With its fast-growing economy, large population and increasing mobile penetration, India will be center stage in the coming e-commerce wars. Currently, competition is fierce as players fight over market share and bleed red ink.
India is a very large market, and the potential rewards down the line will be huge. The number of internet users in India topped 432 million in December 2016 and it’s not slowing yet. Growth will continue for some time as fewer than one-in-three people in the country have access to the internet.
Amazon.com, Inc. (NASDAQ:AMZN) has invested $5 billion in India and is battling local players like Flipkart and Snapdeal. The fight for India is costing Jeff Bezos & co., however, as well as its local rivals. Amazon International lost $541 million in the third quarter of 2016 and $487 million in the fourth quarter. Flipkart had its valuation marked down five quarters in a row by Morgan Stanley, and is cutting back on office space.
The Japanese conglomerate SoftBank Group Corp (OTCMKTS:SFTBF) wrote off $475 million in its investment in Snapdeal and Ola. Snapdeal is cutting back as well, and is in talks to sell FreeCharge, its mobile recharge division, to PayPal Holdings Inc (NASDAQ:PYPL).
Alibaba Group Holding Ltd (NYSE:BABA) is taking a low profile and biding its time. Alibaba operates a B2B marketplace in India and owns shares in both Snapdeal and Paytm, the PayPal/Alipay of India. Wal-Mart Stores Inc (NYSE:WMT) also operates a wholesale business in India, and might increase its presence in India this year.
Who will succeed? So far, Amazon appears to have the upper hand, but Indian e-commerce is still in its infancy. Amazon and Alibaba both dominate their home markets, and India will test them both. We will see who can adapt better to local conditions and succeed in new markets.
Last year, Alibaba president Michael Evans said that Alibaba would first focus on building the payments infrastructure in India. Evans went further, saying, “Amazon, Flipkart and Snapdeal use a business model that doesn’t make sense for us. They are spending a lot of money to gain money. That is not in our DNA.”
I really find this mysterious, since Alibaba owns a stake in…Snapdeal. Was this a gaffe, or did Alibaba invest in a company it thinks has an unsound business model?
Still, this strategy has its merits. Alibaba’s low-profile approach helps it avoid losses in the ongoing bloodbath between Amazon and Flipkart and Snapdeal. Also, some think Alipay may have a bigger impact than Alibaba in the long run.
Paytm, which Alibaba and Ant own a large share in, leads among mobile wallets in India. Paytm boasts 200 million users, as opposed to 192 million for Freecharge, 10 million for PayU and 40 million for Mobikwik.
Recently, Alibaba increased its stake in Paytm.
Paytm is scaling up, introducing Paytm Mall, a B2C marketplace modeled on Alibaba’s own Tmall. Paytm claims it will sell 68 million goods from 140,000 vendors. Only trusted sellers will be allowed on Paytm Mall and products must go through shippers certified by Paytm, thereby ensuring product quality.
Alibaba hopes that another factor may tip the scales in its favor. Alibaba’s UCWeb browser is the most widely used in India. 48% of smartphone and tablet users in India use BABA’s UCWeb, while only 20% use Alphabet’s (GOOG, GOOGL) Chrome. Alibaba is also investing more in content in India, hoping to up its role in digital media. Since many Indians tend to shop around at multiple sites before buying, this impact may be limited.
Amazon’s failure to crack China made CEO Jeff Bezos resolve to not lose in India. Amazon opened its first fulfillment center in India in 2012 and launched the Amazon India website in 2013.
In 2015, Amazon piloted a delivery service, Kirana Now, in Bangalore, using its delivery network to supply people with products from local stores. Following this, in February 2016, Amazon rolled out a grocery delivery app, Amazon Now, which delivers groceries within two to four hours. It also brought Amazon Pantry and is poised to become the first foreign retailer in India to sell food online.
Since many customers in India are bargain hunters, a loyalty program like Amazon Prime will be key to keeping customers. Amazon launched its Prime delivery service in July last year, and brought Amazon Prime Video to India last year. If Amazon gives you free shipping, shopping at a competitor’s site generally doesn’t make sense, unless the price plus shipping is less than Amazon’s price.
And the price at which Amazon offers Prime in India is not too bad, costing 499 rupees ($7.47) for the first year and 999 rupees ($14.96) a year thereafter. Amazon also snagged a rating as the most mobile-ready brand in India.
For now, the consensus seems to be that Amazon has a head start over BABA. Last year, Amazon was second only to Flipkart. As K Vaitheeswaran, founder of Indiaplaza, one of India’s first e-commerce sites, said:
“Whatever Alibaba brings, Amazon can match. The only way to win this is to provide superior customer experience – and Amazon holds the gold standard in that.”