"Shutdown: Is the e-commerce dream going ‘pop’?"

E-commerce firms lack innovation when it comes to services and offerings

Mumbai:  Flipkart and Snapdeal, two beacons of India’s e-commerce story shutting down their recent acquisitions letsbuy.com and esportsbuy.com, certainly sends mixed signals about the health of the Indian e-tailing industry.

TechCircle  reported yesterday that Snapdeal.com shut down esportsbuy.com, a website that Snapdeal acquired to strengthen their presence in the sports retailing category. This move comes as a surprise as Bahl maintained at the time of acquistion of esportsbuy.com in April that both the brands will co-exist

India Digital Review reported on the same day that Flipkart had shut down Letsbuy.com, an electronic retailing site it had acquired five months ago to consolidate its position fearing tough competition from Amazon in India.

This does not surprise the veterans in the industry. K Vaitheeswaran, founder and CEO of Indiaplaza.com, one of the early e-commerce ventures in India says that India is bound to see more consolidation because investors believe that they can reduce financial losses by merging a loss making company with the one that is making profits.

“My guess is that Letsbuy.com and esportsbuy.com was shut down because Flipkart and Snapdeal did not believe these brands were growing. It’s more like salvaging the damages,” Vaitheeswaran said.

The Indian e-tailing market is estimated to be worth $12 billion by 2015, according to estimates by investment bank Avendus. The deal space is seeing a lot more exit action than launches in the e-tailing space with a number of players such as Taggle and Dealivore winding up business. Business Standard reported Snapdeal’s intentions to add products to their portfolio and become an e-tailing site rather than remaining a pure deals site.

Experts such as K Vaitheeswaran look at this move with skepticism as he believes that it is not easy to make the transition from a pure deals site to a retail site. “I am not surprised that most of these deals sites are shutting shop because it is not a sustainable business model but it’s not so easy to move to an e-tailing model. If these companies think so, they are in for a surprise,” he said.

The challenges these companies face are manifold. But the one that need immediate attention is recurring customer acquisition and marketing costs from impractical discounts that create a dent in margins. “These discounts were justified as “marketing cost” or “customer acquisition costs”. It’s obvious that discounts may have bought trial – but not loyalty,” says Mahesh Murthy co-founder, Seedfund, an early-stage fund.

Another challenge is the evident lack of differentiation in terms of delivery and offerings. Every e-commerce site looks and sells everything its competitor does. “The delivery and returns experience with the odd exception here and there is now largely the same across most e-commerce sites – indeed they all mostly use the same vendors. So one less factor to build loyalty, or a premium. Today they all sell tee-shirts, watches and clothes. It’s not clear to the consumer where she should shop for what – and as a result, she feels she can shop anywhere for anything, at any price. Even less brand differentiation,” adds Murthy.