Cash discount

We all know about the Wal-Mart effect. It’s legendary how founder Sam Walton expanded across America by relentlessly driving down prices, year after year. Something similar is happening in India. No, we are not referring to Big Bazaar or Reliance Retail: the prize for driving down the sticker price must go to some of the e-commerce start-ups.

While the whole process of disintermediation or cutting down distribution cost is translating to savings for customers, there is another significant contributor these days: venture capital. This almost free cash, sorry... freely available cash, is being used by wannabe Waltons of the digital age to buy customers, sans the scale efficiency that Walton painstakingly created. The new success mantra for venture-backed retail is to buy customers, not getting customers to buy. 

It’s a dangerous game, almost like betting blind, because it doesn’t seem to matter these days if the start-up is not ready with the right product, or if it is only halfway there in terms of service, or if the supply chain is not all fixed… the only thing their financiers would like them to do is: take the money, go all out and fail fast. Agreed, fail fast is a great philosophy, but the current environment of easy money has lowered the threshold a little too low. There seems to be irrational exuberance with respect to services such as hyperlocal ventures and e-commerce. 

How long this madness will continue is for anyone to guess, but what is clear is that we are in a phase where there are far too many me-too start-ups getting funded. And they will destroy more value than they will help create. This great transfer of money from the pockets of investors into the e-wallets of ‘customers’ is the focus of this issue’s cover story that begins on page 60.  

Among other stories, on page 28, we have a feature on logistics player gojavas, a beneficiary of the current e-commerce boom. Continuing with the flavour of the season, there is also a piece on online health services