Article: Understanding the crises in E-commerce


Understanding the crises in E-commerce

Recent news and developments related to Snapdeal and Flipkart must be viewed in the context of the last two years.
Understanding the crises in E-commerce

The recent news about Snapdeal laying off 30% of its staff has only confirmed the narrative that Indian e-commerce start-ups are in turmoil, and are going all out to control the damage that has silently, yet noticeably, been inflicted on them, especially in the last year. 

Flipkart also recently appointed Kalyan Krishnamurthy after the re-jig in top management last year. However, as has been pointed out by various experts, drawing conclusions from such developments in isolation will be counter-productive. 2016 saw several reversals of trends in the sector, which rattled the confidence of everyone in the field. On one hand Amazon India overtook Snapdeal to be the second-biggest player, and on the others, Flipkart battled internal challenges and witnessed unanimous downgrading of its net worth. A slew of smaller start-ups that shut shop lost year pointed to the fact that things were far from well. 

What went wrong?

To fully comprehend the situation today, one needs to take into view several challenges which have not only been compounded in the last few years, but have also given rise to fresh ones. From the time of their inception, right until 2014, all firms attracted millions (sometimes billions) of dollars in investment. Any amount of money spent to get more customers, and increase the number of products sold, was justified by one single phrase “we’re in it for the long haul”. Or in other words, we must spend a lot right now; incur huge losses so that we can get hugely profitable tomorrow. And in the defence of this strategy, it has worked in other countries, be it America or China. But along the way, several mistakes were made as well. Ridiculously high salary and perks were offered to poach talent, and there are reports of three-figure percent raises given. Smaller peers were acquired, sometimes in all-cash deals, either to eliminate them, or leverage their network, or both. But challenges complicated when Amazon entered the market. With deeper pockets to fund bigger advertising campaigns, offer better deals, and lessons in better execution, Amazon swiftly invaded on the already saturated territory. The expectation that the billion plus population of the country could easily allow new players to target new customers was a miscalculation, as right now, only a part of this population is either equipped to shop online, or has the disposable income to make such purchases. Furthermore, the focus on shifting to app-only model turned out to be a premature move, which Flipkart-acquired Myntra had to go back on, with collateral damage. 

By 2016, the picture became clearer, and to everyone’s surprise, it wasn’t as pretty as expected. Growth – even defined by their own terminology – has beginning to stagnate; investors were getting sceptical of burning more cash and beginning to ask questions that had no clear answers to. These concerns were verified by the fact that venture capitalists and investors chose to invest less but in more diverse organisations in 2016. The disregard to break even and move towards profitability was now beginning to weigh down the unicorns, and that meant budgets were slashed, salaries and bonuses started coming down to their real levels, and efficiency, operations, execution and productivity came under the lens like never before. Hence, CEOs were changed twice within one year at Flipkart, Snapdeal fell short of targets that it had publically declared, and reputations took a beating when joining of freshers from premier institutions was delayed. 

What lies ahead?

While many had predicted this bubble of inflated evaluations, sky-high compensations and cash-intensive strategies will burst sooner or later, one can be sure of the fact that the worst is not over yet. Rumours point to an impending merger or takeover of one of the domestic players by a bigger international one. With Alibaba expected to launch Indian operations soon, and Walmart eyeing to enter the Indian market on a stable and established platform (both with the intention to take on Amazon before it is too late), nothing is unimaginable. The uncertainty is only likely to grow, and more news about lay-offs, restructuring, diversifying revenue models, scaling back on budgets might be in the offing. A simple study of how frequently the top three marketplaces are searched online might mean that some major development – in terms of consolidations or acquisition – could happen within the next few months, as the time to take Amazon head on seems to be running out. The fact that the pioneers in the field are facing challenges to raise funds will also impact other smaller ventures, as it will be even harder to convince investors to part with their money, and harder to convince them of the enterprises’ USP. 

Nonetheless, some are of the view that the events of the past year are smoothening the disruptions that had become a part of the start-up environment. The fact that Flipkart and Snapdeal have to pull their socks up, and get back in the game to create sustainable strategies and practices that not only pacifies the investor who is inching towards exit-mode, but also takes on global competition, means that one can expect new tricks being pulled out of the bag. However, before the picture turns rosy again, headcounts shrinkage, slashing of budgets, resources reallocation and major restructuring are some options that might be used extensively. 

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Topics: Entrepreneurship, Leadership

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