There has been an explosion of e-commerce companies since 2012 and in a bid to secure a larger share of the market these firms have resorted to discount wars.
The discount model has significantly dented their revenues and as a result none of the e-commerce firms have reached the breakeven point.
Besides charging a listing fee from their merchants, e-commerce portals are looking at alternate revenue streams as they move to reduce burden on sales. According to industry estimates, e-commerce portals in the country are expected to breakeven by 2020. But if e-tailers continue to offer discounts at the current pace the dent on the revenue can cause severe pressure on their margins.
Industry experts see this change in strategy by domestic e-commerce portals similar to the practises of their foreign counterparts such as Alibaba and Amazon. In Western markets, Amazon is competing with the likes of SAS and IBM as 30-40% of its revenue is generated by its cloud computing services.
Amazon also charges $100 from every prime customer every year for offering special services as one-day delivery.
Alibaba on the other hand was a B2B platform before turning into a customer facing powerhouse and its B2B clientele continues to contributes 40% of the revenue.
Ankur Bisen, senior vice president of retail and consumer products at Technopak said, “Since last year advertising of discount sales by e-commerce portals have been comparatively muted which is a good sign.” Bisen further explained that this trend of shift in preferences indicates that e-commerce portals are focussing significantly on alternate monetisation model to become sustainable in the long-run.
Among the three largest e-tailers in the country, Amazon has been successful in building a diverse business model to contribute additionally to its revenue stream over the last 5-6 months.
It features sponsored products where sellers can enhance the visibility through a keyword-bidded advertising programme and Amazon earns the fee when the ad receives clicks, explained Rohit Kulkarni, senior manager – new initiatives at Amazon India.
Recently, Snapdeal also launched services such as the native ad platform and Sherpalo for seller to reduce pressure on sales of merchandise to consumer. Snapdeal also offers a variety of value added services for its sellers but the advertising platform will be a paid services. In addition to customer-seller engagement the ad service will also provide campaign analytics to the seller.
India’s e-commerce poster boy Flipkart has also launched an advertising platform but unlike Amazon and Snapdeal, Flipkart offers its services to all brands in the industry. Over years Flipkart seeks to strengthen its advertising portfolio and monetise its large user base.
The fourth largest e-commerce player in India, Shopclues is also engaged in value added services to its merchants which comprises 10% of its total revenue. “Value added services include the micro site that we provide to our merchants, digital catalogue services, invoices, photo shoot services, market place to provide working capital, and marketing services,” said Radhika Agarwal, chief business officer of ShopClues .