The E-Commerce Blue Ocean

We have been classifying E-Commerce industry in various ways , but I would like to present a new form of classification. I would like to classify the industry into 2 categories , one part which is purely electronic or digital and the second which is partially electronic ( electronic+physical).

So , how do we use this classification ?

Think in terms of the cost structure , a purely electronic form of E-Commerce will have a greater investment in the hardware to distribute , as in the majority investment will be a fixed cost and not variable cost.

eg. A book being available on kindle , amazon over here has to purchase the rights of the books once from the writer or the publisher , convert it into an e-copy and then can sell it how many ever number of times. So the cost faced by the company is fixed and not dependent on the number of consumers or customers.

Like amazon there are various examples like iTunes, software companies, online advisory, online education videos etc.

So as these companies have close to negligible variable cost the economies of scale work majorly in their favour as the average cost keeps reducing , and in turn the profit keeps rising.

On the other hand we have an Electronic+Physical E-Commerce , here we have a physical good and due to the presence of this physical good we have logistics , transfers , storage , maintenance etc. All of these costs are associated with a physical good and hence the physical good purchase and delivery comes with a high variable cost. Here the variable cost would be a significant part of the order purchase , as the number of orders rise the cost also rises (because of variable cost). 

Here we have players like flipkart and amazon , who use both inventory and market models. But the market model being more dominant , but the biggest problem with that is that the market model cannot achieve economies of scale . 

A market model would have 100's os sellers selling the same product at competitive prices , but what if these sellers were clubbed into 1 , the advantage this one seller could have commanded would have been a bulk discount which it could pass on to its consumers . This is exactly what a Walmart does and hence offers everyday low prices.

So , by this i would infer that it is much simpler to achieve economies of scale in a purely electronic model rather than a partially electronic model . Making the purely electronic model much more sustainable and profitable. Today we have the rising indian middle class who are looking at startups and also funding these startups , so this could be a good tool to evaluate , how and where you would want to invest or maybe have a start up.

The purely Electronic E-Commerce is majorly under explored , specially in terms of online services like marketing , consulting , trading etc. and there is a growing opportunity in these areas in the age where we feel the e-commerce space is saturated.

Thank You,

Sarthak Gupta