That means losses can be profitable !
Well, don't blame me if I am saying something that doesn't exist in Economics 201 textbook. The fact is that the world's biggest e-retail giant Amazon has only last week posted its financial results for the US market. For the third quarter ending September 2014, it posted a 'gigantic' $544 million losses. And Amazon has already announced that the losses will continue for the fourth quarter also. In India, "our own e-commerce outfits are just through with our own holiday season, and they have turned up no surprises. They're not publicly listed so we don't know the numbers, but one can safely say that they would have lost huge sums of money because that's what they intended to do. Each one of them is making large losses and they all routinely go and get fresh rounds of money from venture funds or, as in Amazon's case, from a parent company." (No surprise: The plot thickens in country's e-retail story. Hindustan Times. http://bit.ly/1wD9AHT).
As per the latest balance sheet, Flipkart has accumulated losses of Rs 281-crore.
I tried to look deeper. Amazon, the world's biggest e-retail giant has been in business for some 20 years and has never made money. This means that losses are not only profitable, but are also sustainable. In a 3-part series International Business Times did look at various business practices being adopted by Amazon. I am particularly sharing this chart which tells you that while the revenues have continued to skyrocket, the net profit has remained more or less static thereby bringing in huge losses. How can any business remain business in such a depressing scenario? Well, certainly the plot thickens.
This chart gives you Amazon.com's revenue and profits between 2004-2014.
Source: International Business Times
nearly-20-years-business-it- still-doesnt-make-money- investors-dont-seem-care- 1513368
I asked economists and economic writers about this strange phenomenon. Everyone I asked told me it is a bubble that will soon burst. Some say that Amazon is surviving because the venture capitalists are funding it. The same holds true for Flipkart and Snapdeal. But this too defies any economic logic. Why should venture capitalists be funding a losing business enterprise? After all, no one has money to throw.
I am not sure about the future of Flipkart or Snapdeal, but the fact remains that if Amazon could survive with losses for nearly 20 years now, I see no reason why its Indian versions would not succeed. And if Flipkart also continues to be in business for even half the period that Amazon has been, and that too with huge losses year after year, it shows that the new business model successfully crafted by Amazon goes beyond what the likes of Adam Smith, John Maynard Keynes and the tribe could have ever imagined.
It's time therefore to rethink the very concept of business. Business is not only about profits, a loss too is an asset. If this is true, it challenges the popular perception of what constitutes a successful business. In other words, if Amazon can demonstrate that losses are profitable and that too for 20 years, why shouldn't the other business follow the trend? Why do traditional businesses go bankrupt while e-retail continues to grow and expand? Have economists been hiding the real truth from us all these years? Whatever be it, the plot only thickens with every passing day. #