Stuck in a traffic jam a friend quipped – One day we will only have e commerce delivery people on the roads . Some will be delivering to customers but many to each other. I knew it was just sarcasm but what caught my attention was the way he put it. He was suggesting that while customers see little value in e commerce they somehow see a  lot of value in each other. The whole eco system was self serving instead of being focused on solving customer problems which was really the raison d’etre for this fledgling industry.

What my friend said was not some kind of dark humor but it was a man lamenting in frustration probably remembering the good old days when parking was free and you could walk into a store, exchange greetings with the owner, walk leisurely down the aisles picking stuff that you did not really want and come out all happy. Buying new clothes was more or less limited to birthdays & festivals and one looked forward to wearing the new attire and taking the blessings of elders.

But e commerce came and changed everything!Shopping for grocery was a waste of time( I wonder what people do with all those extra hours) and clothes could be ordered and returned some 20 times before you finally fitted in them. The new age consumer had discovered a new thrill , a new past  time, a new way to kill the hollowness in an empty urban life. The younger generation became the unsuspecting target of these peddlers of happiness – just click a few buttons and behold ! your happiness is on the way. Now, all of us know that if you give a heavy discount on anything consumers will flock initially but then they will evaluate the product or service for what its worth. Women, wrongly, were seen as most vulnerable among the target audience given that their response to deals is not always rational. But I guess they have their own way of looking at things which is beyond the calculative business mind. They would supposedly be the apostles of this mission to ‘convert’ customers but again it was conveniently forgotten that in order to preach you must be a believer first.

So the men with their fancy degrees and Marc Zuckerberg looks decided to take advantage of this unique opportunity of a thriving middle class going online by the millions and said we will change the way Indian consumer shops. We will get them in, sell them down and bring them back. And if they can fund commonplace ideas like Google and Facebook our idea of making a website, dumping products from every Tom, Dick and Harry and literally funding the customer to buy products from our marketing spend is just so out of this world ! Everyone started chasing scale because with the numbers the economies and with the economies the change in habit. Profound and yet so simple. With such a unique value preposition of getting products sitting at home at unbelievable prices why will anyone  ever go to a brick and mortar ( what fancy nomenclature?) store ? Then when they close down all the clumsy, space guzzling, non performing, inefficient outlets we will go in for the kill. Slowly, Slowly catchy monkey they thought but it was the customer who was actually setting up the trap.

The stage was set. Big conferences with  intellectual people from the start up industry were organized and a sense of euphoria got created. If you were not doing a start up by 25 you would rather be dead ! The Unicorn (read greenhorn) club got formed with the great motto – you scratch my itch and I will scratch yours. No question asked- only how much do you need and when ? What is the idea who cares? We are investing in the India growth story. After all every start up will not die. We have spread our risk well so no matter who succeeds we will make the money, the VCs told their principles. The Party began and everyone started having a great time- the customers were getting amazing discounts and superb service, the investors were watching the value of their investments soar, the entrepreneurs  were exiting from one venture to jump to another earning the respectable tag of being serial entrepreneur in the process. But like all good things this too had to end.

Around mid of 2015 the whispers started. The customer who was at the core of this ridiculous game turned out to be smarter than believed. The moment you took away the opium of discount she woke up and kicked you in the rear. New antics such as mobile only ( whose idea was that?), 2 hour delivery, group ordering, freedom sale etc.etc were tried but no matter what you did the customer made it clear, she wanted all or nothing. Indian e commerce was loosing its grip and forerunners of online revolution were dying everyday. The internet mafia realigned their strategy territory was defined, new money was pumped in, stakes were bought and sold but the net result – zero, back to square one. Who will break the bad news ? As in house of cards if one falls it will bring down the whole stack. Whenever the news of another start up folding up came people convinced each other that it won’t happen to us.

Finally, Morgan Stanley announced that it is devaluing its 1.5 % stake in Flipkart and the very next day the valuation of this poster boy of Indian e commerce went down by as much as 30 %. Imagine if Morgan Stanley had written off their investment !!

