Indian ecommerce is arguably the most hotly contested ecommerce market for investors currently. The size of the opportunity has ensured that Amazon, Alibaba and venture capital investors battle to ensure that they are creating the dominant ecommerce marketplace for Indian customers. The current crop of marketplace operators are not profitable and likely won’t be once they decide to go public. The reasons for the capital expenditure from Flipkart, Snapdeal, Paytm and Amazon are what is seen in most early stage ecommerce markets. Building logistics networks that are able to get products to customers all over India within 48 hours, hiring and retaining world class staff that understand the local Indian market and the unique nature of Indian ecommerce.
Amazon has its own reasons for wanting to succeed in India
International expansion is increasingly becoming important as Amazon need to grow revenue outside its successful US business. Their US business has reached a point in which growth is slowing down and thus their international businesses need to grow their impact to ensure that Amazon generates revenue which they can re-invest.
Amazon is looking to be a part of an Indian market that has a huge population that is only rivalled by China in terms of size. Amazon has not been able to show an impact in Chinese ecommerce and thus it is critical that they succeed in India. They cannot afford to miss out on India as then they would have lost in the 2 most densely populated markets in global ecommerce.
India provides Amazon with insights that are able to be used for market entry in other emerging markets that are similar to India in term of infrastructure and the impact that ecommerce has on local retail. These lessons ensure that Amazon are able to utilize their capital better when entering new markets.
Indian ecommerce has seen Indian government impact
Direct foreign investment by international investors is not allowed in India. Thus Amazon, Flipkart have had to partner with a local business or be registered outside India (Flipkart is incorporated in Singapore) to be able to sell directly to customers. This is to ensure that local companies are not adversely affected in competing against a foreign backed business. So it is a B2B2C relationship currently.
Secondly, the Indian government has removed certain monetary notes to counter the effect of cash on delivery based on pressure from retailers. These government based programmes have done little to slow Amazon down as Jeff Bezos has personally spoken to the Indian President on these matters.
The dirty secret on Indian ecommerce
The current generation of Indian ecommerce entrepreneurs have cleverly used the truth with regards to Indian ecommerce to raise Billions of Dollars. The truth relates to the total addressable market for Indian ecommerce. There are between 300 – 400 milion people found in India that are between the wealthy and poor sectors. That is a huge market but the real size of the market is considerably smaller which has lead to Flipkart, Amazon and Snapdeal resort to using discounts as a way to generate sales. It led to incredibly high burn rates for the three marketplaces as they were in a sense using investment to grown gross merchandise value (GMV) in a totally unsustainable manner.
Indian innovation
Ecommerce businesses has had to devise innovative solutions to change the culture of Indian customers.
The Economist describes how marketplace operators have leverage people who have for generations been part of retail. Flipkart last year began using Mumbai’s famous network of dabbawallas, or lunch-delivery men, to drop off packages when they picked up customers’ lunch tins. Amazon has a pilot programme that lets customers order groceries online and have them delivered from the nearest kirana.
Amazon India started in 2013 and Amazon has plans to invest at least $5 billion into their Indian business. The Indian business provides Amazon with insights that it will not generate in other markets due to the unique characteristics of the market : various languages are spoken in india, many customers only access the Internet via mobile device and there is a growing middle class. The Indian ecommerce market is a long term market as who ever wins it will have access to the largest amount of customers that are outside China.
“The opportunity for Amazon is to be the largest player outside of the US in the next one decade and also the largest e-commerce player in India,” Amit Agarwal, country manager for Amazon India told Tech in Asia earlier.
Amazon wants to provide Indian marketplace sellers with services that would allow them to sell in other markets to generate revenue for their businesses. Their competitors must leverages partnerships with other parties to achieve this.
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