By Vivek Kaul – Vivek Kaul’s Diary (India) –
A spate of news reports in the recent past clearly show that Indian e-commerce companies are in trouble.
A newsreport on Moneycontrol.com points out: “With an aim to cut costs, struggling e-commerce firm Snapdeal is likely to downsize its team by around 1,300 employee.” This is around one-third of the company’s total workforce of 4,000 employees.
On the other hand, Flipkart has shutdown its courier service and hyperlocal delivery project, less than a year after launching it. There are other examples as well. The question is why are companies doing this? They are trying to cut down their costs and at the same time conserve on all the money they have raised from investors.
Over and above this, investors have made a spate of mark-downs to their investments in these firms. A January 27, 2017, newsreport on Reuters points out that Fidelity Investments has marked down its investment in Flipkart by around 36 per cent. In December 2016, Morgan Stanley, had marked down its investment in Flipkart by 38 per cent.
The Japanese investor Softbank recently marked down the combined value of its shareholding in Ola and Snapdeal by $475 million. What does all this mean? It essentially means that these investors do not accept these ecommerce firms to be as successful as they expected them to be in the past. And given this, they have been writing down the value of their investments.
In a column, I had written early last year I had called Indian e-commerce firms a Ponzi scheme. Of course, this had led to a lot of abuse on the social media and I was told that I do not understand the business model of these firms. I wrote what I did because I understood the business model of these firms. Allow me to explain.