Welcome to the Jungle! Amazon Couldn’t Have Timed India Launch Better [Analysis]

amazon_thumb.jpgThe big news today is that Amazon has finally opened its stores in India. The beauty about the whole thing, is the timing. When home grown e-commerce companies are huffing and puffing to pull sagging bottom lines and prop up the top line, Amazon makes its entry with a known brand and deep pockets.

However, expectations from Amazon are high. Its a new geography where infrastructure and businesses work very differently from what they’re used to. This is a new battle for Amazon too. Welcome to the real jungle!

The impact? Consumers see this as a hugely positive move. Hopefully, we will see probably better selections, better markets for small guys, better practices, returns policies, and improved logistics. Indian e-commerce companies must be a worried lot.

The space will see more consolidation, shutdowns and tough competition in the days to come.

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Why Flipkart & Others should worry

Flipkart has spent millions of dollars to establish itself as the go to online shopping destination in India. However, Amazon has massive traffic from India without any marketing spend.

Going by traffic figures, its already one of the top e-commerce players in the country. Amazon’s strong recommendation engine and technology backend will give them an upper hand over local players.

This launch will eat into the revenues of Indian online retailers for whom books are top grossers. Amazon has a massive catalogue of books and Indians have been buying from them since 1996.

According to industry watchers, the company had clocked 9000 orders within 5 hours of launch. This surge in orders could be people wanting to test the service out and is likely to stabilize over the next few days.

On deliveries, Flipkart may have an edge over Amazon. The online retailing giant, promises a 2-4 day delivery at present. This gives local players who deliver faster an edge over Amazon. Flipkart is planning to provide same express delivery service others such as Myntra and Jabong have matching services.

The advantage, may not last  long though. Amazon has a fully automated warehouse in Bhiwandi, a few kilometers from Mumbai. It has also received government approvals to provide Amazon logistics services in India. A combination of local logistics players and Amazon fulfillment will work for the company.

Folks at Flipkart and Jabong seem to have gotten a whiff of things early on as they have renewed their focus on core categories such as fashion and apparel and shut services like digital music and pared categories such as large appliances and home. Recently Rocket Internet pulled the plug on its jewellery webstore 21Diamonds to concentrate on its flagship venture Jabong. As Flipkart and Jabong get aggressive in categories such as fashion and apparel, it will put pressure on smaller players like Fashionara.

Consolidation & Shutdowns will speedup

The pace of consolidation in the Indian e-commerce industry is set to quicken. Over the past few months many companies like Seventymm, Koolkart and 21Diamonds have been shutting down due to lack of funds and other reasons. Companies have also been teaming up to consolidate their assets to slow their burn rates. Venture Capitalists are unlikely to back new e-commerce ventures for a few months now until they figure out what the intentions of Amazon are.

If Amazon turns acquisitive, we could see some exits but the target companies are likely to be players with a strong backend and not front facing e-commerce outfits. Flipkart is said to have rejected an earlier offer made by Amazon. Signing up new sellers will be core to Amazon’s success in the country.

Niche players & pressure from Horizontal players

As large horizontal e-commerce companies get aggressive, niche players will face the heat. When venture capitalists turn wary, unless niche players have positive unit economics, survival will be tough in the days to come. In turn, horizontal players will face the heat from marketplaces. On the positive side, niche e-commerce companies who have a product to sell, might find this as a great opportunity to sell on Amazon.

Will Amazon survive Indian market?

Sure. Only if they are willing to learn. American fast food chain KFC had to launch its first vegetarian chain ever, that too in India (Gujarat). McDonalds embraced Indian way of doing things by selling McTikkis.

What does this mean? Amazon needs to learn the Indian way of doing business. While their senior management has had a bit of experience dealing with government over foreign direct investment in retail, the offline vendor world is extremely challenging. Of course it helps to have an Agarwal at the top!

Surely, the company has a 15 year business plan for India and it’s too early to judge how Flipkart/Snapdeal/Infibeam will fare after this launch. If you are thinking that they all will die, go fish!

For consumers, we hope that Amazon will bring the lost discounts back. Lost because all venture backed companies have cut short the discount business to focus on margin.

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