8 reasons why the E-Commerce Balloon in India is going to burst…


E-Commerce Failure1. PAIN vs PLEASURE

IRCTC is the biggest success in e-commerce in India.

It democratized Railway Tickets buying – the biggest pain point in the life of an Indian. At least the Indian who travelled in the ’70s, ’80s and ’90s.

As a young boy, I was trained to go to Churchgate station, stand in a line and buy a ticket – in an effort to teach me patience.

The 2012 e-commerce sites are presenting goods that I should buy for PLEASURE. All kinds of stuff that may give me a kick once or twice but never forever. It’s not a repeatable business.

I mean just check out the fancy wares on most of these sites.

Sure, I will buy sunglasses and t-shirts once, twice, but not as a regular habit!


Most of the travel portals succeeded in India as the Internet picked up by then, by becoming accessible.

When we began to ‘search’ for Mumbai – Delhi tickets, the usual travel portals began to show up and consumers began to go to those sites automatically.

That was generic PULL traffic.

In 2012, if I wanna color my hair (i don’t wanna), I will NOT go to the Internet and search for ‘Garnier Hair Care’ Color. That doesn’t make sense to me at least. It’s NOT typical consumer behaviour.

If at all I need it, I will go to the nearest Kirana Shop. Thats PULL.

Now, if a rich stupid funded site comes up and PUSHES me the color dye, then it’s expecting me to behave abnormally (getting PUSHED to buy).

I will, but it will really cost the e-commerce site their business!


I came across someone yesterday who is leaving his cozy career to START an e-commerce dot com that he says will BE SOLD to Someone (he did not know who will buy it and why – but because it’s e-commerce, Someone will).

His entire plan is to create a business that will sell out. To whom, and why, even God doesn’t know.

When Make My Trip started out in 1998/99, Deep and his team BUILT a business they BELIEVED in.

It took 12 years for MMT to make that vision a success; with lots of scary moments thrown in.

They were in BUILD MODE and became a 1 billion dollar company.

My personal belief is that if you start a company with a SELL mentality from DAY 1, then you circumvent REAL value creation.

You build stuff that’s fluff – not anything real.

And fluff NEVER gets bought.


If e-ventures invested in MMT in ’99 and later people like SAIF supported them, it was because they were taking a Country call.

Their call was that INDIA will be an Internet economy – and all the successes of Content, Services, Communities that make the Internet throb will thrive.

In 2012, lots of VCs are taking e-commerce as a ‘thematic’ bet. They think, "Oh yeah, we don’t have an e-commerce play, so let’s invest in a couple of Companies".


What may be a "thematic" experience for them, may be a nightmare for the entrepreneur.

Because the truth is – VCs can change entrepreneurs as often as they like. But entrepreneurs can’t change their own businesses just because they don’t like it anymore!!


Look around and examine the long term e-commerce sites in the USA. Even MMT or maybe Flipkart too. Count the many rounds of capital they have raised.

Look at the Capital consumption of Amazon.com!

These are businesses built on LONG TERM capital.

I ask – how many of the 2012 e-commerce sites will ever get refuelled?

With one bad year, a couple of more sites down, will their investors want to invest more money in something they thought was a "thematic" flavor of the year investment?


Meet Deep Kalra. Check out the Entrepreneur DNA in him.

Then meet the 2012 jokers of e-commerce who are coming from plastics, warehousing, petrol pumps and God knows what, just to start "e-commerce". Some of them are freshly minted MBAs pretending to be entrepreneurs!

The 2012 batch of e-commerce Cowboys remind me so so much of the 2000 batch of Internet Wannabes who jumped into the fray at that moment just to be "in the Internet" business.

One bad jhatka of the horse and these Cowboys will be on the streets.

ecommerce burst


Conceptually speaking, e-Commerce is supposed to make the PRICE of goods more economical for me. That’s classical ‘me-the-Economist’ talking.

Now, this is NOT DISCOUNTS!

How do goods become "cost effective for me"?

– By reducing the COST of travel, efforts etc. that are involved to go to the physical store to buy the goods.

– By making GIFTING a Painless and Cost Efficient process (imagine buying gifts and lugging them to people the old fashioned way).

– By giving me the benefit of prices assuming that there is a mass purchase at the Buyer’s end.

Sure, there are delights of buying special things that are not found elsewhere etc. etc., but routine shopping is for getting my usual things in the most cost effective (read price + saved time + saved energy) price.

Now, the 2012 gang are giving away their Goods like PRIZES!

They are discounting regular stuff, throwing price down the drain to make people BUY – even when they don’t need the product.

Well, I have learnt in many businesses that the LURE of Prizes is very very short term.


Most e-commerce plays in 2012 are geared towards weird valuation metrics. They believe in things like ‘Customer base’, ‘nos. of orders sold per day’, ‘value of goods sold per day’ etc. etc.

These are nice juicy terms that are the season of a boom.

In a downturn, the vocabulary of valuation has only one word in it – that is VALUE.

Now, don’t get me wrong. I personally run businesses that lose money but are still valuable ( I hope :-))

That’s because the word ‘Value’ if NOT measured in money terms is in showing TANGIBLE ASSETS – like returning visitors, a leadership in the business category, an acquisition cost of consumer that is plummeting etc. etc.

