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Distribution In The Internet Age

While browsing today I stumbled upon the sevenymm.com website. I remember signing up for their service in Mumbai the very moment I bought my first LCD TV and home theater system back in 2008. They provided a very efficient service for DVD rentals and had an offering of wide range of Hindi / English movies. My weekday after office hours were pretty much  occupied watching rented movie DVDs from them in an effort to maximize my return for the monthly membership fee ( 20 movies a month for 300 rupees wasn’t a bad deal at all ). To my surprise seventymm.com  has turned itself to an e-commerce site now. One more e-commerce website as if we din’t have enough.. I din’t even feel like figuring out what they are offering, closed the tab within seconds.

But then it got me thinking why such a seemingly promising business, which was then one of the largest invested start-up ventures in India with a capital investment of  INR 90Crs  from the likes of Matrix Partner and NEA-Indo US Ventures, died within few years. Why none of these VCs could foresee the future of content digitization and distribution through internet. India is at least 5-7 years behind in adoption of internet and access infrastructure. It should have been easy to predict the future then by just seeing trends in developed countries. By 2008/09 I think even Netflix had a bigger streaming business than the DVD rentals.

The crux of the story is if you are in a business of any good or services, then you should completely re-think your distribution strategy as some point of time the internet will redefine the whole value chain. Today in India, internet is primarily used for communication, information or entertainment. But may be in another 3-4 years it will become the primary medium of transaction. When I say primary medium of transaction, it doesn’t necessarily mean purchases or payments on web. A transaction is a final business deal or a closed negotiation for buying/selling goods and services. The how and where of the transaction will always involve interactions beyond the web. Internet is definitely reducing the need of a middle man by bridging the information gap between  the buyer and seller  but it will never eliminate a middle man completely. In a country like India where we spend 13-14% of our GDP in logistics because of infrastructural issues ( which is not going to go off for next 3 decades at least) cracking a cost efficient direct to consumer delivery model would need a genius like Professor Charles Eppes (a fictional character of popular series“Numbers”). Unless that happens e-commerce players will continue to be under tremendous pressure for profitability and success for them will be a matter of being able to get more VC money to blow. So instead of fretting too much over “e-commerce” what companies should focus on is building a robust “e-distribution” model. Instead of reinventing the whole distribution chain why not tap into the distribution chain which is already there and probably carries lot more credibility and connect with the local community. What bigbazaar is trying to do is actually incredible. They will convert the existing kirana shops to their franchisee and manage a global portal for ordering while ensuring the delivery and cash collection through the local kirana shop. Some point of time they could think of creating a local procurement hub for big franchisee clusters and reduce the cost of logistics of sending goods from a centralized warehouse. This way they will minimize both their inbound and outbound logistics cost hence increasing their profit margin.

Internet is already big in India with 150M users and will mostly double by 2015.Mobile internet usage is growing like wild fire with the increasing smartphone penetration and reducing data cost. Given these trends internet will be the largest medium of reach to Indian consumers  ( Currently the TV viewer universe in India is estimated to be ~230M ) and will diminish the value added by many intermediaries . So if you are a business of  intermediary or distribute through intermediaries, it’s high time to re-think and re-design your business model.

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