The right to play, the right to win, offensive and defensive strategies and other thoughts.

As a company, you can be on the offensive or you can be on the defensive.

Let’s say you are a conglomerate. You have a gaming business that generates a lot of free cash flow. It would be logical for you to use that cash flow to get into other businesses and try to win at them. You can subsidise several businesses over a number of years and you can out-compete other players thanks to your balance sheet. You have a right to play. Maybe even the right to win, if you do a good job of execution.

A lot of companies aren’t just in the game for the sake of playing the game. They want to win. When Dara came to Uber, he decided that Uber was only going to compete in markets where they could be number one or two, which he defined as winning. He got out of their AV business. They got out of markets where they were not in a position to win.

Some companies have to make the choice to be in the game, even if they can’t win in the strictest definition of winning. You are a ride-hailing business in Southeast Asia. Your rival operates in several countries. In some of the markets, they are the largest player. They can set the prices they charge. They are generating excess cash that they can burn in your home country and take market share from you.

So even if your cash position isn’t strong, you might still have to play in those other markets so that the market leader can’t abuse its position as the number one player and generate enough free cash flow to outspend you in your home market.

Not letting the competition generate a lot of FCF in markets that you can’t win, and giving the customers an alternative in case the number one player abuses its monopoly position, is reason enough to play.

This is mostly a defensive game.

Closer to home, the e-commerce game is heating up.

The game of eCommerce is an optimising problem that consists of the following variables:

  • assortment / selection (more selection is better)
  • delivery time (the shorter the better)
  • reliability (the higher the better)
  • constrained by how much it costs to fullfil a delivery.

Ideally, you would like to offer your customers the widest possible range of items, deliver in 15 minutes, with a high level of reliability, and at the lowest possible cost.

But if you want to deliver in 15 minutes, you can’t have the widest range of products. Assortment depends on the size of your fulfilment centers/dark stores. You can’t set up dark shops in every place with huge stocks. If you’re delivering in 15 minutes, you can ensure reliability for groceries, but when it comes to high value items like expensive electronics, you’re going to want to check and control quality. You need a lot of SOPs for reliability. You want a high rate of fulfilment. You want to have fewer null searches (which means you need to stock more). This is harder to do if your focus is on speed. And your costs go up if you still try to maximise on all fronts.

Quick commerce players have by now trained people to choose speed provided certain reliability bar is met. People have moved from just ordering food to npw ordering low-cost electronics and even buying rakhis and legos.

As quick commerce players enter more categories and take market share in these categories, it is inevitable that bigger players like Flipkart and Amazon will fight back: first to defend quick commerce players from moving into higher price point categories, and then to go on the offensive once they have redesigned their supply chain to compete on 15-minute deliveries.

So the question is, which will happen first?

  • quick commerce scaling to more categories at the same logistics cost and delivery time.
  • e-commerce players figuring out how to compete on faster delivery, first for high priced items to defend those categories from quick commerce players, and then to take share from existing quick commerce players in low AOV but high frequency categories like groceries.

It will be interesting to see how this plays out.