India is probably the most heavily invested market for ecommerce, with players from global giants to Chinese cross border sites trying to maximise their growth in this historical land grab.

Jeff Bezos apparently admitted that the key mistake he made in China is not being aggressive enough and not investing enough. And he doesn’t want to repeat it in India.

With ecommerce still being a tiny percentage of total retail, the big platforms will probably continue to invest to push for growth.

Profit is almost certainly not an immediate concern for these platforms.

Jio it!

This landscape is further complicated with Reliance launching and ramping up its own ecommerce business.

Reliance Industries chairman Mukesh Ambani announced plans of entering ecommerce last year

Reliance is a formidable, long-term player with deep pockets. By combining the forces of Reliance Retail’s physical stores and Reliance Jio’s digital infrastructure they can scale at a fast pace.

Years of experience and infrastructure in physical retail give them various advantages. Their existing 5000+ Jio point stores (plus 50,000 more in the making) will provide sales touch points for a large base of offline customers.

Additionally, using these Jio point stores eases last mile connection as consumers can choose to pick up their orders here. Reliance can also tap into existing network of suppliers who cover a breadth of products from grocery to electronics to fashion to everyday needs.

Also, Mukesh Ambani, head of Reliance, is known for his audacious, costly bets. Jio is a clear demonstration of that.

He invested a whopping $33 billion in Jio’s 4G broadband service which has connected more than 230 million users (this is only increasing exponentially). Jio has especially worked well in rural markets because they did better than their incumbents in 4G coverage. Jio is also believed to have a high average customer engagement level (290 minutes a day). This is something Jio will tap into to generate revenue opportunities with ecommerce.

With more competition, for big platforms profitability remains far even if they cared at this stage.

Others in the ecosystem

However, ecommerce is not only the big platform, there are many other players in the ecosystem, including sellers, distributors, and service providers.

For many of them, especially those which are not venture funded, making money is the only way to make sure the operations are sustainable. This is especially applicable to sellers who actually sell through ecommerce, on platforms or through independent sites/social media.

However, there are many challenges preventing profit from happening.

First is competition – where small sellers have the most disadvantage. This is the case in China, where thousands of small sellers compete in the massive ecosystem of Taobao (or other, smaller platforms such as Pinduoduo). Many are selling exactly the same thing.

There are differences in China though – first the market volume is much bigger, allowing more smaller guys to survive and allowing money spent on marketing (through Alimama maybe) to give more returns; second is that precisely because of the depth of the market, small sellers find other platforms when Alibaba (or Pinduoduo moving forwards) push them out in favor of bigger ones or brands.

In India, where the volume is much smaller at the moment – it is more difficult for small sellers to make a bang. And of course, without explicitly saying it, you know who the big platforms prefer. There is a reason why the government is tightening (or enforcing) rules on foreign ‘marketplaces’.

Second is basket size – many of the orders in India are simply too small to make economic sense to sellers, when you factor in the marketing, payment and logistic costs.

Third is infrastructure – despite huge amount of money raised by Delhivery, the whole ecommerce delivery infrastructure is far from perfect. All these add to the costs and squeeze the already thin margins.

The last is, well, to understand consumers – put it simply, what sells, what does not, what sells but will not sell very soon. Any mistake in this would cost a lot in wasted marketing dollars, unsold inventory and much more. As ecommerce behaviour is still largely promotion-driven, it is quite hard for sellers to make accurate predictions. We heard for platforms it is pretty hard too.

What to do?

If you believe in the potential of the market and the profitability of whatever you are selling once each part of the ecosystem improves to a certain degree, you should stay put.

However, do not focus too much on just operating – spend money wisely, reiterate fast, and catch the right timing to scale.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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