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Bangalore: The lack of concern about the absence of profits in e-commerce is alarming.

From the market leaders such as Flipkart and Snapdeal to the hot new start-ups including Grofers (Locodel Solutions Pvt. Ltd) and PepperTap (Nuvo Logistics Pvt. Ltd), these companies and their investors have talked up the vast market size and the explosive growth in the number of Internet users.

Some analysts, such as financial services firm UBS, have said e-commerce sales can touch $60 billion by 2020 from less than $6 billion last year, driven by the manifold growth in smartphone users to more than 500 million.

What is missing in this rosy picture is discussion about whether any e-commerce company in India has built, or is in the process of building, a business model that can generate profits.

The jury is out on that, judging by the way companies are changing tack and the continued lack of restraint in spending on acquiring customers through advertising and discounts.

Valued at $15 billion, India’s largest e-commerce firm Flipkart is undergoing a complex transformation where it is not only moving from an inventory model to a marketplace, it is also trying to shift to an advertising-led model from a commission-based one, which is the mainstay of a marketplace. The second largest firm Snapdeal (owned by Jasper Infotech Pvt. Ltd) is aggressively investing in logistics through GoJavas in which it picked up a significant minority stake earlier this year.

Another large company Ola, the biggest cab hailing service, said it will start buying cars and then lease them to drivers, which is a more cash-intensive way of operating than its original business model of simply connecting customers with drivers who owned the cars. In effect, Ola (promoted by ANI Technologies Pvt. Ltd) moved to a part marketplace, part inventory model.

All these moves will either require hundreds of millions of dollars in fresh funds, which will only delay any chances of these companies cutting losses. Marketing expenses and deep discounts are also unlikely to abate meaningfully until consolidation brings moderation in spending.

This level of uncertainty about business models of start-ups across the spectrum is worrying and finally prompting investors to step back. The funding rush into Indian start-ups is showing signs of ebbing as profits and viable business models elude e-commerce companies, Mint reported on 24 August.

As the pace of funding slows, investors are now starting to talk about the need for these start-ups to focus on so-called unit economics, after they pumped in more than $8 billion into e-commerce companies since the start of 2014.

Unit economics is an e-commerce jargon for making money from every user or on every order. No e-commerce company today does that—not nearly.

For the fiscal year ended March, losses at e-commerce companies are expected to soar from the few thousands of crore of rupees reported in the year before. In all likelihood, losses for the ongoing year will also increase significantly.

All these companies are private, so their results can only be obtained once they make regulatory filings later this year. Some others such as Flipkart are listed in Singapore and have a byzantine structure which makes it even tougher to get reliable financial reports.

In the obsession over vague metrics such as the growth in smartphone users and gross merchandise value (GMV), which measures the value of goods sold on a site excluding discounts and sales returns, unit economics had taken a backseat. These metrics had given the illusion that businesses can be valued in new ways rather than traditional metrics such as price-to-earnings ratio and cash flow.

As e-commerce matures, this argument is starting to ring hollow.

And as funding dries up, it may be too late for some companies to now start figuring out how to run their businesses in a viable manner.

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