Isnt it natural that growth slows as the base grows.
Anyways, the paid listings growth is only for 5 more years.
The story to watch out is the ecommerce story.
What the management says based on the pilot run, is quite the contrary.
17K is average ticket size - much higher than the traditional ecommerce.
Seeing good traction in ticket bookings, etcā¦
Refer: Q4 2015 - Earnings conf call transcript.
Depends on if one believes the management story. I too am little taken aback by the numbers.
I doubt if there is much loyalty among customers - most customers will buy from whoever gives the highest discount.
Differentiation is key - Differentiation can come in the form of faster delivery (local ecommerce can do that), the SME person delivering and also explaining/demo-ing how the product works. So, JD model has lots more ability to differentiate vis-a-vis what Flipkart/Amazon/Snapdeal can do to differentiate against each other.
It also implies that those looking for the highest discounts may continue to go to Flipkart/Amazon (at least as long as they continue to provide discounts) while those looking for a differentiated service may go to JDā¦ It is not necessarily a winner-takes-all game.
It is possible based on where the pilot was done. But I doubt that this will be a pervasive practice. If history of the web and its adoption has taught us anything, people gravitate towards the winner in a segment. The āaggregatorā model did not really play out well. So, you donāt see the web portals (who were aggregators) making much money. JD has an advantage in the area which I mentioned, where there is not much competition. So, their performance is a key monitorable for the next 1/2 quarters. One will not lose much to sit and wait, given the valuation. So, there is the luxury of waiting to see the thesis play out. If it works out well, then a opportune market correction can provide an entry point. Else better to stay away. The chances of things not turning out the way the management things and investors hope it will is high.
Ecommerce is not a web-businessā¦ So, not to be confused with pure web-businesses like Facebook, Google, etc.
Ecommerce is 10% web + 90% offlineā¦ If you compare with offline retail - only merchandise display and payment is done on the webā¦ Everything else - including sourcing, merchandising, distribution, logistics, warehousing, inventory management, delivery, customer returns, etc etc - is done offline.
The logic of winner-takes-all may be more true of pure web-businessesā¦ I doubt it equally applies to 10% web + 90% offline businessesā¦
Also note: A web-portal which is an aggregator and makes massive money (more money than any other web-business) - Google. So, it is not true that āaggregatorā model doesnāt make money
Agree that there are lots of ifs-and-buts in the storyā¦ A lot depends on how it develops.
Google makes nearly all its money being a search engine, and the best one at that!!! Larry Page would die if someone called Google an aggregator 
The google news and other addons are aggregations and google hardly makes any money on them. Yahoo (other than the search), Rediff etc are aggregators.
All businesses are offline businesses. Even amazon is an 80-90% offline business. In fact, Bezos says that he is in the warehousing and distribution business. The online / web part is the sales channel. That is it. Everything else is offline.
@ankitgupta So, to answer a question Ankit had asked previously, if you gave me 1000crs, then I would get into areas which are not addressed by the traditional online folks. So, give you the references of say doctors in an area with a certain speciality, teachers, professional people like plumbers, technicians, carpenters, caterers etc. basically, be the craigslist for India - a channel for classifieds where people do not necessarily buy & sell products but are seeking to trade information.
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Google/FB is 10% offline + 90% online
Flipkart/Amazon is 90% offline + 10% online
The degrees of online/offline are varying - which means that both capital structure and operating leverage of the businesses will vary dramaticallyā¦
And when capital structure, and operating leverage vary dramatically - then industry structure will also varyā¦ Which is why I said - just because Google/FB has a āwinner-takes-allā industry structure, you canāt assume the same for ecommerceā¦
Would you call Youtube an add-on? Youtube aggregates a million channelsā¦
Revenues are from ads - that is the revenue model.
The business model of Google (including āsearchā) is an āaggregatorāā¦ It aggregates all online content, and allows a user to pick and choose the content through search (web search / video search / news search / map search / etc)ā¦
JD aims to do the same thing - it will aggregate all retailers and allow its users to pick and choose which retailer to buy fromā¦
Your definition of aggregator is not the industry standard. Youtube is definitely not an aggregator. It is a content platform where users put in self-generated content. It does not aggregate content from other sources available elsewhere on the web.
https://en.wikipedia.org/wiki/Aggregator ā please go through this and understand what an aggregator means. That should help clarify your doubts.
I will take a break from the thread here. I guess we are discussing their future plans mainly on propositions and hypothesis without sufficiently backing it by data (I am guilty as well). A few posts are alright but the entire thread looks littered with our example and counter examples. Let us agree to disagree and let our next post be backed by data.
