Behind the Scenes with E-com

Amazon.com, that great and shining example of the new
economic order, has never posted a profit. In fact, it’s gone on record saying that it doesn’t expect to do so in the near future. But every time it reports another multimillion-dollar loss-making quarter, the share price shoots out further into the stratosphere (It’s an interesting aside that last year, when Amazon announced that they were going to build some more brick-and-mortar distribution infrastructure, the stock price actually went down). On this side of the seven seas, Indiaworld.com, which made a minor profit of Rs 25 lakh on a turnover of Rs 1.25 crore, got snapped up for a cool Rs 499 crore. Meanwhile, companies like GE and Reliance, which till recently were the darlings of investors, and which for years have maintained a blemish-free record of healthy profits and healthy dividends, languish way behind–they seem to have already lost the race for market capitalization, or as they call it,
marcap.

What is happening? Has humanity finally, irreversibly, gone raving mad as it entered the third
millennium? Have the tried-and-tested rules of profit that held generations to stead finally been turned on their head?

To answer this question, one needs to first understand how e-businesses work, and what drives them.

Internet business: A paradigm shift

Traditional businesses take a long time to come good, what with having to set up plant and machinery, get it running, and set up distribution systems and godowns across the length and breadth of the country and even the globe.

The universal reach of the Internet came as a good alternative to reaching your product to every panwala’s shop across the country at your cost. With the Internet, you could get potential customers to visit your Website and place their orders there, and you could send the product to them. So, a large part of your distribution headache disappears. In other words, it didn’t really matter whether you were a big multinational with a globe-girding distribution network or a company that serviced the entire globe out of three strategically located warehouses. That’s why you’ll find that most of the well-known examples of 

e-business are distribution companies. Amazon.com, Rediff.com, eBay.com, Etrade.com…you name it, and they either sell, or make it possible for others to sell goods to customers far and wide. They don’t manufacture anything themselves. Also, almost all of these are recent startups, and wouldn’t have had the time to build up their operations if they had gone the traditional brick-and-mortar-and-eighteen tonner-truck way. 

The Internet, in other words, gave big and small companies–whether centuries-old business houses or yesterday’s startups–and even individuals, an appa-rently equal opportunity to strike the proverbial pot of gold at the end of the rainbow. Now that’s quite a paradigm shift from what traditional businesses have been used to. Not only have the rules of the game changed, but also, you no longer know who’ll comprise your competition tomorrow. A new Web business could well pop up while your shutters are down today, on a server in Timbuktoo, and immediately start taking away business from you. Quite a scary scenario indeed.

The herd mentality

No wonder that businesses are running scared. And when you’re running scared, the herd mentality comes into play. Motorists who frequent village and small-town roads would be familiar with this one. You’d be motoring along when you come across this herd of cattle moving placidly, as if nothing on earth could shake them. Buzz them a bit, and you can see some discomfort and probably a realignment to give you right of way, while the herd settles back to its placid gait. 

Now consider a couple of spunky kids on mountain bikes, noisily buzzing the herd again and again. First, there will be the expected disturbance in the herd, as it tries to let the annoyance by, and when the disturbance continues, you would see increasing confusion. Finally, the herd will break rank and one cow (or bull or whatever) will head off at a tangent to the original direction. At this point, the rest of the herd, without thinking twice will blindly take off after the new leader.

The world over, business often reacted to the Internet like a herd of cattle caught at night in the blinding headlights of angrily buzzing mountain bikes. Many have broken out in different directions, and many others have tried to follow them, copying what they’re trying to do.

Killer idea

Which of these directions–or ideas–will click? If one clicks, will everyone following strike it rich? That’s the billion-dollar question. If only we had a crystal ball that could tell us the future. But that’s not to be, and we’re instead restricted to making educated guesses.

If you were to look at the big successes amongst e-businesses, you’ll soon notice that it’s the first one off the block with a unique idea who makes the big impact, or the big killing (see “The Big Idea” in this issue).
But as we’ll see later, it’s not as if the others stand absolutely no chance. 

Couch consumerism

What is it that makes business over the Internet possible? The large reach and pervasive nature of the Net does play a role, but perhaps what plays an even more important role is the consumerist nature of human society, particularly in the West. If from the cozy confines of your home, instead of watching TV, you were not ready to click on that link and give your credit card number, e-commerce wouldn’t stand half the chance. The budding couch consumer has the added advantage of not having to wander around, going from store to store, bargain-hunting (a search engine will do that for him), and he or she is no longer limited to one locality, or by fixed shopping hours. Come the holiday and gift-giving season, such as Christmas or New Year, and you see e-com sites groaning and even breaking down under the customer load.

And the e-com ventures themselves help you along–offering fabulous discounts, free shipping, and many other goodies.

Interestingly, Indian B-to-C e-com ventures appear to be reticent on this front. The problem becomes particularly acute when it comes to shipping charges. Not only do almost all of them charge extra for shipping, but also, many don’t even let you know how much you’ll end up paying in shipping charges. Is the ensuing customer discomfort one of the reasons for the slow takeoff of Indian e-com ventures?