Ecommerce businesses in India have been witnessing unprecedented faith of investors in this year so far. VCs, PEs firms, angel investors and angle networks have bet high on various ecommerce businesses as they believe that ecommerce is a strong or to some extent only alternative to organized retail that more or less failed to cater to needs of consumers in the country. However, at the same time there are some investors who feel that these all exuberance (in terms of funding and valuation) are driven by myopic American market that has inflated Indian internet companies valuations again with whopping funds allocations sans any focus on revenues/cash flows . In order to know the expert’s view on whether the exuberance is bubble or a golden ball, iamwire aggregated the views from all quarters. Let’s have a look what industry is saying:
A lot of start ups are getting funded because people including investors are convinced that eCommerce is a big viable alternative to offline retail, this growth potential led to exuberance in terms of investment. However, candidly speaking, there is a certain amount of hype with ongoing investments in eCommerce. In fact, investments are going on sans a focus on building sustainable business model. Entrepreneurs are not working out to create differentiators. They believe providing products at a cheaper rate with the lot of funds splurged on the marketing would give them profitable business. I believe sustainable business cannot be built in this way. I think, business based on sustainable competitive advantages would thrive and survive in a long run.
The current hype and bubble surrounding Indian eCommerce industry is really unfortunate, there are many companies out there which do not have any significant differentiators but have attracted large funds and are literally flitting away money on internet marketing in global as well as domestic market. Sustainability of this sort of business model is questionable; such models only focus on acquiring customers without any stress on sincere customer loyalty and engagements. Ultimately profitability can be achieved through loyalty. However, everybody in eCommerce in India is in an acquisition stage which I can understand but I think some of the hype is unfortunately getting beleaguered. – Muralikrishnan B.
Businesses are built by servicing customers, not investors. Lots of investors had raised lots of money to invest in digital scale businesses in India but were in their caves after the late 2008 meltdown. The pent-up need to deploy cash has finally found vent in a space that is generally accepted by investors and their LP’s as viable. While digital commerce will grow handsomely over the next few years and it is the right time for investors and entrepreneurs to place their bets, it is important to stay focused on the customer and their evolving shopping habits. That is where the battle will be won or lost. Expect a consolidation in 2013. -Kashyap Deorah
Today, India is among the fastest growing economies of the world and unlike china, we are an internal consumption story. How does one participate and get benefit out of “India growth story?” E-commerce is one potential channel to tap into the growth “story”. The valuation of the companies in this space are based on this premise and more so because organized retail today in India is weak and has its own challenges to grow. On the basis of above facts one can say that recent valuations are largely fair enough. -Rahul Sethi
The e-commerce space is heating up and new players are entering this space. The new investments are a positive sign.Consumers today are buying online and it’s not limited to metros or tier I cities – tier II and III cities are leading the growth given organized retail has still not reached there. Therefore, the consumer confidence in e-commerce industry, which has already grown phenomenally in the West, is in turn giving more confidence to investors. Further, If you look at it from an Investor’s eyes – India is probably the last market left in the world that is growing at such a fast pace and that holds such immense promise. India crossed 100 million users last year despite poor internet penetration and sluggish internet speed and this will only improve in the future. -Amanpreet Bajaj
The increase in the flow and speed of investments in this sector is driven by a few key factors – the ecommerce era is substantiated by a significant real demand. Consumers have the money in emerging economies and are willing and keen to spend it. Thus for the non-believers, this is different from the tech bubble of 2000 where there was artificially created demand and hype. A similar demand trend and buying capacity can be seen in all emerging economies which further strengthens our belief – Harish Bahl
I would not say it’s a bubble. At SAIF; we have seen strong momentum in some of the online companies. Our portfolio companies like JustDial and MakeMyTrip also witnessed structural changes in online market in India. This coupled with exits visibility like MakeMyTrip listing at NASDAQ gave lot of investor confidence in the market . -Mukul Singal
Whether it is hype or not, ecommerce in India continues to grow – this is what we believe – looking at the recent funding and valuation patterns in the entire ecommerce ecosystem, investors are riding high hopes to have successful exits through acquisitions and IPOs – lets not forget the great ecommerce evangelist like Amazon.com had to run in loss almost for a decade. So the ecommerce companies which are not showing cash flows do not mean they cannot have profitable revenue streamline in future. At the same time we also believe that some reforms are also needed which would eventually come with consolidation of the industry including Amazon’s entry.