I had penned a few thoughts on the eCommerce industry in India (link). Recently there have been many discussions on TV and online on the state of Indian eCommerce industry. Of the various articles I have read about the industry, I like the ones where people are comparing eCommerce to the Airlines in India (of few years ago).
Here are the very similar characteristics between eCommerce and the Airline industry (when Deccan was still alive).
1. Both are very operationally intensive to run. For the Airline, Fleet management (including Logistics) was the topmost priority internally. For the Online Store Warehouse/Inventory Managements (Backend Logistics) is the topmost priority internally.
2. The success factors for both the industries are the same – Pricing and Service. While Pricing is the topmost customer acquisition strategy , Service is the topmost customer retention strategy for both industries. The advent of Deccan airways created a huge interest in air travel. Passenger traffic grew by 20% – growth rates that few industries boasted of! The primary reason was the extremely low pricing adopted by many airlines.
3. Both industries have an unhealthy share of low cost players. When Deccan introduced cheap flights and started undercutting the competition, it did increase the number of airline passengers rapidly. It brought more players in the market seduced by the growth rate, but it didnt do them any good, since the only way they could survive is to by operating on very low margins (if they were lucky enough to get any margins at all). Even though Kingfisher tried to stablize the market by buying out Deccan (and screwed itself in the process), the Govt-backed, money-burning Air India continues to hurt the entire industry.
Similar is the case with eCommerce, with players offering cut-throat prices on top selling items. Websites are losing money on a per-item basis much like how airlines were losing on a per-seat basis!
4. High margin Routes (Categories) should compensate Loss making Routes (Categories). Unfortunately, the number of loss making routes are too high – a result of consumer mindset, we refuse to pay even a moderate price to travel short distance flights. Same is the case with eCommerce. The top selling categories are typically due to the extremely low prices, while the high margin categories (like Jewellery) cant compensate for the losing categories.
5. Labor and Overhead costs are high and increasing. 50% of an airline’s revenue goes into Salaries, Sales and Maintenance. 30% is on fuel! While eCommerce industry is yet to reveal its numbers, it is likely similar. A look at Infoedge’s Cashflow statements indicates that while Recruiting solutions is making money, all its other ventures (jeevansathi, 99Acres, Brijj, Checkdeals) are not!
I am sure, a lot more similarities can be found out, but the comparison is valid! Today’s eCommerce is very much similar to the Airlines industry a few years back. The Airlines industry continued on its low cost carrier focus and look where it has gotten to – still plagued by losses and Kingfisher on the brink of bankruptcy.
We need to do something really different with eCommerce if we dont want to end up in a similar situation a few years down the line!