Most eCommerce companies in India have been burning cash on traffic/customer acquisition, investments in technology and people and investments in warehousing / fulfillment capabilities. Hence, the bottom line was to maximize GMV / revenue and traffic, and the availability of VC/PE funding helped some companies achieve it quickly. However, of late, some companies have started talking about their profitability plans, and according to a number of recent articles in the media, most of them plan to be profitable by 2017-18.
While there has been no slowdown in private funding activity as yet, we believe internet companies want to start creating this culture of thinking about profitability to bring more discipline into their approach and potentially take them to a space where public market investors may start looking at them with interest.
Flipkart and Snapdeal argue that as they grow bigger in size, economies of scale will bring in a lot of benefits in the form of lower logistics costs and warehousing costs. They believe size will also lead to alternate revenue streams, such as online advertising and brand consulting. In fact, Flipkart has hired a new team for the advertising initiative and is exploring opportunities to be able to personalise and create ads that would be relevant to both customers and advertisers. Flipkart’s platform has 70mn MAU and generates 8mn orders/month, which it says can generate rich data on consumer trends. The company believes it can use this data to provide brand consulting, which can act as another source of revenue.
Flipkart and Snapdeal have been adding high-margin categories, such as furniture, to their platforms to increase profitability. Paytm is also identifying products that can add to its margins without turning away buyers who are sensitive about pricing related to a particular category. The company is also planning to charge sellers by enabling payments and creating a cloud platform for logistics players who service the sellers on Paytm.
eCommerce companies are leveraging big data to intelligently direct discounts to consumers who are sensitive to it.
They believe this will potentially help bring down the overall discounting practice at the company level and/or repurpose it to bring new consumers into its net. Companies are also increasing the minimum transaction value for free shipping.
When do Indian eCommerce Companies Project to be Profitable ?
Myntra, Paytm and Quikr expect to be profitable in 2017. The leaders Flipkart and SnapDeal are tentatively expecting to be profitable in 2018.