How do online shopping sites like Amazon, Flipkart, and Myntra work?
Explain in detail.
Please help me with this!
Answers
Answer:
There are two legal models of business that e-commerce companies follow.
Marketplace: In marketplace model, the company acts only as a listing site and a service provider. The sales transaction, technically, in happening between the seller listing the product and the buyer. Company charges the sellers some transaction/listing/shipping fee to facilitating the sale. As a buyer, (ideally) you should get an invoice from the seller, and not the company on whose site you found the listing.
Selling Directly: In this model, two sales transactions happen. The company buys from the seller, and sells to the buyer. So, the company gets an invoice from the seller, and buyer gets an invoice from the company.
Legally the second model cannot currently use FDI in India. Hence, Amazon exclusively uses the first model. Flipkart used to only have the second model, but was forced to convert to the first model to avoid getting caught in FDI legalese. Still, one of the sellers on Flipkart is WS Retail, which essentially functions on the second model. (So, WS Retail is what Flipkart used to be).
Irrespective of what legal model of the business is, the company can have three operational models for inventory and logistics.
Maintaining its own inventory, and taking care of customer logistic
Procuring products only against orders from sellers, and taking care of customer logistic
Not procuring inventory at all, and letting the seller ship to the customer directly.
Please note that any of the three operational models can be made to work with either of the legal models.
For example
When a book from a bestselling author, or a new, highly publicized mobile phone is launched, Flipkart would buy a large number of those and keep them in their inventory. Then they would sell it to the customers directly. They would do the same for many other fast-moving goods too. (Legal Model #2, Operational model #1)
For long tail items, they won't buy upfront. When they receive an order, they will procure it from the seller/distributor, and sell directly to the customer. (Legal Model #2, Operational Model #2)
Indiaplaza, while it existed, would not even procure from the sellers, but let them ship the products on their behalf. Legally the customer was still buying from Indiaplaza and would get an invoice from them. (Legal Model #2, Operational Model #1)
Amazon has a "Fulfilled by Amazon" offering, where they keep the inventory and send it to the customers as and when orders are placed. The customer isn't legally buying from Amazon though, but from the seller directly. Amazon is also not buying from the seller. It is only providing "storage and fulfillment service" to the seller, for which it takes some commission. (Legal Model #1, Operational Model #1)
Amazon's another offering is where they procure the items from sellers against orders, but ship it themselves. (Legal Model #1, Operational Model #2)
Finally Amazon lets sellers ship directly to the customers too. (Legal Model #1, Operational Model #3)
I am sure other permutations and combinations can be and are in use. But I hope this gives an idea. Yep! It's complicated!
Explanation:
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