New Delhi/Bangalore: The world’s largest online retailer Amazon.com Inc. launched its India marketplace at Amazon.in on Wednesday, giving independent merchants another platform to sell products directly to shoppers, in an entry that will likely spur consolidation in online retail.
Although the Indian site is a pale shadow of the parent site, selling only books and video content, the company said it soon will add mobile phones and cameras.
Since India does not allow foreign direct investment (FDI) in direct online retail, the marketplace model is the easiest way for companies such as Amazon, which already has a presence in India with the price comparison site Junglee.com, to get access to a fast-growing market, but one which is still in its nascent stages.
“There are two main aspects to Amazon’s entry. One is that it’s a validation of the Indian e-commerce story, that there is real and strong consumer demand for online services. Through Junglee, Amazon gathered market intelligence and sensed demand for various products and concluded that it was strong enough for them to enter the market,” said Rutvik Doshi, an investor with Inventus Capital Partners, a venture capital firm. “Secondly, what this means for companies is that the grand-daddy of all e-commerce companies has arrived and everyone else is going to have to pull up their socks.”
Big Indian e-commerce companies are yet to report a profit as they’re still in investment mode. As investors have become careful about putting money in e-commerce, smaller firms are increasingly shutting down. In the past six months or so, 136 e-commerce start-ups have folded, according to data collected by Ashish Sinha, who runs the website NextBigWhat.
“It’s now going to be even tougher for small players to compete with Amazon coming in. Already the process of consolidation has been on since the past year and a half and this will only gather pace with Amazon’s entry,” Doshi said.
Along with the need to get access to overseas investment, many e-commerce companies such as Flipkart.com, Snapdeal.com and Infibeam.com have shifted to the marketplace model, which allows e-commerce companies to save on storage and other inventory-related costs as the products are held by merchants.
Amazon is known for its wafer-thin margins, but still reported sales growth of over 27% to $61 billion in the year ended December. It ploughs back much of the money it makes into the company.
The world’s largest e-commerce company started as an online retailer, but has been beefing up its higher-margin marketplace business over the past few years. It now offers the marketplace platform in 10 countries.
The model was pioneered by eBay, and is still followed by eBay.in. Indian e-commerce firms, such as provide similar online avenues for buying and selling.
On Tuesday, eBay announced a commercial partnership with Snapdeal and the investment of an undisclosed sum in the company.
“The growth of online shopping in India is at an exciting phase,” said Jay Lee, senior vice-president and managing director, eBay Asia-Pacific, said. “We chose to partner with Snapdeal due to their complementary business model, good management team and strong brand.”
Amazon owns and operates Junglee.com, a price comparison website meant as a pilot project to gain an understanding of the Indian market and customer behaviour.
“Our vision is to become a trusted and meaningful sales channel for retailers of all sizes across India, enabling them to succeed and efficiently grow their business online,” Amit Agarwal, country manager, Amazon India, said in a statement.
In its announcement, eBay also quoted research from the Internet and Mobile Association of India, stating that the Indian e-commerce market is projected to grow from approximately $1.2 billion in 2012 to $1.8 billion in 2013.
Junglee.com, launched in February 2012, lists products from third-party sellers and directs users to their sites for purchases.
On Amazon’s marketplace in India, users can buy books, movies and TV shows from independent sellers directly on Amazon.in.
Most of the sellers on Amazon.in have tied up with the company for delivery logistics. Deliveries that will be handled by Amazon have a special logo next to the products.
Amazon will levy a charge of Rs.49 on orders of Rs.499 and below, according to the website. Anything costlier will be delivered free. The company will also levy a Rs.39 surcharge on cash-on-delivery orders, which will be a first.
However, Amazon.in will waive those charges for a limited period.
Depending on the area code, orders handled by the sellers will be delivered in two-four or four-seven business days, stretching to 5-14 business days for rural areas, Amazon.in said. Orders handled by Amazon will be delivered in 5-10 business days.
These don’t appear to be as quick as most online retailers in India, some of which offer free deliveries in 1-2 days.