If you buy a book for Rs 100 from a publisher and sell it to me for Rs 50 and write off Rs 50 as ‘consumer acquisition’ – that’s a silly metric if I NEVER COME BACK!

It’s like paying to acquire a ghost!

So, when the shit hits the turbines, all these fancy metrics are going to be put through the stress tests. Investors are going to ask WHY and not WHAT!!!

How many of these silly e-commerce start ups will be able to claim ANY value creation when they all look and smell and taste the same? If 28 sites sell the same Hair Color at the same price to consumers like me, who will never return again, then where and what is the value creation???

Also, financially, these 2012 guys have NO CLUE of the measurement of cost of acquisition of customers or the CONCEPT of lifetime value etc. The people I have spoken to believe that, "as long as we advertise, we will get consumers. These consumers will magically keep coming back to us and give us repeat buys. Via such loyalty, we will build a brand. And then on Diwali day we will get acquired".

I have never heard of a DUMBER pitch than that!

[This post is written by Alok Kejriwal & originally appeared on TheRodinhoods.com and has been reproduced by owners permission]

  1. Mr. ecommerce says

    ur article simply sucks and u are a chump who doesnt analyse anything and simply talk on assumptions . u useless crap , stop ur non sense , writing article like this ….

  2. Sophia says

    As far as I know about eCommerce I think in India it will take time but eCommerce will son come and people will buy products online online, time is changing. All the entrepreneurs suppose to have some patience this will pay them. I had a believe that eCommerce is successful business.

  3. Chirag says

    Excellent points mentioned. People are entering the dot com biz just for the sake of it.

  4. Suresh CH says

    Some excellent points are there. Look at taggle.com .

    If every one selling the same product… It will be a last man standing show..

  5. Sameer Parwani says

    Alok, you make some good points, but point #1 is off the mark. Most purchases, online or offline, are for pleasure, not to solve some pain. Using your example, I believe if one were to sell sunglasses just once a year to his/her customers, it would still be viable business. The same customer does not have to buy every day or every month for you to build a profitable business selling stuff. Not sure how you have that misconception. If we were really to believe your point, then it would mean any shop online or offline selling anything besides the everyday necessities would not succeed. There is nothing specific about your point that applies to e-commerce or India.

    Yes, I'll say that in India you can't build a large e-commerce company if you choose a niche that is too small, but as a counterpoint I would say a) there's nothing necessarily wrong with someone building a small but profitable company b) over time the market size will grow tremendously as more people shop online.

    Now if you have an example of someone investing $5 million into an Indian e-commerce startup selling sunglasses, then yes I'd say that's a bubble. But, in the end, whoever does end up building the #1 online sunglasses store in India will make a ton of money. So, I can't blame the entrepreneur who wants to go and build that leading niche site. There is a ton of money to be made selling goods that people buy for pleasure.

  6. Sanchita says

    Well i can list down 16 reasons why they will work in india for a long time to come. however “me too” websites will die their natural death much in same way as the websites and blogs without much seriousness die every now and then

  7. sanchita says

    To be fair, E-Commerce is yet to come to a stage where it will qualify to be a balloon waiting to get bursted. Whenever there is a success story, there are many copycats… who will eventually fail. No one will remember these sites nor their owners or the VCs. What matters is if the E-commerce able to bring about a change in the way we shop or not. if that change takes place, it is a success by any count!!

  8. Nishant Agrawal says

    So true!
    These e-commerce sites commanding astronomical valuations are all hollow. People talk about revenues, users, visitors, and not profits. Why? Isn't business supposed to make profits? What use is a 10,000cr revenue business if it cant generate profits. You might invest in one of these sites, hoping to find a fool who will take the baton from you form a higher amount. But then, the market will run out of fools one day.
    I don't understand how makemytrip.com is any different. For all it's valuation – its still a loss making business.
    Not every e-commerce site is ebay or amazon.
    Its all mostly because of lack of entry barriers.

  9. Deepankar Biswas says

    Good Post. Whereas the points of customer acquisition, and value are right in their respect – I would disagree on Point 1 and Point 2. Classifying what is a Pain is very subjective, and depends on different types of consumers. Standing in a line to buy tickets was working and working well. IRCTC came in as a 'convenience' and then the modus operandi.

    Similiarly – Books, buying from a Store is still not out of fashion, but buying from flipkart is 'convenience', which is again becoming modus operandi.

    It would happen for Hair color also tommorow – and why not, if it offers you a better hair color (and that's where I agree with the point of value).

    Also on T-Shirts, why won't you buy again? How many times you buy train tickets v/s T-shirts. I would say, one ends up buying T-shirts more than train tickets in an year, so why not consider sites who offer better designs, good choices, and discounts. (I am not saying, stupid discounting is the way to go, but reasonable discounting / off season sale have been there since ages, and there is a rationale behind it).

  10. Sachin Naik says

    Its well said that paying to acquire consumer never succeeds. Consumer won't come back till there is a real value not just a price cut.
    I still remember during dot com days you were literally paid money by few websites on registering new users. And you don't hear about them anymore :-)

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