E-tailing –Where are the profits?


Today in the ecommerce wave, every startup enthusiast and private equity supplier wants to bite a pie of the online business model.

The attractive projections from the discounted cash flow model spreadsheets and dashboards bombarded with colorful excel charts are mouth -watering and hold promises of the sky. Everybody wants to be the next Amazon, the next Alibaba.

But a very alarming and shocking fact could create ripples in this ecommerce theory.

The online giant-Amazon……..has still to breakeven in spite of twenty years of operations .Of course ,we all are aware of the immense potential of data mining of customer traits from its last twenty years business profile as a probable ‘gold mine’. But keeping it aside, Amazon currently is almost a ‘charitable institution’ running at income barely able to cover its shipping costs-as coined by blogger Matthew Yglesias

The question is not about the profitability of Amazon.

If the market leader is operating with such a skewed profit/cost business model, would it be pragmatic to expect the new etail startups to generate quick breakeven in the near future?

Are we talking of twenty years, thirty years stories to reach breakeven?

However ironical it seems, we are in a ‘ecommerce bubble’.

There will soon be a time wherein the equity supplier/angel investor/venture capitalist gets the bitter pill.
The initial customers do assure” variable cost recovery “ pricing, but as the operations begin expanding geographically, cost of additional customers starts hurting and the break even tip becomes as distant as a horizon. And given the scramble of competitors of all sizes in the market, there is a poor chance of adding the cost creep into the customer billing.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s