(You may also read: https://newsarena.in/end-of-big-online-discounts-new-fdi-policy/ )

Enough of sentimental analysis, lets look at some fundamentals as to where it all went wrong so horribly. We will take the points one by one so you understand easily and more than you someone in the Greenhorn Club club finally gets the message :

1. GMV or Grosss Merchandise value – This is at the core of “funding” and measurement of performance in the e commerce business in India. And it is most seriously flawed. Because unlike the unit economics where every time you sell you are supposed to make money in this case you were loosing it. So what was being measured was in fact how much more appetite you have for making losses or how fast can you “burn” the investors money by literally buying the GMV. There is a thing called deal decay and the law of diminishing returns so even if you continue to fund discounts you will not get the same response after a while.

2. Profit vs. Value – You ask the vegetable vendor on the street why he is doing this business and he will tell you in one simple word – Profit. But profit did not appear in the dictionary of Indian start ups. What is that? Lets talk value. Ok Value to the customer ? No, No value to the investor. Valuation of the business. Now while Profit makes a business sustainable valuation does not. It is more of a notion, a false hope which keeps going up and down with the sentiment in the market.

3. Footfalls vs. eyeballs and Customer vs. Shopper – As far as I know the Heisenberg’s uncertainty principle applies only to electrons and not to human beings. But in case of e commerce the same customer existed at the same time in the records of multiple websites. She had several windows open on her laptop and was comparing which site is giving the highest discount. In a real store this is not possible so when you measure footfall they are actual people who are physically present. And because there is a sunk cost they have an obligation to buy something or the other. But an online shopper ‘acquired” at great marketing cost can just close the laptop and walk away.

4. Competition – Ironically in a quote Jeff Bezos suggests that one has to be customer focused and not keep looking at the competition. You become a follower and you lose touch with what your customers want. In the musical chairs world of e commerce in India no one was really looking at innovating for the customer or what the customer would perceive as making a difference in their lives. Everyone was following everyone else jumping to offer a bigger discount at the slightest opportunity and they called it competitive strategy ! Even recently one of the champions announced “we will continue to fund discounts to win customers”. Really ?

5.Brand – For those of us who smoke or drink there is no confusion as to what a brand means. As one of my Gurus told me brand is what a customer is ready to pay above the perceived value of the product or service. Simply put it stems from a relationship beyond the transaction itself. If the customer is not ‘loyal’ to a brand then its a label, not a brand. If you apply these principles to any of the e commerce business most will fall in the label category – just another address that you type on your browser or an app that you have downloaded on your cellphone among many others ( including that of competition). Would you pack five different brands of cigarettes if you smoke Gold Flake when going for an international trip ? No way. But in this case, the same customer was not only shopping online from competitive websites but was even using prices comparison tools on others to get the best offer. Ironically, the investor could have invested in all three of them. A classic case of value destruction. Isn’t it ?

6. People – Whether its Sam Walton or Ingvar Kamprad or Kishore Biyani -they are business men, merchants at heart, innovators to the core, leaders. More than anything they are passionate about merchandising and retail.This is perhaps the biggest misgiving of the Indian E com story. The people who were leading the e com revolution were basically techies and coders. Many of them did not know abc of product or merchandising. They were financial wizards, seller of ideas and dreams, technology geeks, friends with the VCs. But in the end, they just did not have what it takes. There is a difference between sensing an opportunity and just being there at the right place at the right time. And while a retailer at heart like Kishore Biyani stood the test of time most of the newbies ran away like rats deserting a sinking ship when the going started getting tough. Even those working in the start ups were not dedicated soldiers of a disciplined army they were mercenaries and bounty hunters moving from one troubled dotcom to the other offering their dubious services to fix everything overnight.

I am sure having invested so much time reading this article you are looking for an ROI on your time spent. I can offer that to you in the form of my take on the whole situation. I firmly believe that the core principles of doing business or living life never change. Only those businesses which have strong fundamentals who strive to solve a problem or bring joy to the consumer will survive. Within the Indian e commerce space those who have identified a real problem For Ex. Bookmyshow.com which lets you have a confirmed ticket for the movie of your choice at your favorite venue at a price will thrive. My vote goes to them because they have the required scale and brand value to create a competition barrier. Also, the customer is fine with paying their fee which will make them profitable in a couple of years or even sooner. The next big idea is not about creating a variant of restaurant delivery service or dropping groceries at home from the Kirana shop. It is about doing this profitably. There must be a “value” trade off between the business and the customer. She should not only be willing to pay you for the product or service, she should be ready to recommend you to her family and friends. The ‘gold rush’ is over and now the rules of the game will be (re) formed. The online ventures with the might of deepest pocket may stand a chance but in the end it will really be about who has the Queen’s favor.