Former director of Infosys T V Mohandas Pai on Wednesday said that the domestic e-commerce industry may witness a shake-up in the next two years and only the top 10-20% of the start-ups will emerge as big companies.
Pai criticised the strategy of huge discounts and cashback offers followed by the domestic e-commerce firms, saying that the model supports growth but fails to gain customer loyalty.
"Biggies such as Flipkart and Snapdeal are just trying to grow fast by giving subsidies, which is wrong because there is no customer loyalty," said Pai, who is currently the chairman of Manipal Global Education.
Flipkart's losses went up by 180% to Rs.2,000 crore in the fiscal year ending March 2015 due to huge discounts offered by it to lure customers and fend off competition from rivals.
"And in the last quarter we have seen... Amazon has overtaken them because it has superior technology and better processes. Snapdeal has fallen back," Pai told PTI.
"I think, a very good shakeout... may come, maybe, in the next one or two years. Some of the weaker players will fall," he added.
Commenting on the start-up growth, Pai said "Many of them will die because they are not competitive. They are being kept alive by dollars of money."
Indian internet companies are already started witnessing "stagnation or decline" in their valuations as fund raising activity slows from the "unprecedented" growth in the first half of 2015. The firms have also been under severe criticism for their expensive valuations.
At present, India is home to 18,000 start-ups employing three lakh people, Pai said.
He expected the number of start-ups to increase to 1,00,000 creating 3.5 million jobs in the next 10 years.
"Those who copy successful start-ups will die and many others would fall by the wayside. Top 10-20 per cent (of the start-ups) will rise and become major companies", he said.