Dear Flipkart, you got your $1 billion; spend it carefully

Flipkart has come a long way from just selling books. It’s now virtually selling everything, from clothes to electronics. But when a rival like Amazon with deep pockets has already entered the market, you can’t be just another e-commerce store.

Shruti Dhapola July 30, 2014 12:39:34 IST
Dear Flipkart, you got your $1 billion; spend it carefully

Update: Amazon has announced a $2billion investment in India as well. Amazon founder Jeff Bezos said in a statement, "After our first year in business, the response from customers and small and medium-sized businesses in India has far surpassed our expectations. We see huge potential in the Indian economy and for the growth of e-commerce in India. With this additional investment of US $2 billion, our team can continue to think big, innovate, and raise the bar for customers in India. At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales."

India’s biggest home-grown e-commerce portal Flipkart announced on Tuesday that it had raised $1 billion (over Rs 6,000 crore) in the latest round of funding from a group of investors. This is the single largest round so far in the country. Flipkart however hasn’t disclosed the new holding pattern and with this latest boost, the company is now valued at about $7 billion (around Rs 42,000 crore). Co-led by existing investors Tiger Global Management and Naspers, Singapore's sovereign wealth fund, GIC, Accel Partners, DST Global, ICONIQ Capital, Morgan Stanley Investment Management and Sofina also participated in this latest financing round.

Dear Flipkart you got your 1 billion spend it carefully

With $1 billion in the kitty, Flipkart’s problems aren’t going to be easy to solve.

So what does it mean for Flipkart? For starters, the company has dropped plans to go public. But that doesn’t mean profitability in the near future either. According to a Bloomberg report, CEO and co-founder Sachin Bansal told reporters in a conference call, “We don’t intend to become profitable anytime in the near future. We want to first settle down into a business model and then think about profitability over time.”

With $1 billion in the kitty, Flipkart’s problems aren’t going to be easy to solve. For starters let’s acknowledge that this $1 billion will need to look at some new avenues. Flipkart has come a long way from just selling books. It’s now virtually selling everything, from clothes to electronics. But when a rival like Amazon with deep pockets has already entered the market, you can’t be just another e-commerce store. Flipkart might be leading now, but Amazon is catching up. And with Amazon pumping in another $2 billion today, it shows that the US giant is not shying away from investing in India.

According to a NextBigWhat piece Amazon is already outselling Flipkart when it comes to tablets and cameras. It should be noted that neither company gives out actual numbers so its very hard to verify them, but if it is true then the Indian start-up is already facing the heat.

Amazon is already claiming to have surpassed Flipkart in India. Amit Agarwal, VP & country manager, Amazon India, told Firstbiz that the US giant is now selling 15 million products across 20 product categories. That makes Amazon bigger than Flipkart as well as Snapdeal. Flipkart is selling close to 10 million products

So what next? For starters, Flipkart needs to work through what is core to their business and users.

1. Get their services piece right

Flyte, it’s music service was a failure and was shut down in less than a year. As this MediaNama piece had noted then, “Revenues from song downloads were fairly low – not even 50% of the minimum guarantee amount (only around Rs 2-3 crore is what we heard), and the ARPU was around Rs 9-12 per user, which made it difficult to justify the minimum guarantee, and any significant customer acquisition costs.”

Where the Flipkart ebooks are concerned, it hasn’t been the most impressive of starts either. The company had close to 2.5 lakhs ebooks in 2013 and had hoped to increase this 10 lakh this year. Again there are no official download number for ebooks, but the official app on Android Play Store has around 100,000-500,000 downloads. Again this is not a bad number, but we don’t know for sure how many ebooks downloads Flipkart has seen.

More importantly unlike Amazon, it hasn’t yet got a Kindle tablet of its own which can neatly tie up Flipkart’s content services with the device.

2. Get devices and consumption right

Sure, the company launched a new tablet, the DigiFlip pro but as far as tablets go it feels more like an Android device rather than a Flipkart geared device. The Flipkart app and the ebooks app seem incidental in the tablet.

It’s a great tablet in terms of specs but as we noted in our review it has its fair share of problems from poor battery to voice quality issue. In addition to this the tablet market is declining and expected to fall further as phablets are gaining.

Which is also perhaps why someone asked in the DigiFlip pro launch if like Amazon, Flipkart too would launch a smartphone. The company of course refused to confirm this and said they would not comment on future products.

But it should be pointed out that one of the reasons that Amazon launched the Fire smartphone, was to find a way to deal with declining tablet sales. As various critics have noted, Fire isn’t another quad-core device, but rather it brings together all of Amazon’s services. The Firefly button in Fire is an attempt to tie together all of Amazon’s shopping and ecommerce down to one button. Where videos and movies are concerned, Flipkart doesn't really offer much. With players like Apple, Google (with the Play Store) all entering the market with some solid content deals, this market is also just starting to grow in India.

For now, Flipkart’s content services have not done too well and the foray into tablets have been rather unimpressive. With this $1billion, it needs to go beyond the e-commerce model of burning marketing money and slashing prices, to emerge as a brand that can transform India's ecommerce play.

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