Sunday, July 7, 2013

Should Flipkart be Worried About Amazon?

Amazon has announced its entry into Indian e-tailing market and has forayed with categories that are mainstay of Flipkart - books and electronics. So, should Flipkart be worried about Amazon?

Yes - a lot. Here's why.

1. Amazon understands online behavior better than anyone else

So far, no Indian e-tailer was big on analytics and understanding buying behavior. With Amazon, that has to change. Amazon has incredible depth in understanding buying behavior and decision cycle and consequently converting prospects.

Amazon - 1 : Flipkart  - 0

2. Amazon serves the information need much better

Before Amazon had launched, lot of buyers who buy books online used to make their buying decision after surfing Amazon. Why? Because Amazon serves the information need far better than any other player - in the world. Personally, I have never ever bought from Flipkart or Snapdeal or any other Indain e-tailer without having to read about the product on some other site.

Next time, when I am browsing Amazon for deciding whether to buy the book or not, guess who would be waiting to sell me one?

Amazon - 2 : Flipkart - 0

3. Amazon has a stronger hold on engagement

This is enabled by 1 and 2 but is vastly more significant. Being able to engage an online customer is non-trivial. It is confluence of great UI, great UX, having relevant SKUs, relevant information, credible social interaction, great technology (such as recommendation engine) and possibly more that I missed out. Given a company that understands the customer well, serves their other needs apart from just purchasing and is great at keeping them engaged - should a competitor worry about them - absolutely!

Amazon - 3 :  Flipkart - 0

There is however, one significant advantage that flipkart has
4. Amazon does not understand Indian business environment as well as Flipkart does

Flipkart has been in the market for several years now and understands the business environment and its nuances much better than Amazon does. This is not a trivial advantage to have. What I am not sure about is, is it sustainable advantage - may be not.
Amazon will have to go through its learning curve on logistics, delivery, CoD, procurement, high rentals etc. and they may take some time to establish their foot hold. They have the second mover advantage. They can learn from their competitors. It is much harder to experiment and figure out what works rather than learn from a competitor who has gone through the cycle and made those mistakes.

As an example, while flipkart has just started to launch marketplace, Amazon entered with marketplace. Amazon knew delivery and customer satisfaction is a challenge (see Rediff Shopping as an extreme example) and chose to pick up that battle.

Amazon - 3 :  Flipkart -1

Some people might argue that Flipkart has acquired a huge customer base but I think that advantage is temporary. Primarily because Amazon has better engagement with strong social angle and hence will have higher retention and lower acquisition cost. Moreover, Indians do have an implicit mindset that foreign vendor is better.

To an extent it seems that best hope for Flipkart is that Amazon fails to adapt to Indian environment.
But, if Amazon is able to learn nuances of operating in India, there is very little that Flipkart has today that will help it maintain a competitive edge.


  1. I would agree with you Pragati. I think with Amazon entering the ecom scene it will be real battle and Amazon has huge advantage. I see loads of flipkart users already moving to Amazon - and telling me the same thing you pointed in (1) and (2) -- Amazon already knows more about these users based on their previous purchases.

    Even for new users I think Amazon has better behavioral targeting than flipkart (as of now, ofcourse).

    1. Thank you Manoj. I couldn't agree more with your observations.

      (1) and (2) are also consequences of how these companies were built and their DNA.

      Amazon had a clear focus on these from day 1. As a small company with limited user base, they paid various people to write reviews and add content to the site. Their customer acquisition was built on engagement. They invested on recommendation engine and technology from early days. These are big commitments from a small company that was under massive pressure to demonstrate profitability.

      Flipkart on the other hand built its customer base on advertising and discounts - relatively fragile foundation. They were being measured on the volume of customer base, acquisition cost, CLTV, and profitability - and that is what they focused on.

  2. I wouldn't say that Flipkart should be that much worried right now as the market size is fairly big for multiple players to exist and grow. Till now Flipkart was the leader with a distant second and hence was carrying the burden of opening new avenues for others to follow.

    With Amazon entering the forey, the leadership position might go away (assuming Amazon spends those heavy dollars), but for Flipkart the market size will grow at a much faster pace with Amazon's expertise.

    Also, the technology, Ui/UX, recommendation etc can be acquired easily with the deep pockets that Flipkart has.

    So overall, Flipkart might loose their position, but I am of the opinion that growth will continue.

    1. Great point Manish.

      If we look at mainstay of Flipkart - it is books and electronics. They are just getting started with apparel and have stiff competition from existing players. Other categories in Indian e-commerce are relatively small (except travel).

      Amazon is taking Flipkart head on by entering with books and electronics. If it makes inroads into these categories, then what it means from flipkart is:
      1. They will see a significant drop in GMV unless
      --- a. Large number of people suddenly start buying online and there is significant growth in e-commerce as a whole.
      --- b. Flipkart is able to make inroads into other categories
      2. They will face severe pressure when they want to raise next round of funding. The phenomenon that killed Letsbuy can repeat for Flipkart.

      1a. While e-commerce is on the upswing I do not think we are at the inflection point of a hockey stick
      1b. Other categories are insignificant in volume.

      What do you think would drive growth for Flipkart?

  3. Expedited market growth through competition, better pricing/services to end user and reduced market share for non-leaders will sustain the growth for Flipkart.

    1. Correct me if I am wrong - what I understood from your comment is:

      Indian e-commerce will grow faster because of Amazon entry; and Flipkart will grab a significant share of this growth.
      Also, due to intensifying of competition, Flipkart will serve its customers better leading to increase in its business. Additionally, Flipkart will acquire customers from smaller fish in the pond.
      Implicit assumption is that net addition due to these factors is greater than the share it will lose to Amazon.

      Is my understanding correct?