E-commerce start-ups: Burning More Than Earning

Sucheta Dalal 26 December 2017

Economy & Nation

E-commerce and social media sites, with bizarre value propositions, are hell-bent on throwing money down the drain. The attraction to do this is so overwhelming that private equity managers themselves are crossing over and starting up such businesses. Media reports say that Gurugram-based local discovery, rewards and e-commerce platform, Magicpin, has spent about Rs10 for every rupee earned during FY16-17. It netted revenues of only Rs1.83 crore, but posted a loss of Rs17.3 crore. What is the attractiveness of Magicpin to its investors which includes well-known global private equity fund Lightspeed? It claims to “show you the best local experiences that people in the neighbourhood are having—from the hippest cafés, to the yummiest dimsums, the trendiest fashion boutique, luxurious spas…” Or it could simply be that Lightspeed’s employee Anshoo Sharma thought up this idea to raise funds.

The business model is based on users sharing their experiences of restaurants, nightlife, beauty and fashion, and inspiring others to discover and try these experiences. This is how Magicpin describes itself: “Social networks continue to specialize—Pinterest for design, Twitter for media, Instagram for pictures, Linkedin for professionals; Magicpin is the social network for ‘local experiences’.” Clearly, it is not yet working. It is extremely tough to catch the attention of distracted users in the 16-32 age group and keep them engaged, although it claims to have over 100,000 downloads of its app.

Magicpin has to compete for attention with Nearbuy (acquired by Paytm). Snapdeal started with a similar value proposition (deals for salons, spas and restaurants); when that failed, it became a full-fledged e-commerce portal and blew up more money. Magicpin is one in a long list of start-ups online that have too frivolous a value proposition to turn profitable. Even Pepperfry, which sells household effects and furniture, remains unprofitable. In 2016-17, it narrowed its loss to Rs128.8 crore on revenues of Rs127.5 crore. Its competitor, Urban Ladder, lost Rs185 crore on revenues of just Rs34.4 crore in FY15-16.

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