Amazon's $3 bn will give Flipkart, Snapdeal the nightmares. Here's why

It is interesting times ahead for the Indian e-commerce.

FP Staff June 09, 2016 09:54:56 IST
Amazon's $3 bn will give Flipkart, Snapdeal the nightmares. Here's why

Forget the funding crunch and valuation mark downs, the Indian e-commerce sector is going to see more action. That is what Amazon's pledge to invest $3 billion in India indicates.

The global retail giant said on Wednesday that it will provide more more funds for Indian operations taking its total investment in the country, including the earlier $2 billion, to $5 billion.

Amazons 3 bn will give Flipkart Snapdeal the nightmares Heres why

Jeff Bezos with PM Narendra Modi in the US. Image: Twitter

"I can assure you it’s only the beginning and as we say in Amazon, it’s only day one," Amazon chief Jeff Bezos has been quoted as saying in a Reuters report.

Interestingly, the funding pledge comes at a time when the country's e-commerce sector is facing challenging times. Losses are mounting, investors are forcing companies to rein in discounts, fund flow has narrowed down and gone are the days of sky high valuations. On top of it all, there are new government norms that restrict these companies from becoming sellers.

Seen in this context, Amazon's funding of Indian operations should shivers down the spine of the likes of Flipkart and Snapdeal.

As this report in the Mint newspaper says, both these companies are already losing market share to Amazon. According to media reports, as of March 2016 Amazon's market share has risen to 21 percent from 14 percent a year earlier. Compare this with the fall in market share of Flipkart to 37 percent from 43 percent and 14-15 percent from 19 percent during the period.

With latest investments, Amazon is planning to go all out to acquire customers.

"...The investment will go towards enhancing our customer and seller experience, as we have done over the past three years," Amazon India managing director Amit Agarwal has told The Economic Times in an interview.

"The past three years, our focus has been selection, low prices, and faster and reliable delivery. In the case of India, there is an additional aspect of convenient payments and mobile (transactions). When I look at selection, our focus has been on enabling sellers, training them, bringing them online and building infrastructure for them. When we look at lowering prices, our prime area of focus has been how we lower cost of operations for sellers so that they can offer lower prices," he adds.

The aim, he says, is to "to transform how India buys and sells".

And customer has been the focus of the company.

"I stay heads-down, focused. I encourage these guys (the India team) to not pay attention to a bunch of noise, and rather stay focused on the customer experience, do the right thing, figure out how to get products to customers faster with more reliability, earn trust with customers. The rest will take care of itself," Jeff Bezos had told the Business Standard in an interview after he first $2 billion pledge.

This strategy seems to have paid off. At least that is what Bezos claims when he says Amazon has become the most visited e-commerce site in India with 30 million unique visits monthly. Flipkart's corresponding number is 27 million and Snapdeal's 20 million.

What is also interesting is that Amazon's fresh commitment comes just ahead of Chinese giant Alibaba's launch in India. A report in the Mint says Alibaba is likely to start operations around the festival season this year. However, Agarwal is not ready to acknowledge this is indeed so.

However, it is to be remembered that the Chinese company is also a giant with deep pockets. It already operates in India through its stakes in Snapdeal and Paytm. The Mint report says the company is already scouting for partnerships and has started building the team.

Meanwhile, the moot question to ask is with two global giants making the big splash in the country and distress in the sector, is there a consolidation on the way.

Moorthy K Uppaluri, Managing Director and CEO of Randstad had recenlty told Firstpost that could be the way forward.

“The sector has not lost its potential and there is much scope for growth. What will not happen now is accelerated realizations. Consolidation may be the game-changer, instead,” he said.

Also, Agarwal of Amazon India has not ruled out acquisitions.

When asked whether the company is looking at acquisitions, this is what he told ET: We are excited by the momentum in our organic strategies. At the same time, we are always looking for visionaries who are building great experiences for consumers and sellers.

It is interesting times ahead for the Indian e-commerce.

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