How e commerce earns profit??

If someone is currently living in India I believe he must have heard the names like flipkart,

Snapdeal, Ola or jabong. These are the e-Commerce sites who have grown as giants of industry

in a very short span of time. Everyday these sites are giving huge discounts on various products

and are now valued in billions. But how these sites provide so much discounts and how they are

able to earn money, still remains a QUESTION.

It is a simple business style in which the middle man cost has been removed, as the supplier

directly delivers the product to consumer. There are no vendors involved and also, the cost of

keeping the stocks at warehouses for future has been limited which also leads to low prices of

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products. And low prices with big volume supply matches the earnings of a retail store in a mall

or market.

But now if I take the example of cab services which are charging the customer 10 Rs per

kilometer while it is paying the driver at the cost of Rs 14 per kilometre, the above simple

explanation looks useless. If we use simple mathematics it is Rs 4 loss per kilometer for the

service provider. And what a common understanding is, nobody does business for loss. And the

fact is, not only cab service providers but also e-commerce sites having huge loses on their

balance sheets. Snapdeal has reported a loss of 1500 crore this fiscal. But in spite of huge

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losses the above mentioned firms are doing business and the investors are investing in them

more and more. How, and Why?

The explanation from my understanding on the above argument is, the firms are building their

customer base initially. They are working on the philosophy that they should be the sole

distributor in the market and once they have monopoly, they can generate profit on their

conditions. Now the question is, what will happen when some new distributor hits market with

fresh investments? Again the process of building customer base will start.

We have live example of amazon in US. Amazon till now after so many years have been in loss

in its e-commerce business and the profit the firm generates is through venture funds and

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platform services.

The only that can be see is, profit will be earned by the last man standing. So the basis of all of

the investments and fabulous discounts are on the hope of a large customer base in the future

and a belief that they will be the last man standing in the fight. But if we consider the example of

amazon I believe that hopes will be shattered and these firms will find another sources to earn


So you never know what happens in future but I can only say that the way e-commerce business

has risen is nearly a revolution and if you chance be a part of it and ride this roller coaster.

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Harsh is a curious writer who loves to explore his surroundings. There are many websites who provide answer to people queries but no single website alone resolves the curiosity of people. Curious Mind Box is an initiative to resolve the curiosities and answer every What, How and Why question that comes into your mind.

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