Startup Q&A: How long will Indian e-commerce companies like Flipkart and Snapdeal keep burning someone else’s money?


Here is an interesting question on an online forum that I came across this morning.

 

Leaving the media coverage and hype aside, will they ever stand up on their own feet in the next 5–10 years, or keep burning investors’ money? Is this really a sustainable business model?

eCommerce in India is at a nascent stage with a lot of hope, excitement and ambition.

Optimistic view:

The market is huge and eCommerce hasn’t even scratched the surface when it comes to market penetration and growth. More consumers will get comfortable shopping online. The market will continue to grow even bigger. These eCommerce companies will eventually start making money!

A more pragmatic view:

With all the big money pouring in, one can argue we are already experiencing a “peak of inflated expectations” (Gartner Hype curve).

During this phase of “peak of inflated expectations,” larger players like Flipkart, Snapdeal and Amazon that have a large war-chest, and access to resources will continue to burn through cash. They will be hoping that competitors burn through their resources sooner.

During this phase, we are also likely to see new entrants, some with better execution and better/unique business models.

If history is any indication, we are very likely to see a “trough of disillusionment.” After some of the larger players burn out and crash, investors will get fidgety and refuse to invest more. Once this happens, we might see a “bust.” How big the bust will be is anyone’s guess.

After all this happens, the survivors will pick-up and march forward and the eCommerce segment will get into a state of “Plateau of productivity.”

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