If you are keenly following the development and growth of e-commerce then you would realize the overall objectives of the various portals/mobile apps vary. Some are to deliver immediate physical or digital benefits which you could count and put into action as you pay for it. For example, when you buy any product or service through the internet from a digital/e-commerce company you get a tangible benefit either in terms of products or services. This is easily understood. e.g. medtech, edutech, fintech, grocery, beauty, electronics, and many more categories. They are transactional in nature. You pay something to get something. Pretty straight forward. Their business growth is also well defined. If there is a reasonable product/service -market connect then you have hit the bull’s eye. And there are plenty of Indian success stories around. Like Flipkart, Naayka, PayTM, Bookmyshow, Makemytrip, etc. And many more. Here, the funding is also maximum as the funder tries to understand the future cash flow of the business depending on the scale. So, they fund to scale. Because it does not take much time to be understood even by the target customers, provided your pitch is correct with 5Ps. I call them TRANSACTIONAL e-commerce. Everyone in the investment and associated ecosystem understand it much better. Here, cause and effect calculation are comparatively easy as it is qualitative in nature.
There is a second kind of e-commerce where I am not transacting at all in terms of cost versus benefit. I am not trying to buy anything. It is more cognitive in nature. Here I put my opinion to influence others. It takes time for the target audience to understand any new platform offered by the startup. At the same time, it becomes a little difficult to convince any funding agency about its efficacy. Because the gratification is not immediate. You can not quantify it immediately. Single opinion has no immediate market. But if your hypothesis is correct and it fits into the minds of the target audience then this has lots of potentials as it acts as the carrier of public opinion. But to become the vanguard of public opinion you need a good amount of money to promote it. People must be convinced of its weight. With correct positioning and funding, it has a tremendous long-lasting effect. This will definitely translate into enriched valuations. I call them TRANSFORMATIONAL e-commerce. Yes, I call them e-commerce because it influences your mind to act as a catalyst for a certain type of commercial activities either instantly or in the future. It generates opinions. It is loaded with the opinion which emanates from crowdsourcing. However, it is not easy to calculate future cash flow and valuation by a standard financial technique like DCF. And hence the cash infusion to scale the business is a matter of challenge for any founder. But, if the pitch is proper and there is financial backing there is no need to look back. An apt example will be Twitter, the microblogging site. It has become so powerful today that Government officials/ministers use it as a medium of official communication to influence. It can act as a quasi-public system aka. Government. It is qualitative in nature.
Lastly, there is the third category. Here, it starts with the TRANSFORMATIONAL model but with time eventually shifts to a certain amount of TRANSACTIONAL model. Here, the “Freemium” business model is quite common. Here, you first try to influence the right brain (soft feelings) only to eventually strike the left brain (analytical). So, your journey of transition travels from mind to money. Eg. Facebook, LinkedIn, etc. In my opinion, the life of transformational e-commerce or digital platform is comparatively longer and robust. Nonetheless, it is an uphill struggle for any founder to convince the funding community with a transformational e-commerce model in spite of a better long term defence system.
-Debasis Chatterji (CEO )