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Alok's Posts / Startup

Will E-commerce and Deal sites crash the Indian Internet Party!?

So, I just read that Snap Deal deal site has raised 50 million US$ as a new series B round.

 

Also, the Wall Street Journal reports that Flipkart is raising 150 million US$ at a 1 BILLION $ valuation.

 

Will deals like these CRASH the Internet Party of India?

 

 

I keep remembering 1999-2000 with the outrageous fundings of Bazee.com, Indiainfo.com and the holocaust that followed.

 

Yeah, Yeah – I know all about the ‘This time its different’ and ‘India has 100 million Internet users’ etc argument, but I am not convinced.

 

E-COMMERCE

 

– Honestly speaking, E-Commerce and after sales etc is almost a commodity business. I can understand that many years ago, operators could not speak properly to customers (like Govt. PSU employees still do today) –  but that concept is now understood by everyone of us – e-commerce entrepreneurs for sure.

 

There are manuals and manuals of how Zappos.com etc are managed and I dont think that pre and after sales ‘delight’ etc is a major value proposition in itself to create value for e-commerce.

 

– What is to be expected of existing brick and mortar shops? Will Crossword shut down or will they resurrect into click + brick ? Will BigBazaar lie low and not attempt to maul the Internet E-commerce business themselves?

 

– What about Amazon and the BIG BRANDS that have descended here? Tell me to log into Amazon.co.in the day it launches (for the same books and music I want to buy from Flipkart) and BOY – I will switch my loyalties in a minute

 

– Will India shop like the USA does? Will e-commerce be a ‘fancy novelty’ like Snooker tables and Bowling Lanes for young Indians to be abandoned at a whim? I mean what do young Indias read nowadays anyway? My point here is that ‘e-commerce’ may not mimic what has worked in the USA

 

– Margins – we see this a typical death spiral as it happens when lots of money chases one vertical. Every Ram, Shyam and Dham will start offering better and better margins to customers to shop (discounts) and better and better value to goods providers (Brands) – thereby becoming a marginal business.

 

– Finally customer acquisitions! How will a positive ROI be maintained for the same set of consumers (urban Indian)? I mean you cant do ‘Village road shows’ to get villagers to buy on e-commerce sites, can you?

 

DEALS

 

– I DONT get it. Last time I wrote about SnapDeal offering me a good deal to visit a DENTIST!

 

– Can deals be forced down consumers throats just because the Company that does deals got funded? The question I ask is – can TAKING DEALS be made a new consumer habit in India?

 

– In the USA, with  the level of GDP AND a propensity to spend MORE than what you earn, combined with the VARIETY of things available, I can have deals on Hot Air Baloon Rides, visits to Alcatraz Prison, a discounted tour of the Rocky Mountains and even 100 parachute jumps for the price of 50. How many INTERESTING DEALS can we expect in a country where people dont eat every day?

 

– In the DEALS business also, like I mentioned above,  very soon, deal sites will begin BRIBING the Brand to allow exclusivity to offer a deal of that brand on their site. This happened in the OOH (Out of Home) media business here. Websites in their quest throw deals at the SAME consumer will very soon be OUT OF POCKET (rather than earning 50% margins) just to prevent the other website from offering the same deal.

 

– And again, the cost of Acquiring customers. hahaha – I think a deal site will spring up to offer DEALS to other Deal sites just to get new customers!

 

All said and done, I HOPE I AM WRONG.

 

There are some sincere, hard working entrepreneurs trying to create a real and sustainable value proposition business the real way in the Internet space in India. They dont want a rich bitch to come in, get drunk and then vomit all over the place and shut the party down.

 

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20 Comments

  1. I hope these work or I sure will die poor!!

  2. E-comm site still need to pull socks on logistic &  packaging with capability of shipping what is show in catalogue … recently had a funny experiences with babyoye 

     

    Deal site will burst if they just sell coupon of merchant with poor service or product…. deal site should also think of  luxury deals with high ticket size for audience who can pay Rs 5000 for Massage  

  3. Cool one! Although I would like to differentiate deal sites with a site like Flipkart.

    — Deal sites don’t create any differentiation, model can be easily copied and targets only the customers who would never pay for a product/service in case the deal goes off!

    — Flipkart on the other hand has created a very strong back-end, both operation-wise and customer satisfaction wise. Even if Amazon comes to India it’s not easy for them to replicate Flipkart coz its not just about partnering with dealers or partnering with Courier companies. Its much more than that. A value is created which can not be easily duplicated.

