Even with $1 bn war chest, here's why Amazon will still beat Flipkart

Jeff Bezos of Amazon has seen Flipkart's $1 billion in funding and just a day later has raised the stakes with Amazon announcing an additional $2 billion investment in India,purportedly for "supporting Amazon's rapid growth and to continue to enhance the customer and seller experience in India."

The general assumption is that when it comes to deep pockets, Flipkart doesn't stand a chance against Amazon, but what the now billion dollar Bansals of Flipkart are betting on is sheer expansion of India's e-commerce market and Amazon's missteps in the US.

Flipkart co-founder Sachin Bansal was quoted in the Financial Express today as saying that the Indian e-commerce player would think of profitability once it had delivered a product in one of three Indian homes. "We have 22 million registered users today and the way we see it, when we're at 100 million customers, that day we will be profitable," he said.

That's a tall goal and only time will tell if Flipkart will achieve it. The key, however, is profitability, and whether Amazon India will get there first.

But there's also the matter of Amazon's US problems with revenue growth slowing from around 40 percent a couple of years ago to 23 percent a few months ago. Even future guidance isn't as bright as a couple of years ago which is why perhaps Amazon's stock price has shed more than 21 percent since January 2014.

While Amazon Web Services, the e-commerce player's IT infrastructure-as-a-service cloud computing play is doing well, its play in tablets hasn't gone very well. Its marketshare is down by about half to 1.9 percent compared with the last year, according to IDC. While the Fire Phone has seen a lot of interest, the consensus is pretty clear that it's unlikely to set any market on fire. Amazon has also thrown around ideas like getting into the package delivery space and competing with the likes of FedEx, by leveraging its vast distribution network.

Clearly, Bezos doesn't stay still and doesn't stay within the boundaries set for an e-retailer, which is why Flipkart shouldn't take his and Amazon's problems with investors for granted. For instance, while the Fire Phone isn't likely to report stunning sales figures, what competitors should fear should be Fire 2 and 3. Remember the first iteration of Apple's iPhone and how the then smartphone leaders like BlackBerry poked fun? Steve Jobs got it right and we all know where BlackBerry is today.

For Fire Phone, Bezos will learn from actual customer usage of the dedicated Firefly button that can recognise over a hundred million objects - from your regular products to audio to video, and buy them on Amazon. And while he does that he will also understand carrier relationships better in the US, his primary market. Meanwhile, he is also investing in and building Prime services that include video streaming in partnership with content players and is already being seen as a Netflix competitor. And of course the mundane part of Amazon's business-more fulfilment centres, aka warehouses so Amazon can offer better and faster shipping.

When a bet works like it has done with Amazon Web Services where Amazon saw business opportunity in leveraging its expertise in data centres built for itself and decided to offer it as a service to business, the sky is the limit.

So, betting on Amazon's slowing revenue growth and continued profit invisibility may not help Flipkart. It has to focus on growing the Indian market, because the rest is far, far away. Building something like Firefly takes tremendous R&D and innovation depth. Flipkart's approach of bringing in a white label Chinese tablet may get the sales counters ticking but won't take it anywhere close to Amazon's Holy Grail of understanding the customer and making its store easier to use. Amazon is looking at the really Big Picture. Flipkart won't be able to compete there for a while and will need far more than $1 billion for that.

Flipkart also needs to watch for Amazon's fast growth in fulfilment centres in India. Amazon has two such centres in Mumbai and Bangalore, and the Chennai one became operational in July, with four more set to become operational in August, at Delhi, Jaipur, Ahmedabad and Tauru, on the outskirts of Gurgaon.

Speaking of personal experience, the reason I now buy far more on Amazon India than Flipkart-unless there is a significant price difference--is because Amazon delivers faster to me in Mumbai than Flipkart does. And Amazon's customer-focused technology and service which makes returns super easy almost compels me to stay within Amazon's embrace. To put it in a line, Flipkart wowed me with its customer service, but Amazon took it to a whole new level with its technology and experience, and once there, it's extremely tough for Flipkart to woo me back again.

And while on technology, that's another area where Flipkart will have to catch up. Amazon built an Amazon Web Services from its technology capabilities while Flipkart is still ensuring its site doesn't crash on days of unexpected load, one of which was witnessed a few days ago when Chinese player Xiaomi launched its hugely anticipated Mi3 smartphone. Flipkart learnt its lesson and while the entire Mi 3 stock was sold out in all of five seconds on Flipkart the second time around, the site managed 250,000 users simultaneously accessing the Mi 3 page with the traffic load four times higher than the heaviest level ever experienced by Flipkart's infrastructure. But to beat Amazon it will have to get it right the first time around.

There's also huge technology investments continuously needed in warehouses and fulfilment centres, because Amazon will continue to take the benchmark higher with its global capabilities. And then there's security. While Amazon has had malware problems, the company has not faced a scare like what retailer Target or EBay has faced in recent times. Staying ahead of the curve on security is a very expensive affair. Flipkart will need to match Amazon here too as it takes just one security breach to go public and customers, regulators and the government to come down hard on you.

But when Amazon has access to global talent in all of these spheres, it may also be outspending Flipkart for local talent in India. According to an Economic Times piece on campus hiring in Indian B-Schools picking up, Amazon offered compensation packages in the Rs 15 -29 lakh range while Flipkart offered packages in the Rs 13 to Rs 21 lakh range. The piece went on to say that Amazon hired more than Flipkart at the top three IIMs -Ahmedabad, Bangalore and Calcutta.

Amazon India already has more products on offer than Flipkart and has been first off the mark with same-day delivery.

So, matching Amazon may be an impossible task for Flipkart on pretty much every front.Hence, the only play left for Flipkart may be to expand the market and hope for profitability. But the Indian market potential is so large that there are many new business opportunities too for Flipkart with its vast distribution infrastructure. One is that of payment banks which the Reserve Bank of India (RBI) is now opening up, but is still in its infancy. Another is in going to parts of India with new models of delivery that also grows brick and mortar commerce itself. Amazon allows buyers to have a product shipped to a pick-up centre (it has tied up with Bharat Petroleum's In & Out stores for the purpose).

While this is aimed at busy executives who work long hours or are on the move, Flipkart could also use a similar model to reach parts of India where Cash on Delivery or sometimes any e-commerce delivery is not possible. For instance, even with a metro like Mumbai there are areas where deliveries are not made by anyone, including fast food chains, because of the reputation of some of these areas.

Published Date: Jul 31, 2014 09:40 AM | Updated Date: Jul 31, 2014 09:40 AM

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