Bengaluru: Nearly nine years after starting out, squaring up against two of its role models and making some costly missteps along the way, Flipkart Ltd, India’s largest e-commerce firm, finally seems to have a blueprint of what its business model will look like.
When Sachin and Binny Bansal started Flipkart in 2007, their inspiration was Amazon.com Inc.—the world’s largest online retailer. The Bansals had worked at Amazon briefly and wanted to recreate the US firm’s success in India.
With that goal in mind, Flipkart started out by selling books and then added mobile phones, laptops, clothing and all kinds of other products over the years. The company also went out of its way to please customers, offering a wide range of products that could not be found elsewhere, cash payments and easy returns, among others.
India hadn’t seen that kind of shopper friendliness on such a scale before, and soon enough, Flipkart became one of the top shopping brands in the country.
Clearly, taking inspiration from Amazon worked wonders for Flipkart.
Some time towards the end of 2013, Bansals became obsessed with Alibaba Group Holding Ltd, the Chinese e-commerce marketplace that had defeated Amazon resoundingly in Asia’s largest market.
Unlike Amazon, which sells goods directly to customers and offers products from third-party merchants on its website, Alibaba is a pure marketplace. The Chinese company doesn’t hold any goods of its own and only connects customers with third-party sellers across China.
A marketplace typically generates a commission on each sale, charges listing fees for sellers and also generates additional revenue through services such as payments, logistics and advertising. It also is seen as more of a profitable business model than selling goods directly.
Seeing Alibaba’s success, the Bansals were convinced that for Flipkart tobecome profitable and to reach hundreds of millions of customers in the hinterland, the company would have to add tens of thousands of third-party sellers across the country.
“Our role model now is the Alibaba Group, more than Amazon. We believe that is the model for India and more suitable than anything else. The market is similar, the customers are similar, their thought processes are similar, their income levels are similar, and the whole supply and distribution are similar, if you compare China of a few years back," Sachin Bansal said in May 2014.
“I’ve visited China many times and I know most of the e-commerce entrepreneurs. It’s pretty different from the way it’s happened in the US. So, there are a lot of learnings from China that we are looking to apply here. It’s not going to be an exact copy, and we’ll find our own path but there are learnings," Bansal said.
Four months after his comments, Alibaba listed its shares in New York at a valuation of more than $200 billion—the biggest initial public offering (IPO) ever. (Alibaba later invested in two Flipkart rivals, Paytm and Snapdeal.)
It’s difficult to say for sure if the IPO greatly influenced Flipkart’s thinking, but soon after Alibaba’s listing, Flipkart started exploring ways in which it could adopt Alibaba’s model in a bigger way.
Among marketplaces globally, Alibaba, which has two large consumer-facing sites, deploys a unique business model: the firm charges low commissions on one platform and offers free listings on another to sellers, but makes money through ads, logistics, payments and other services. Ads by sellers and brands generate more than half of Alibaba’s sales.
By the middle of 2015, Flipkart firmed up plans to reduce commissions charged to its third-party sellers and shift sales toward advertising, payments and other services.
But while its ads business has expanded, Flipkart hasn’t nearly reached the scale it wanted.
In the meantime, as Flipkart moved to the marketplace model last year, it lost the initiative to Amazon which launched in India in June 2013.
Flipkart’s customer service levels and brand image took a hit as it abruptly tried to shift sales towards tens of thousands of sellers.
In January, Flipkart changed its chief executive officer, promoting Binny Bansal to the hot seat while Sachin Bansal moved on to the role of executive chairman. Three of its other senior-most executives—commerce platform head Mukesh Bansal, the chief business officer Ankit Nagori and product head Punit Soni—have left the firm since.
The changes at the top were partly driven by the fact that Amazon India Ltd won significant market share over the past 15 months at the expense of Flipkart and Snapdeal.
Under Binny Bansal, Flipkart is consolidating supply of products among a few sellers in key categories like mobile phones, large appliances and men’s fashion. Bansal is also pushing the company’s managers to focus all their efforts again toward pleasing customers by offering a wide range of quality products and fast delivery—the kind of things Amazon India swears by.
“Everyone at Flipkart now has net promoter score (NPS, a key measure of customer satisfaction and loyalty) and customer satisfaction as their most important metric. NPS breaks down into what product selection is available, how fast is it available, is it available all the time, and at what price. And of course, the other big focus is on execution. E-commerce is a business where you are selling products every day. So, you need the execution rigour to make sure that every day, we are providing the best customer experience," Binny Bansal said in an interview on Monday.
That sounds a lot like Amazon. Yet, it is not forsaking all of its initiatives of last year. Its marketplace will remain, but rather than going the Alibaba way, Flipkart is tweaking it to serve customers best.
“In some categories (books, mobile phones, large appliances, men’s fashion), it will be 10 to 100 sellers driving a lot of the business. But there are enough big categories where there’s no way to consolidate sellers because these categories are long-tail, personalized and fashion changes a lot. In some categories like accessories, home and furnishings, cases and covers and women’s fashion, it will be a few thousands driving the business," Binny Bansal said.
Apart from the marketplace, Flipkart has four other key businesses: online fashion retailer Myntra; eKart Logistics, its massive logistics arm that is fast expanding its third-party business to become a meaningful contributor to Flipkart’s financials; ad sales; and PhonePe, a mobile payments start-up that it acquired last month.
It’s too early to tell whether Flipkart’s moves this year will help it pare losses and improve market share.
But rather than doing a wholesale imitation of Amazon or Alibaba, Flipkart is starting to carve out a business model of its own, one that can work in India, which is a completely different market than the US and, for all its shallow resemblances, even China.
Role models can only take you so far.