E-Commerce today, having covered almost everything under its blanket ranging right from electronic gadgets to books to lingerie to jewellery, is perhaps one of the most buzz words used especially among the entrepreneurial brotherhood and the modern retail customers. Yet, these portals can be very broadly categorized into two domains – General (Aiming to aggregate the maximum) and Niche (Catering to a sub-section of the mainstream). While introduction is not required for the big players in the general categories some of the more innovative niche start-ups in the Indian context include Laptopwale (Laptop aid and sales), Jolivi (Kitchen-ware), Online Prasad (Prasad from all popular temples), Menzkart (Male Specific Merchandising), iLogo (Customized Designing of T Shirts) among others.
Having so many ventures for “everything” raises one very common doubt – would they be making enough money to support and sustain their business? A quick look at the related number might tell a story – While the global e-commerce market value is estimated to go beyond $1.25 trillion by 2013[i], Indian present market is still at $10 billion[ii]. The Indian e-commerce market is growing at 47% YoY while the Global best is China at around 130% growthi.
There are several reasons why there has been such a stupendous growth in the e-commerce sector and perhaps which will continue to keep it soaring:
- Customers can easily select products from different providers without moving around physically
- Round the clock service
- More reach to customers, there is no theoretical geographic limitations
- No need of physical company set-ups
The major challenges, nevertheless, include:
- Highly competitive market
- Payment Gateways
- Trust in the online shopping mode
- Delivery lag/Service Issues
Another major leak from the e-commerce business is the approach to enquire and browse through the products on such e-commerce portals (facilitated by sort according to price, preference, compare products, etc.) but then eventually buying from the next-door shop.
Despite all the hype, eye-popping attention and the rapidly growing market share that this path enjoys, it is important to note that most, if not all of these e-commerce portals are either still in the red-zone or have been under one for the major part of their existence. The bottom-line is improving but so are continued investments for the same. When will the break-even occur, whether it will take over all of the business from the traditional retail, whether it will sustain –
E-commerce is presently at a stage where even the best of the answers to these intriguing questions would be nothing better than speculations. Yet, the same can be analyzed by dividing the entire sector on the basis of the business model they follow. These business models are mainly differentiated on the basis of their revenue sources and their marketing strategies.
Given below is one such platform from where the sustainability of the various e-commerce business models can be compared, argued and inferred.
Figure 1: 3D - Business Model Analysis Framework The Image has been made by the author considering the framework given in the paper [iii] and on the types suggested at [iv]
There are eight major e-commerce business models which have been identified and have been carefully positioned across the graph indicating three things at the onset:
- Degree of Innovation
- Functional Integration
- Business Strategy Envelope
The first two are given by the axis of the graph and the third one is given by the background which supports each of the business models. The diagram below mentions the salient features of each of these models and a note on their sustainability follow.
Niche Areas: E-Commerce ventures based on this model need to focus on the differentiator in the product in order to sustain. Vertical Marketplace though can act as just a platform to showcase various products in that stream but in order to capitalize; it needs to finally come up with its own brand.
High Volumes – Reduced Cost: This is very similar to the shop-front model and as the name suggested the business strategy here is to generate as many sales as possible and operate on the economies of scale model
Constant Innovativeness: These E-Commerce ventures rely almost completely on their USPs and their ability to re-invest. Heavy competition is a market killer in this and as of now, the segment is not fully matured to be monetarily sustainable.
Market Penetration: Several companies are using this model as a product differentiator in some or the other way to improve their market share. Though it adds a lot to their expenses to maintain an online dynamic database apart from their existing model, but it has proved to be a major revenue generator.
[i] http://www.internetretailer.com/2012/06/14/global-e-commerce-sales-will-top-125-trillion-2013 – Sun Aug 5 17:26:21 2012 GMT+5.5
[ii] http://articles.economictimes.indiatimes.com/2012-03-25/news/31236605_1_e-commerce-market-internet-users-online-purchases – Sun Aug 5 17:32:43 2012 GMT+5.5
[iii]Research Paper-Timmers, P. (1998). “Business models for Electronic Markets”. Electronic Markets, Vol.8(2), pp 3-8. http://www.cs.uu.nl/docs/vakken/ec/Timmers_BMem.pdf
[iv] http://themyndset.com/2012/03/what-are-the-ecommerce-business-models/ – Sun Aug 5 22:42:06 2012 GMT+5.5
This article is written by Ruchik Gandhi - Secretary, Consulting Club (2013)