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Wednesday, September 16, 2015

The e-commerce space: Reality or Fluke

1997-2000 was a period in which stock prices of the companies working in internet and technology sectors, specially in western countries, soared. The stocks were highly overvalued, responsible for creating an image that the companies are making huge profits. It appeared that anyone with an idea could get funds to create an internet based company and transform it into a billion dollar enterprise. And then the bubble burst!

It was in 2001-02 that the investors lost approximately a Trillion Dollars and the great American dream finally crashed. Since the period was witnessing only the beginning of the internet arena in India, we were mostly insulated from the severity of the issues that were created as  a result globally!

Today with more than 300 million internet users in India, the internet penetration is still a long way to go. The internet population is around 19% and there is still very very little penetration except in Urban and Semi Urban areas.  India’s first advent of e–commerce came with IRCTC, which allowed passengers to book tickets online which led to easing the congestion on railway stations and became the first real success! Soon major airlines started offering tickets online.

Though online shopping in one format or another, was present since 2000 but the real popularity came when retailers like Flipkart, Fashionandyou, Bigshoebazaar (later started offering huge discounts and in a way re-launched online shopping in India.  Afterwards other portals like Amazon, eBay and several others joined the chorus.

Today anyone can log in and purchase anything from a needle to home appliances, clothes to jewellery, etc. with an option to return if not satisfied. The portals surprisingly   are attracting huge investments from venture capitalist and moreover are getting valuation beyond anyone’s imagination.

High profile people like Ratan Tata in his individual capacity are investing in such ventures and indirectly endorsing this model.  The only hitch/confusion with the model is the huge price differential as compared to organized offline retail model. This makes the offline model suffer and is causing unfair comparisons. Secondly authenticity of the products also poses a very serious problem.

The only issue is whether this is a viable situation? The huge discounting that is leading the numbers will end sometimes, but by then the shift to online medium would have caused irreparable loss to the offline retail, with huge losses and closures. Once the discounting stops, will people actually use the online model? Or is it that we are in for a huge correction, as they say in the stock markets and on the verge of another dot com bust??? This is a thought provoking question!!!

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