3 min read.Updated: 10 Feb 2016, 11:07 AM ISTMihir Dalal
Amazon is stepping up its pace of investment at a time when Flipkart and Snapdeal are likely to struggle to raise funds
The message from Amazon India is clear: it’s moving in for the kill.
Since late December, Amazon.com Inc., the world’s largest online retailer, has ploughed in some ₹ 3,676 crore in two instalments into its Indian business, documents with Registrar of Companies (RoC) show. Taken together, that would be the fifth largest fund raise ever in India’s Internet business, behind three such efforts by Flipkart Ltd and another by Snapdeal (Jasper Infotech Pvt. Ltd).
And Amazon is stepping up its pace of investment at a time when Flipkart and Snapdeal are likely to struggle to raise funds unless they lower their valuation expectations, Mint reported on 4 February.
The apparent ease with which Amazon India can access funds must terrify its two Indian rivals, which are facing tough questions from investors about their loss-making business models.
It’s not as if Amazon India has a profitable model; far from it. In the year to March 2015, Amazon Seller Services Pvt. Ltd (Amazon India) reported a loss of ₹ 1,723 crore. In comparison, two main Flipkart entities posted a combined loss of ₹ 2,000 crore and Snapdeal’s holding entity bled ₹ 1,328 crore, RoC documents show.
What Amazon has is a benefactor in chief executive officer Jeff Bezos, who is intent on making Amazon India the largest e-commerce company in the country. Amazon India has already received ₹ 7,679 crore since July 2014, when Bezos promised to invest $2 billion in India.
Clearly, Bezos will keep the tap open until he achieves his goal.
With Amazon stepping up its investments, Flipkart and Snapdeal will be forced to keep up their spending on discounts, advertising and logistics. That spells trouble for the financial health of the whole e-commerce business, which didn’t have a sound business model to begin with.
Amazon doesn’t care about that. It needs to succeed in India after losing out in China to Alibaba Group, which is in early talks to invest in Flipkart and increase its stake in Snapdeal, Mint reported on 4 February.
So far, Amazon’s mantra of low product prices, wide product selection and fast and reliable delivery has worked, at least in terms of popularity with shoppers.
Over the course of 2015, Amazon gained market share in India at the expense of both Flipkart and Snapdeal, according to publicly available data and several company executives.
While Amazon, which launched in India only in June 2013, remains smaller than Snapdeal and Flipkart, analysts and investors say that it’s a real possibility the company will overtake its Indian rivals unless the two step up their game. Primarily, Flipkart and Snapdeal need to improve their tech, both at the backend and at the customer-facing side, they say.
But even if Flipkart and Snapdeal do that, there’s no guarantee they will succeed in keeping Amazon at bay.
Easy access to cash, logistics and tech expertise, and finally, Amazon’s relentlessness in pursuing its strategy make it difficult for rivals to keep up.
Here’s an instructive quote from an analyst covering Amazon in the US.
“They take baby steps along a long path, which allows some companies that could be disrupted to remain in a sense of denial. Amazon rarely takes one big step forward that shocks the market," Bloomberg quoted Colin Sebastian, an analyst at Robert W. Baird and Co, in an article on Tuesday.
Amazon is also expanding into other businesses in India.
Last week, Amazon India launched grocery deliveries in Bengaluru through a dedicated app called Amazon Now, promising to deliver soaps, shampoos, fruits and other staples in less than two hours after receiving an order.
Amazon’s entry into grocery deliveries will test the mettle of hyperlocal grocery delivery businesses such as Grofers and PepperTap as well as that of cab services provider Ola, which has its own independent app called Ola Store.