Battle #1: Valuations in the Indian E-commerce Industry have become irrational - IIM Ranchi - AGAINST


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Ashish Verma

What about the fact that the percentage of internet users in India is not even the 16%? Ashish Verma Delhi school of Economics

25 Aug, 2014 |


Ashish Verma

and only half of them would be doing transactions by e-commerce, which would be 8% (to be generous). Its just that i don't feel pumping in millions into e-Commerce is justified, as you are clearly ignoring 92% of the Indian population here.

25 Aug, 2014 |

+Read Replies (1)

Sayan Kar

Ashish Verma: That is true, but only if we look at the present. With the current rate of rising middle class, which invariably leads to better internet access. in India and the active collaboration of the government and private players in laying out a plan to connect the entire country through an internet highway (Digital India) tbis scenario is about to undergo a drastic change. We must not forget that these valuations are not based on a one year plan but a long-term plan in which the internet penetration in India is set to see a massive increase.

28 Aug, 2014 |


venkat iyer

"Flipkart removed the delivery charges for the most obvious reason – to counter the growing competition" This was exactly what we hinted at. We never mentioned that it was to cover something ‘shady’. Well, we’re not talking about Satyam here, for starters. To make it clearer, we meant that delivery charges were removed because the competition (Amazon) offered free delivery, thus putting pressures on Flipkart’s bottomline (It was a major reason why small cart customers were moving towards Amazon). Thus, in an industry such as this, price wars would lead to lower profit margins, thus making the huge valuations (HUGE expectations of growth in profits) untenable. This was our point.

26 Aug, 2014 |

+Read Replies (2)

Sayan Kar

Ashish Verma: That is true, but only if we look at the present. With the current rate of rising middle class, which invariably leads to better internet access. in India and the active collaboration of the government and private players in laying out a plan to connect the entire country through an internet highway (Digital India) tbis scenario is about to undergo a drastic change. We must not forget that these valuations are not based on a one year plan but a long-term plan in which the internet penetration in India is set to see a massive increase.

28 Aug, 2014 |

Sayan Kar

Well, the point was probably not that clearly mentioned then. Anyway, we are talking about a market which follows the most common structure- monopolistic competition. Taking in the typialities of that structure it might not be very hard to observe that the firms (Flipkart and Amazon in this case) invariably move towards product/service differentiation and operate on a short-run to short-run cost curve. This primarily means that they keep earning profits (once the profit-making initiates of course) even in the long run. This is made possible by product diversification, moving into untapped markets and often having the first-movers advantage. Either Flipkart or Amazon might perish in the long run, so to say. However, that doesn't matter in this case as we are looking at the whole industry per se and not any individual player. The one who innovates, differentiates, diversifies will sustain in the long run and will do so while earning healthy profits(with or without major rivals staying in the market).

28 Aug, 2014 |