Hi Nitin,
Nice article giving complete details how e commerce business is operating in india…

We are also seller registeted in snapdeal platform.

as you mentioned in ur article snapdeal tie up with merchant for discount coupon is not correct..

I like to know how they sale our in lesser price ? I mean to say if we list product X @ Rs 100 and suppose they pay us Rs 94 after deducting commission , courier charges, collection fee etc…how they offer same product to custome at Rs 90/ even we gets full Rs 94′- credited in our account.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Birendra

E-Commerce companies are burning cash which they received as a funding from foreign partners. Because of this reasons none of the e-commerce company is profitable.

Rahul Gombhar
Rahul Gombhar
11 years ago

very excellent explanation of future of e-commerce with a great example.

Chirag Vora
Chirag Vora
11 years ago

The model which can give Cash on Delivery and also competitive prices will work to the fullest..

11 years ago

Great post Nitin – I am not too sure about the margins though – are you referring to Gross Margins or operating margins…large inventory led players are barely profitable…. Amazon managed only 1% operating margin in 2012 – Ebay managed 21% .. what are your thoughts?

Nitin Bhatia
Nitin Bhatia
11 years ago
Reply to  Varun

Hi Varun,

I am referring to net margins..Reason why large players with inventory are not profitable is becoz of huge cost involved in maintenance & management of warehouse + Logistics cost. Secondly locked/unsold inventory is opportunity cost/locked capital. In case of pile up of inventory, sometimes they need to clear the same at loss.

Considering these challenges, Ebay model is best though Net Margins are low.

9 years ago

Great knowledge about basis facts about eCommerce players in indian market It is very useful info for anybody who is planning to start ecommerce.

Vinay Ramveer
Vinay Ramveer
9 years ago

In this Snapdeal Can we see the analysis like how many customer Reach at my Product or How many Customer View mY Product??

Is there any option in Other e-Commerce website?

Reply for Same

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Vinay Ramveer

My apologies but i don’t have any info on this point as only Sellers on these sites can answer this. You can directly approach e-commerce sites for clarification.

8 years ago

Dear Nitin,

Its a very informative article. Plus i have gone through all explanations to the comentors. Can u help me with the approx costing for a new entrant ( who has no international partners to fund)?

There are websites like shopify. Can one start with it or is it expensive?

Looking forward to your reply.


Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Mayura

You may start with shopify to test waters. You may also check Zepo.

Shopping Cart
Scroll to Top