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Long discussion. Looks like a very busy day for @PP1 replying to all the querries
few doubts :
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why would Flipkart or amazon like to list on JD. Understand it would allow them to sell their products on JD platform but isnāt JD a competitor in this case. I can understand that a small company or an e-commerce company ABC would have its website for selling products and it would list on the market place of other companies to get access to more sellers. But why would the giants - Amazon / Flipkart or Snapdeal would like to list on JD. They have spent a lot on advertising and would prefer the customer to go their own website for purchase rather than helping JD.
Question : Can JD show flipkart snapdeal listings on their platform without authorization. I donāt know so I am asking. Though i dont think so as I believe it would lead to copyright violation. -
Customer service : in e-commerce customer service is very important , otherwise why would the players spend so much money on it. If I order a product through e-commerce and has a bad experience , then i will not buy again from the site. Now since JD is providing only platform, so i buy on JD app thru some SME but there are so many SMEās how does JD ensure good customer service and if that doesnt happen why would i buy from JD again.
Also, it may not be economical for an SME based in mumbai to deliver products in other states or maybe even in same state as he may not have the required logistics , warehousing etc. These things are taken care of by players like Amazon and Flipkart. And the prices have to be competitive to attract buyers so just entering into an agreement with some logistic supplier will not help if it not cost effective. SMEās on their own are unlikely to get good deal from big logistics player. -
Valuation - as i believe a good e-commerce company can be valued at twice the sales. Now as per PP himself if the present business of JD is not going to grow much , how do they expect to sustain valuations.
why do you say my comments are irrelevant ? I am perfectly fine with you calling me names. Infact, my thoughts were in reference to post no. 6/ post no. 3 (of yours - where you talked about having dozens of apps/faster delivery etc.).
While you may disagree, experience has proven that branding is all about occupying a niche - thatās why you go to redbus for bus tickets even though you can book the same on makemytrip. Itās also partly because redbus, being foucssed only on buses understands nuances far bettter than a make mytrip can (for eg., women only seats etc.).
If you disagree, please argue with me using data points - the fact that websites like zomato, tinyowl, ola, uber which were launched much after JD and now hyperlocal chains like grofers/big basket have now started occupying consumerās minds is real and can be felt.
for the record, I also got this input from one of the early investors of JD (who exited with fancy returns).
if you have a confirmation bias and think your thesis is the only one holds true, please support it with data points. My thesis is as a market matures, a āone size fits all aggregatorā model gets converted into a "vertical/horizontal focusssed aggregation " (like zomato, ixigo, uber, ola, tinyowl, fabfurnish etc.
He has still not come back with answers for my data where in I have posted red flags. An investment is not done on assumptions and hypothesis. There is no clarity at all in the business/business model and further there is no visibility in terms of paid listings. Ok they have a fantastic growth in the past aided by a first mover advantage but all new investments need to be evaluated in terms of fast changing landscape.
My only question : Why company is not transparent in paid listings? ( revenue stream). Why are they talking abt searches and total listing which are not so relevant?
What you are saying where is there is an edge for JD is low low end of the business. There also some names like practo, etc are emerging.
Rgds
I am not sure if it is low end. It is just a different market. I think JD had (mind the past tense) model in their mobile / local search. I think the landscape is changing very fast in this space, so difficult to see what or who will do well in the next 3-5 years. My challenge is the current valuation leaves a lot of opportunity to step back and observe this from the sideline and see how this whole space plays out without much of an opportunity cost.
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This is a very good approach and typical of a matured investor. 100% agreed. In this great Forum, we have lot of investments with beautiful clarity. For the sake of repetition ( pardon me for this), unless clarity emerges on paid listings ( recent years are critical than past), it cannot be looked upon.
Rgds
I agree with PP that SME segment is under penetrated in India compared to other countries. The success of chinaās Alibaba and its valuations high shows its a viable model.
But over the years other players have emerged. For example India Mart provides SME information in a clearer and more user friendly manner compared to just dial. @Akbarkhan In its early years JD was a godsend to collect information quickly. But Google and other industry specific services like makemytrip , zomato,ola etc has made JD almost redundant. Even OLX is able to list services which cannot be placed in a traditional e commerces. People in my Tier 3 town have managed to sell 20L worth used heavy machinery on OLX,3 times more than what was offered locally. OLX allows listing and selling of puppies too:)
In VP we do look at personal experiences right? Scuttlebutt? Other services are doing a better job than JD. Software and user experience wise JD is way behind and not as helpful as others. So not my source for searching SMEs(something which I do on a weekly basis as a part of my business)
SME commerce space is a lucrative space to watch out for.JD is not the only or best option for SMEs. But JD has to burn a lot more of its cash to keep up the game, it wonāt be easy.
