Globally, Amazon has over 2 million sellers and 200 million customers across 9 marketplaces including Canada, Japan, China and the UK. However, in most of these countries, Amazon also has its own inventory of products. In fact, the massive inventory is what allows Amazon to squash its competition by enabling it to offer deep discounts and prompt shipping. Unfortunately, Amazon India will not be able to enjoy the same advantage. In the recent past we have seen Indian e-commerce services moving away from inventory based models to a marketplace based model. Prominent online shopping destinations like Pepperfry, Tradus, and Snapdeal currently operate on the marketplace model. In fact, Flipkart, the current leader in the ecommerce space, also recently switched to a part inventory and part marketplace model by allowing other vendors to sell through its store. Snapdeal CEO Kunal Bahl had famously remarked that inventory model is dead in India due to the wide diversity of products and razor thin margins.
E-commerce in India is booming. An Opera State of the Mobile Web report revealed that even on mobile phones, Indians surf a lot of shopping websites. However, e-commerce on India is also extremely challenging. Indians love bargains, and the tough competition has pushed the prices and margins down making survival difficult for even dominant players like Flipkart. Other big challenge is ensuring reliable and quick shipping across the wide and diverse country where government postal services are notoriously unreliable. Amazon has deep pockets and is famous for playing the long game. Its brand name alone is enough to instantly push it into the big league. However, sustained success will require more.
Online stores like Flipkart and Myntra have developed popularity and trust through years of good service. Considering the restrictions imposed on Amazon due to the FDI regulation, it will be interesting to see what it will do to set itself apart from the crowd. Its competitors will definitely be worried, but I doubt any of them will be panicking just yet. The service that stands to lose the most is Flipkart, which commands more than half the total market share. Flipkart’s strength is books, which seems to be the first category Amazon is targeting. However, where Flipkart, Jabong, Myntra, and other inventory based players hold an edge is in shipping. While these services invariably ship products within 2-3 days, marketplace based stores often take twice as long. Amazon’s strength will be in its backend. Product recommendation and efficient logistics are likely to be areas it can leverage on to increase revenue and margins. Snapdeal, which has been experiencing meteoric growth, could turn out to be another major challenger. The service, which made its name as a deals website before pivoting to an online marketplace, is being backed by eBay which has invested an unknown amount in it. “The partnership seeks to drive more consumer demand for eBay and Snapdeal merchants along with wider selection for India consumers in a rapidly growing market,” said a media statement from eBay that was released yesterday.
Amazon’s entry into the Indian ecommerce segment, which has been dominated by local players until now will definitely shake things up. It’s too early to say how things will turn up. However, two things are certain. Consumers will benefit, and there will be blood. Ecommerce services will close down, get acquired, or settle into their niche. This year alone has seen almost a dozen prominent stores close shop including the likes of Flyte, 21Diamonds, SeventyMM, and Timtara. More will surely follow.