The Great E-Commerce Delusion: Selling Dollar Bills for 80 Cents

My parents were dumbfounded when I bought an air conditioner online without inspecting it physically. They were even more surprised by the white-glove service—on-time delivery and excellent packaging. We were all satisfied. But as Mr. Charlie Munger always said, "Invert, always invert." Instead of just enjoying the cool air, one must ask: Does the arithmetic of this transaction actually make sense?

I felt compelled to write this not out of satisfaction, but out of sheer disbelief at the economic irrationality on display.

The popular media tells us these large e-commerce companies make no profit. For once, the media is understating the madness. Revenue is growing, yes, but so are the losses. In the corporate world, where "audited financials" can sometimes be a work of fiction, you can safely assume the reality is even uglier than the adjusted EBITDA they feed the public.

Consider the data from the recent fiscal year (FY25). Flipkart generated over ₹82,000 Crore in revenue, yet managed to lose over ₹5,000 Crore. Zepto, the new quick-commerce darling, saw losses swell by 177% to over ₹3,300 Crore. They are growing like a weed, but they are burning cash like a drunken sailor. Only a few, like Zomato (finally posting a ₹351 Crore profit) and Delhivery, have begun to respect the laws of gravity. The rest are still practicing "profitless prosperity."

The air conditioner I bought was 25% cheaper than at the brick-and-mortar store. I am supposed to believe this discount comes from "efficiencies" and lacking a physical storefront. Rubbish.

The math is simple. The e-commerce company is not gaining. They are subsidizing my comfort with shareholder capital.

The brick-and-mortar store lost the sale. If this continues, they will have to cut prices to survive, engaging in a race to the bottom where nobody makes any money. This is a classic "tragedy of the commons."

The government is also losing. Lower prices mean lower collected taxes. It is a lollapalooza effect of shrinking returns for everyone involved—except the consumer.. 

Can a business survive when no one gains? Certainly not. You cannot keep selling things for less than they cost and make it up on volume. That is not a business; that is a charity run by venture capitalists.

The only silver lining is Schumpeter’s "creative destruction." These companies have created employment—delivery boys and logistics staff—which puts money in people's pockets. Furthermore, it has rudely awakened the sleepy incumbents who were selling inferior goods and protecting their moats through lobbying rather than competence. That part is good for civilization.

But let us be clear: these gains are temporary anomalies. In the short run, the consumer is eating the investor's lunch. In the long run, basic arithmetic always wins.