Bengaluru: Amazon India is likely to emerge as the dominant e-commerce company in the country in the long run, while the overall number of Internet users in the country continues to grow rapidly, according to the latest Internet Trends report by Silicon Valley venture capital firm Kleiner Perkins Caufield Byers.
According to the KPCB report, the number of internet users has grown 40% over the past year to about 355 million. The report also indicated that Amazon India is most likely to dominate the country’s online retail market in the long run.
The report pointed to Amazon’s rate of growth and investments in the country over the past three-and-a-half years. The company has pledged to invest at least $5 billion in India and grown rapidly to challenge local e-commerce poster boy Flipkart’s leadership position.
In April, Amazon said it posted an 85% increase in gross sales volumes in the three months to March from the same period a year earlier, growing much faster than the overall market.
So far, Amazon’s strategy of offering the widest product selection, backed by aggressive marketing and advertising, is working well in India. Moreover, its subscription programme Prime, which was launched in July 2016, is proving to be a key differentiator and is helping the firm retain many existing customers and getting them to spend more.
And even though the overall online retail market continues to grow at a sluggish pace, experts pointed out that Amazon has “patient capital" at its disposal and can afford to wait 10-20 years for the number of regular, purchasing users to touch critical mass.
“Amazon has done a great job in India so far—they’ve adapted to the local market very well. Some of their solutions from there (in the US), they are customizing those for what makes sense here. And they’re leveraging their great knowledge and capital," said Sandeep Murthy, partner at venture capital firm Lightbox Ventures Management Ltd.
Even though Flipkart continues to be the leading e-commerce company, the report pointed to the pace of Amazon’s expansion in India and indicated that it was likely to emerge as the dominant player in the market.
Flipkart and Amazon are now neck-and-neck and the battle between the two will be much more closely fought this year compared with most of last year, when it looked like the American retailer would supplant Flipkart at the top of India’s e-commerce market. In fact, for two months last year—July and August—Amazon briefly overtook Flipkart, before the latter struck back during the Diwali season sale and wrestled back its position at the top.
Experts also pointed out that while Amazon has the luxury of pools of capital at its disposal, rivals such as Flipkart and Paytm also have significant firepower from deep-pocketed investors such as Tencent Holdings Ltd, Alibaba Group Holdings Ltd, Tiger Global Management and SoftBank Group Corp.
“The challenging thing about e-commerce though is that if you look globally, there are only 12 companies that have over a billion (dollars) in revenue, over a billion in market value and are public. In India, you have at least four (companies) fighting for that position," said Murthy.
The problem with the Indian market is that while the number of Internet users is growing rapidly, the number of online shoppers is not growing proportionately—and while the large Internet base in India looks attractive, making money from users remains a significant challenge for all leading e-commerce firms.
“We are also in a market and business today where we don’t have the consumption capacity yet to merit the level of spend that has gone in. We need to have consumption growth first—until then it’s a bit of a waiting game," said Murthy.
“And during that waiting game, it’s a question of who has the staying power. The fortunate thing for Flipkart is that they have Tencent in their backyard, Paytm has Alibaba and Amazon being Amazon is a good thing. So, we now have some staying power. Now it’s about waiting and watching," added Murthy.
On 27 December, Mint reported that the online retail market is set to show little or no growth in 2017, raising worrying questions about the potential of the e-commerce market relative to the rosy projections of investors who have pumped billions of dollars into Flipkart, Snapdeal and other Internet start-ups.