Wednesday, October 21, 2015

How e-Commerce changed forever: From inventory to marketplace to Wallets

Online retail in India is fragmented. It’s the most unorganised sector, with brands being a very niche portion of the consumer pie. Think of e-commerce is a way to address this disparity. But hold that thought for a moment; the supplier-demand imbroglio is only one tumult in the madhouse.
Depending on which research firm your allegiances lie, only about 1-3% of consumers shop online. We haven’t even hit the 30 million mark in a nation of more than 1.3 billion. With advancements in Virtual Reality, things could get a lot easier. But online is the way forward and millennials (sigh, that word again) will drive this phase. India is a potential market. Most companies have to be in the game for the long haul. (Two-minute silence if you have bad VC’s on board.)
Funny enough, some estimates peg online retail spends to touch $16 billion by 2018. Errrmm… Flipkart’s current valuation is north of $15 billion. Go figure...
The ‘big billion’ and ‘festive sales’ are campaigns to get more consumers online, to get comfortable with shopping. Because by 2018, if India still has only about 130 million shoppers, that’s not going to justify soaring valuations for some of the biggies.
So, the business dictates that the model needs to touch three key areas:
  • Tech
  • Delivery
  • After-sales Service
The tech is an important conversation, but outside the scope of this topic. The delivery and after-sales service are game-changers. The last-mile delivery industry is confusing, complicated and chaotic. Companies have tied up with third party providers to smoothen the process, but are yet to crack the under-24 hour promise.
(Skip straight to Wallets if you know the difference between inventory and marketplace)
In an inventory-model, the company owns the product. This solves some major bottlenecks. You don’t run out of product, easier delivery management and importantly, ensure that the buck stops with who owns the product. But you also buy risk. How?
In this model, Flipkart would buy the product and ensure after-sales service. For example, if you buy a Samsung TV online and if there’s a problem, Flipkart will ensure that it’s solved. In the backend, Flipkart will talk to Samsung and sort issues, completely eliminating the consumer from the issue. Sounds good? Well, initially Flipkart saw value in taking the burden, and then this was slowly and eventually phased out. There was too much risk and capital involved. Instead of focusing on the customer, capital was being burnt on acquiring products in anticipation of selling them.
Enter the marketplace model. Buyers and sellers interact freely in a platform provided by a third-party. Suddenly, Flipkart does not take onus of the product, but instead, merely facilitate a competitive environment. As a consumer, you’re not buying from Flipkart, even though the packaging has Flipkart stamped all over it. Flipkart does not own the product, after-sales is shipped out to the OEM. By adopting this model, companies focus on the delivery, but lose out on the quality of after-sales service. Marketplaces offer scale and severely mitigate risk. It’s no surprise that companies are quickly operating in this model.
Wallets - A marketplace with moderate after-sales service and stunning discounts.
The story of payments as a service tells us that not all who move first in the fast-growing tech industry will necessarily conquer.  
Wallets are convenience, more than anything. They’re a disruption to the banalities and dysfunctional methods of our beloved legacy banks. By making mobile the centre of transactions, wallets eliminate the need to carry money. But wallets in itself is not a winner. Creating a marketplace on top of easy, fast payments sure is.
However, that’s not going to move the needle if you don’t have first-mover advantage and branding like the others. How do you beat that? Well… Use that VC money by assuring cash-backs. Suddenly, you’re no different from the established players of the world, except, your peg point is massive discounts AND ease of payments. Besides, you act as a one-stop solution for all services you avail outside of typical e-commerce. Order food, pay via the wallet. Book a room, pay via the wallet. Order groceries, pay via the wallet. Use Uber or commute from A to B, pay via the wallet. Recharge your phone, pay via the wallet. See where this is going…?
The only problem wallets need to solve is delivery. With more volume and data analytics, that too shall pass. But if you want to be the market-leader, you still need to solve after-sales service. Something I had written about here. Who’s your bet on? Flipkart? Amazon? SnapDeal? Would love to hear your thoughts…

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