Global e-Commerce markets have touched $3.46 Trillion online in 2019, up from $2.93 Trillion from 2018, as per a forecast published by Digital Commerce 360. This global scenario certainly looks promising, with a rosy picture being portrayed about its future prospects. Yet when you look at individual organizations, there are only a handful of organizations that are making money. If you look from the Indian context, it stood at $39 Billion in 2017 and is expected to grow at a rate of 51 percent, to $120 Billion, as per a report from IBEF.
With so much upside potential for growth, it is obvious to expect a heavy inflow of investments. As of 2019, if you look up for a profitable eCommerce venture, you will hardly find any. Despite so much potential and growth, not a single eCommerce company in India has been able to form a sustainable profit venture. In fact, even in 2019, both Amazon and Flipkart made losses to the tunes of thousands of crores. An obvious first thought here is, have these large corporations planned out their business model before investing heavily? These MNCs would certainly have made some definite plans for the break-even point. With this idea, let’s look at some of the methods eCommerce companies make money from and are these methods good enough.
How do eCommerce companies make money?
eCommerce companies do have various avenues through which they make some income. Some ways by which eCommerce companies make money are as follows
- Subscriptions – An Amazon prime or Flipkart plus membership fee is a lump-sum amount charged by eCommerce companies. In return, you get some added benefits like free delivery, loyalty points or access to their entertainment platforms. These programs get recurring money from customers for year on year basis.
- Commissions – eCommerce companies also make money from the commissions on the products they sell. This commission could range from anywhere between 2 to 20 percent and in some extreme cases also 30%. The larger the volume from a single company, the smaller would be the commission pie.
- Exclusive Product Launches – Some companies like Xiaomi and OnePlus would tie-up with the likes of Amazon and Flipkart. This would allow lower distribution costs for the manufacturer. Also, web commerce companies shall have exclusive privileges in this business.
- Targeted Ads – Basis the browsing history, these eCommerce companies sell very specific ads to the target segment. Since the customer has been browsing for the products, conversion ratios are usually high in such cases.
- Sell their own brands – Several companies would also create their own brands like Amazon has Kindle, Solimo, Echo, etc. This is where eCommerce companies enjoy a fair share of their margins.
- Cross-sell products – Cross-sell is an easy opportunity which most companies follow. If you bought a new phone, you might need a phone protection insurance. If you have a newborn baby, health insurance and Baby products become an obvious purchase option for the target audience.
All these income-generating opportunities bring in some revenue to these eCommerce companies. However, the marketing cost to get a customer to the website and ensuring conversion from visit to purchase requires strong monetary motivation for the user. eCommerce companies are investing heavily in such conversion. Hence we see only top-line growing and losses widening.
Someday this music will have to stop. Then either eCommerce companies will have to stop deep discounting or new entrants will disrupt markets with VC money.
Is the future oversold?
So eCommerce companies are making some money, maybe not enough as of now. Most of their revenue streams are based on economies of scale. For a sustainable and scalable model, they need both market share and that amount of data to break-even.
Gaining market share
New age internet commerce companies are disrupting ways of how the business has been done so far. They bring much-needed efficiency to the business. It definitely is putting pressure on some of the legacy and small businesses. Indian companies were not able to address heavy logistic costs and system inefficiencies. eCommerce companies, on the other hand, have addressed these inefficiencies to a large extent. With realty cost, increasing and demand for comfort at an all-time high, eCommerce companies have a strong push for a strong future.
Is Data the new Oil?
eCommerce companies have created a pitch for future basis the data and possible use cases. Now, this data ownership is under dispute in recent times. Who is the real owner of this data, producer (user) or the companies which this data could be associated with? Personally identifiable information obviously should belong to the producer, however, eCommerce companies have a claim to the contextual data. An example of contextual data would mean – If a user is looking for an X product, he shall opt for A, B and C products. Importantly, there are limited use cases explored for monetizing data. With ownership issues and limited use cases, eCommerce companies have a mountain to climb and prove their pitch on gathering data.
Parting Thoughts
eCommerce companies have made a strong entry and disrupted Indian markets. But this was with deep discounting which is relatively an easy kill. As of now, the data pitch does not sound more than a hollow pitch. With the test of time, when deep discounting music stops, we will know who gets the throne and who is out of the game.
Also Read – Digital Ecosystem in 2025
References
https://www.digitalcommerce360.com/article/global-ecommerce-sales/
https://www.ibef.org/industry/ecommerce-presentation
https://yourstory.com/2019/11/flipkart-amazon-india-losses-ecommerce-walmart
https://hackernoon.com/the-amazon-effect-how-do-e-commerce-companies-make-money-720fc4daeba5
