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