    For e.g. we see tens of group deal websites but only few like flipkart. 

  4. Apple and games – The ONLY 2 businesses which Alok seems to understand ‘nowadays’. Remember meeting him at one meet, and one young entrepreneur was explaining his business… and Alok says ‘Dude.. forget all this… think of games..humans are mentally tuned to play games’!! I mean WTF!! Agree games is huge and Alok has made it BIG here but that doesnt mean… everything else is bullshit… been tracking Alok since C2W… just seen the ego meter ramp up by the day… but yes end of the day you have the money and the success to flaunt it… but would still like to see the old Alok (lesser air and more humility)

  5. Rohit, you forgot socks!!! Tha’ts another business I know very well!

  6. Alok – It’s good to see Flipkart making a 1B valuation – they have worked really hard for it. I am a loyal flipkart customer (for books!) and I like their service – possibly that’s why I’m happy with their progress. Out of so many e-comm start-ups they had the tenacity to stick around!

     

    We all know Amazon is coming to India soon and Flipkart will possibly be the first acquisition target for them! Amazon needs to learn nuances of India – mainly cash on delivery and consumer preferences – which Flipkart has learnt over a period past few years.

     

    Deal sites – we all know, they do not create any customer stickiness for their own site. Urban India only likes flat 50% off kind of deals at known brands. So far, none of the sites have really offered any deals which would excite. I don’t want a massage at a place I do not know or at a place 20Kms from where I live, neither do I want to buy and outdated blackberry model, which is available at the same price on ebay!

     

    I could only give good wishes to VCs who claim to know more than the entrepreneurs do, and still put money behind me-too concepts!

  7. So, Flipkart is MORE VALUABLE than Naukri, Jet Airways, India Bulls Real Estate, Shoppers Stop, Educomp ???? Check – https://bit.ly/trh-flip

  8. Lets assume that ebay made a sound investment into Baazee :

     

    If you compare Baazee’s acquisition price in 2004, there’s a 20X increase in valuation of Flipkart ($50 million BZ  vs $1 billion FK) when registered users are about the same (1-2 million) and revenues are 7X better now ($2.2 millon  BZ vs $16.6million FK).

     

    The punt therefore being made is, of course, the size of the Indian internet, rather than the type of business itself – India had 17million users in 2004, and is now apparently at 100 million.  But that’s only 7X.

     

    Digging deeper, it’s Flipkart’s projections of $100 million in revenues by 2012(!),  (45 times what Baazee’s were in 2004) and $1 billion in 2015 that’s likely behind those valuations.

     

    So, Flipkart is betting on it’s ability to make about 6X improvement in revenues by 2012 in either:

    a) its’ revenue per user (1 million users now spending $16 million, therefore each spending Rs.750 annually should increase to around Rs.4800) – possible by selling more types of products and maintaining it’s service quality – implies newer types of logistics and follow-up sales issues

    b) it’s number of users ( 1 milllion, should grow to 6 million) – through aggressive advertising, but sure to be challenged head on by ebay and lots of other 

    c) the Indian internet volume (100 million, to grow to 600 million) – this seems very unlikely – if it does, it will be at the rural areas in India and its’ consumption would not be for purchases that you find on a flipkart.

     

    (a) seems doable, and likely what they are focusing on. 

     

    To get to the $1 billion mark in 2015, (10x over 2012), it’s only going to be through (b) and (c). And that means 60 million users or 6 billion connected.  That looks like a very tall asking rate : All of Your Internet Are Belong To Us !

     

  9. mk – i think u missed the softer points:

     

    – Bazee had 30mn in the BANK – so eBay bought CASH + Enterprise. The real value of Bazee was 20 crores

     

    – Also, IMHO, transactions of acquistions upto 100 mn are based on opportunity, what may happen (as we both know – Mochi (60mn), Open Feint (100 mn), Social Gold (40 mn) etc – BUT higher values are more skewed to real business and PE multiples

     

    – The biggest point – 1 BILLION IS THE POINT OF ENTRY for General Atlantic – they will feel comfortable when the EXIT is 10 billion (the companies listed above are all MATURE and fully ripe) – SO work your maths now with 10 BILLION $$$ in Enterprise value of FK?!

  10. Alok, my point is that the problem is not about whether it’s a deals site or a trading site – the problem is the projection of the size of the Indian internet economy.  