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Too many questions - which I will try to answer in one shotā¦
Structure of retail in India
Less than 1% is online retail, so the rest 99% is offline. This 99% breaks into 7% organized retail, and 92% by local SMEs
JDās strategy is to bring the 92% by local SMEs online.
There is no point getting fixated about JDās ability to compete with Flipkart/Amazon/Uber/Zomato - because they are only 1% of the pie
It is ridiculous to over analyze that 1% of the pie, while missing the 92% of the pieā¦ JDās success will depend on their ability to expand their existing business around the 92%
Are vertical online businesses (Zomato/Uber/Flipkart/Ola) a threat to JDās current paid listing business, and future ecommerce strategy?
NO, for various reasonsā¦
- They belong to the tiny 1% of the pie
- Numer of restuarants listed on Zomato is merely a fraction of number of restaurants listed on JD
- The ability of these vertical businesses to scale is limited to their ability to raise fresh rounds of fundingā¦ Scalability is questionable, even if they manage to survive without fresh fundingā¦ JD on the other hand generates huge FCFsā¦
- None of these guys are making any profitsā¦They havenāt figured out a real business model yetā¦ So, most of these may not exist 5 years down the line (when the global liquidity bubble - which is allowing these fellows to raise funding infinitely - dries up)ā¦ JD, on the other hand, has a profitable/viable/capital efficient business modelā¦
- JD is adapting and evolving itself to better take on the competition from these vertical businesses - becoming an aggregator, moving from pure āsearchā to āsearch+discover price+transactā, essentially nullifying many of the advantages of these vertical businesses
- JD will primarily serve as an aggregator - so they donāt necessarily compete with the vertical businesses, but complement themā¦
- JDās operating model sounds way superior to those of Zomato. E.g. on Zomato, the restaurant menus are images, and these cannot be updated by the restaurant owner.
Contrary to this JDās plan seems to be to provide a cloud based software solution, using which the restaurant owner should be able to update his menu / change pricing / take orders / etc. Zomatoās platform has clear inherent limitations for scaling up - because it will be cost prohibitiveā¦ - There are vertical startups only for a few areas, out of the hundreds of areas that JD servesā¦
YES, for various reasonsā¦
- They are more specialized with more specialized information E.g. Zomato has far in-depth information on its listed restaurants than the current JD platform (though the JD platform is expected to be completely revamped and relaunched within a month)
- They better meet evolving customer expectations, as customers are looking for ability to know prices / read reviews / buy online / etc. This is not supported by current JD platform, but is the core of the new JD platform expected to be launched with a month
- Not clear if there are any branding advantages - there may be someā¦ But in retail, branding has never worked, and any advantage is often fleetingā¦
On valuations
Depends on oneās evaluation of the moat around JDās current listing business.
Depends on oneās evaluation of the opportunity size for JD (92% of the pie)
Depends on oneās evaluation of the āsearch+discover price+transact onlineā strategy of JD
Depends on oneās evaluation of probability of success of this strategy - in terms of actual execution and customer tractionā¦
Valuation of technology businesses is a nightmareā¦ Nobody has figured out how to do that yetā¦ So, it is very much a personal callā¦
By your thesis - marketplaces like Flipkart/Amazon/Snapdeal (which are aggregators of retailers) will give away to what?
Not always good to depend on such formulaic notions. A case-by-case and detailed analysis helps reach far better conclusions.
If JD ecommerce doesnāt pick up traction - then Flipkart/Amazon will have no reason to hook up with JDā¦
If it gains traction - then they are far better off being hooked up in the JD platformā¦ Because they gain sales, and at most have to pay a few rupees per sale as commission to JDā¦
E.g. If you go to JD website now, and search for āDealsā - you will see that the deals are actually being served by āGrouponā, which is a very large multinational company with $3.2 billion revenueā¦ Why are they hooked up on JD? I guess because they want to increase their salesā¦
Another reason is that Flipkart/Amazon cannot ignore aggregatorsā¦ Even Google is working towards being a ecommerce aggregatorā¦ Can Flipkart/Amazon ignore Googleās aggregation and choose not to hook up with that? I doubt itā¦
How JD manages customer service is a big question markā¦ They will have some sort of preferred list of retailers (JD approved - just like - Amazon Fulfilled).
There is also the negative feedback cycle - so if a retailer gives bad customer service, then he is running the risk of decreasing his chances of being served to the customer on the JD platformā¦ So, good behaviour would be incentivisedā¦
Nevertheless, it is a risk areaā¦ This risk is also there for marketplaces like Flipkart / taxi aggregators like Uberā¦