Alok Kejriwal
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8 reasons why the E-Commerce Balloon In India is gonna burst..

8 simple reasons

1. PAIN vs PLEASURE

IRCTC is the biggest success in e-commerce in India.

It democratized Railway Tickets buying - the biggest pain point in the life of an Indian. At least the Indian who travelled in the '70s, '80s and '90s.

As a young boy, I was trained to go to Churchgate station, stand in a line and buy a ticket - in an effort to teach me patience.

The 2012 e-commerce sites are presenting goods that I should buy for PLEASURE. All kinds of stuff that may give me a kick once or twice but never forever. It's not a repeatable business.

I mean just check out the fancy wares on most of these sites.

Sure, I will buy sunglasses and t-shirts once, twice, but not as a regular habit!

8 reasons why the E-Commerce Balloon In India is gonna burst..

2. PULL vs PUSH

Most of the travel portals succeeded in India as the Internet picked up by then, by becoming accessible.

When we began to 'search' for Mumbai - Delhi tickets, the usual travel portals began to show up and consumers began to go to those sites automatically.

That was generic PULL traffic.

In 2012, if I wanna color my hair (i don't wanna), I will NOT go to the Internet and search for 'Garnier Hair Care' Color. That doesn't make sense to me at least. It's NOT typical consumer behaviour.

If at all I need it, I will go to the nearest Kirana Shop. Thats PULL.

Now, if a rich stupid funded site comes up and PUSHES me the color dye, then it's expecting me to behave abnormally (getting PUSHED to buy).

I will, but it will really cost the e-commerce site their business!

3. BUILD vs SELL

I came across someone yesterday who is leaving his cozy career to START an e-commerce dot com that he says will BE SOLD to Someone (he did not know who will buy it and why - but because it's e-commerce, Someone will).

His entire plan is to create a business that will sell out. To whom, and why, even God doesn't know.

When Make My Trip started out in 1998/99, Deep and his team BUILT a business they BELIEVED in.

It took 12 years for MMT to make that vision a success; with lots of scary moments thrown in.

They were in BUILD MODE and became a 1 billion dollar company.

My personal belief is that if you start a company with a SELL mentality from DAY 1, then you circumvent REAL value creation.

You build stuff that's fluff - not anything real.

And fluff NEVER gets bought.

4. COUNTRY vs THEME

If e-ventures invested in MMT in '99 and later people like SAIF supported them, it was because they were taking a Country call.

Their call was that INDIA will be an Internet economy - and all the successes of Content, Services, Communities that make the Internet throb will thrive.

In 2012, lots of VCs are taking e-commerce as a 'thematic' bet. They think, "Oh yeah, we don't have an e-commerce play, so let's invest in a couple of Companies".

Ha!!

What may be a "thematic" experience for them, may be a nightmare for the entrepreneur.

Because the truth is - VCs can change entrepreneurs as often as they like. But entrepreneurs can't change their own businesses just because they don't like it anymore!!

5. SERIES A vs SERIES E

Look around and examine the long term e-commerce sites in the USA. Even MMT or maybe Flipkart too. Count the many rounds of capital they have raised.

Look at the Capital consumption of Amazon.com!

These are businesses built on LONG TERM capital.

I ask - how many of the 2012 e-commerce sites will ever get refuelled?

With one bad year, a couple of more sites down, will their investors want to invest more money in something they thought was a "thematic" flavor of the year investment?

6. ENTREPRENEURS vs COWBOYS

Meet Deep Kalra. Check out the Entrepreneur DNA in him.

Then meet the 2012 jokers of e-commerce who are coming from plastics, warehousing, petrol pumps and God knows what, just to start "e-commerce". Some of them are freshly minted MBAs pretending to be entrepreneurs!

The 2012 batch of e-commerce Cowboys remind me so so much of the 2000 batch of Internet Wannabes who jumped into the fray at that moment just to be "in the Internet" business.

One bad jhatka of the horse and these Cowboys will be on the streets.

8 reasons why the E-Commerce Balloon In India is gonna burst..

7. PRICE vs PRIZE

Conceptually speaking, e-Commerce is supposed to make the PRICE of goods more economical for me. That's classical 'me-the-Economist' talking.

Now, this is NOT DISCOUNTS!

How do goods become "cost effective for me"?

- By reducing the COST of travel, efforts etc. that are involved to go to the physical store to buy the goods.

- By making GIFTING a Painless and Cost Efficient process (imagine buying gifts and lugging them to people the old fashioned way).

- By giving me the benefit of prices assuming that there is a mass purchase at the Buyer's end.

Sure, there are delights of buying special things that are not found elsewhere etc. etc., but routine shopping is for getting my usual things in the most cost effective (read price + saved time + saved energy) price.

Now, the 2012 gang are giving away their Goods like PRIZES!

They are discounting regular stuff, throwing price down the drain to make people BUY - even when they don't need the product.

Well, I have learnt in many businesses that the LURE of Prizes is very very short term.

8. VALUATION vs PROFITABILITY

Most e-commerce plays in 2012 are geared towards weird valuation metrics. They believe in things like 'Customer base', 'nos. of orders sold per day', 'value of goods sold per day' etc. etc.

These are nice juicy terms that are the season of a boom.

In a downturn, the vocabulary of valuation has only one word in it - that is VALUE.

Now, don't get me wrong. I personally run businesses that lose money but are still valuable ( I hope :-))

That's because the word 'Value' if NOT measured in money terms is in showing TANGIBLE ASSETS - like returning visitors, a leadership in the business category, an acquisition cost of consumer that is plummeting etc. etc.

If you buy a book for Rs 100 from a publisher and sell it to me for Rs 50 and write off Rs 50 as 'consumer acquisition' - that's a silly metric if I NEVER COME BACK!

It's like paying to acquire a ghost!

So, when the shit hits the turbines, all these fancy metrics are going to be put through the stress tests. Investors are going to ask WHY and not WHAT!!!

How many of these silly e-commerce start ups will be able to claim ANY value creation when they all look and smell and taste the same? If 28 sites sell the same Hair Color at the same price to consumers like me, who will never return again, then where and what is the value creation???

Also, financially, these 2012 guys have NO CLUE of the measurement of cost of acquisition of customers or the CONCEPT of lifetime value etc. The people I have spoken to believe that, "as long as we advertise, we will get consumers. These consumers will magically keep coming back to us and give us repeat buys. Via such loyalty, we will build a brand. And then on Diwali day we will get acquired".

I have never heard of a DUMBER pitch than that!

Alok blogs at http://rodinhood.com