     

    The Economic times is projecting 46,000 crores (that’s $1billion, or $1000 million) in 2011 itself.

     

  11. @Jyoti – I am aware of Amazon India hirings and in know of things from close quarters. I am sure you’d know that most of these are development positions. It’s one thing to get stuff developed here and quite another to do business here. Yahoo India experience is quite well known in this regard.

     

    While, I do not hold brief for Flipkart, I understand that they are building huge capabilities in e-retailing. Though, personally, I have never ordered anything else except Books from them!  

     

    All said and done, !1billion valuation is still way beyond comprehension. I am sure investor’s know things which we don’t!

  12. Don’t know if there is anybody else in the Indian internet business space who dares to speak his heart out as well as you do 😀

     

    Keep it up! 

     

    http://www.prateekshah.com

  13. Convergent Validity Alok. Another person whose views I closely follow is Mahesh Murthy (ref Seedfund and Pinstorm).

     

    Here is an article in Tehelka, which was published and I’m pretty sure it must have been read over and over again, but for the eyes of all Rodinhooders. He lovingly calls this impending Bust, another classic case of US market Myopia.

     

    https://www.tehelka.com/story_main50.asp?filename=Ws020811OPINION.asp

     

    Top line and Bottom line of the article points to only one thing – The Numbers Don’t Add Up. 

  14. Groupon updates IPO filing, admits it’s unprofitable

  15. Deal Sites in India are still in nascent stage and considering the demand side they are still very very small. Its far away from being a bubble, keep aside bursting. The deal ecosystem is growing.

    Manual aggregation can never be chosen by one, that’s what is felt by many foreign deal aggregation sites. Yes the automated aggregation and their partial filtering is fine. If we are talking about deal forums then its understandable, but there, people produce and vote. So produce all and get selected is the key. Though there will be a group of people who will ask for value add. I think putting them at one place and making basic tables is value add for everyone.(Deal sites as well as consumers).

    By the way take a look at https://dealspeaks.com. Dealspeaks.com is a free, user-driven deal sharing site with a mission to provide consumers an avenue to collaborate and share information in order to make the best shopping decisions. Dealspeaks achieves this by providing its users a forum for communication and various shopping tools. Dealspeaks.com prides itself on being user and community focused, never allowing paid placement for frontpage deal listings.

  16. So Rodinhood Saab, what I, as an entrepreneur understand is this:

    1. Flipkart is not worth 3 Kingfishers or 2 Akamais (I am a Baniya Boy, you see.)

    2. The real problem are the ’emotional’ investors.

    So if I had a good venture going, I would

    a. Never raise more than what my business and market could handle. Raising more means I spend stupid, trying to grow faster than my market or my business can fundamentally afford.

    b. Would never raise it at valuations higher than what I deserve. Results in unwanted pressures and expectations. I can’t possibly take a break from growth for a few months if my business so demands.

    c. NEVER do PR about my business or investment. It is this PR that harms the most. Suddenly VCs would get ‘high’ one night and start investing in all copycats that claimed to do my job better. The opportunity would get blown out of proportion and suddenly, my nice and solidly profitable business would be turned into a painful zero margin play. So, for a return, I would then depend on the very same hype, that I created to boost my ‘ego’ as a ‘great’ entrepreneur. In fact, business only need so much PR. There are tons of super successful business out there being run by Marwaris that we have never even heard of.

    Please, shed some light.

  17. awesome stuff.

  18. Cynics always have all the fun! if they are proven right, they will say,’ See I told you, it was coming’ if proven wrong, just take on another issue to batter down and life goes on. Plus it doesnt cost much. Creating a ‘Dumb, Me-too, ‘Deal” Website and supporting it with the entire logistics chain does cost, both in terms of money, sweat, and lots of hard work.

    an old saying, unless you have tried, how one could say what would work? let there be thousand not hundred deal websites. those not giving value will die. but there will some who will survive and may turn out to  be next online walmart. For one Flipkart or EBay created online, let there be 1000s others to bloom and then die. it will still b net value for all of us.

    it is another matter that i have just not liked flipkart taking over letsbuy. it just doesnt add up. something not very nice is going to happen in this sector in near future is my prediction

  19. Too good!! specially para C

    Too much hype attracts unwanted attention and spoils the party. even in real life and in a real party!!

  20. Well said Lastly!!!!

    RICH BITCH GETSDRUNK N VOMIT

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