This comes two days after the
news broke about Ratan Tata investing in Urban Ladder. I somehow felt it was a
mistake. I had a theory and it actually made a lot of sense when I found some
interesting pattern.
Well I was actually whiling away
time on another lazy Sunday afternoon when suddenly I thought of working on my dissertation
paper for this winter. My topic happens to be in Financial Engineering. I’m
trying to create some financial instruments to spot arbitrage opportunity
created by the price difference between good sold online to those sold in brick
and mortar stores.
So while I was working with some
numbers I found that stuff was generally sold at a much lower price online. Duh
big discovery! Of course stuff is sold cheaper online everyone knows this, so
what’s the big discovery?
The big discovery is that they
only sell at lower prices online. Selling online means selling at a loss. The
mantra of e tailing these days is selling at such low prices that we lure the
consumers to our shores and gain maximum market share. OK, what do you plan to
do after you’ve lured them? Pull an Amazon? No way, you can do that in the
airlines business or the hospitality industry but not online.
Amazon got into heaps of trouble
and got called bad names because we found out that it charges more to returning
customers. It’s not a sin really, everyone does that. But the problem is you
can’t replicate it that easily in the online market place. There’s so many
website that I would just move to someone else and buy stuff if he’s selling at
a lower price. Come on! Its e business we’re talking, you can’t expect loyalty
here. At least not that easily.
So I realized that this online market is a very
competitive place and you just can’t raise your prices. The one who sells at
the lowest price gets the customer. So the key to winning is to lose.
Nice right? But you know the
thing about online, people are very comfortable being rude and demotivating. I
got this one comment, check it out
The thought is kinda natural.
There have been many other internet bubbles in the past and any industry
growing as fast and big as ecommerce in a short span of time is generally
thought to be an inflated bubble waiting to burst. Investment advisors and
market gurus alike have expressed concern about this growing ecommerce boom.
Their angle however has been about the quantum of capital raised by the ecom
giants of India and the ‘creative’ accounting practices employed by these
firms. There have been various issues on the valuation front too. There has
been a general apprehension on the frequency of the call for capital from the
ecom companies and obviously on the pace of their growth. But the focus has
essentially been on speculation.
Anyway even got rude, well in my
own sarcastic way
Back to the point. Things will not cost more
online. Things will continue to grow costlier offline. Cuz face it, we only
have so many natural resources.
Now you may be wondering how I
could prove convincingly that it’s not a bubble? Well, there are websites that
don’t sell a thing and yet make millions right? That’s it. Now don’t go telling
everyone theres no ecommerce bubble. There’s sure is one... and it’s coming to
get you!
