A growing number of online shoppers and the emergence of smarter dot-coms could see an e-commerce revolution in India. That doesn’t mean some won’t go bust, though.
If reports about e-commerce site Flipkart’s valuation of $1 billion are indeed true—the company hasn’t yet denied a news report about a possible fund-raising exercise that will value it at this significant benchmark—then the only question worth asking is: why did it take as long as it has for a books-driven model to work?
To be sure, the valuation, if the company were listed on the exchanges, would translate into a three-digit price-earnings multiple, indicating the kind of hysterical interest in a stock that hasn’t been seen since the time organized retail was the flavour of the month and there were but a handful of listed companies in the space. Then, there is such a thing as scarcity premium, which makes these valuations not just unrealistic, but also misleading.
Like other Indian dot-coms that have succeeded before it —in areas such as jobs, travel, and match-making—Flipkart is essentially the Indian clone of a successful multinational dotcom, in its case, Amazon.com. There have been others that have tried the model in India, a books-heavy e-commerce one. None, before Flipkart, succeeded. One reason for this could be timing. According to market research firm JuxtConsult, India has 17 million on-line shoppers now, up from 10 million last year. The company adds that shopping is the second most popular activity among Indians after email.
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If that’s the change at one end, then, at the other, the dot-coms themselves seem to have become smarter. Many of them have good business models. Some lucky ones are also well funded. And most seem to have figured out that being a successful e-commerce site requires an efficient back-office. Should Flipkart’s stake sale go, though, it’s very likely that the company will invest some part of the money in its warehouse and order-fulfilment process.
There will be many dot-coms that go bust even now, but there will also be several that succeed. If all goes well, a dozen others may well join websites such as Naukri.com, Makemytrip.com, Carwale.com, and Bharatmatrimony.com that were, until now, the only successes in the virtual world. It is possible that some will see their valuations decline as the space becomes more crowded, but their revenues will definitely increase.
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