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Book Extract: The Game Changers

How e-commerce players in India have resorted to different strategies to stay ahead of the pack

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There was a time when you had to have grey hair and a couple of decades’ worth of experience behind you for investors to back you with a million or two in funding. If you didn’t have sectoral exposure or hadn’t led large teams in your career, you simply weren’t good enough to discuss your potential business plan with an investor.

This was before e-commerce came to India, before a couple of geeky young men, almost fresh out of engineering college, decided to change the paradigm. The year 2007, when Sachin Bansal and Binny Bansal started Flipkart, put businesses begun by IIT graduates on investors’ maps. Soon after, a slew of IITians joined the game and came up with winning concepts that had investors drooling all over the drawing board. Getting into an IIT suddenly meant something entirely different.

Now, it wasn’t about getting a plum job in the US after graduation. IIT graduates were suddenly thinking: How do I come up with a solution to the next big demand-and-supply conundrum?

Gradually, it wasn’t just the IITians, though they still predominate. Young people with big dreams and high ambition set about thinking up the next billion-dollar idea. Investors suddenly had their hands full with a bunch of highly qualified, out-of-the-box thinkers who knew their minds and were determined to make it big – and e-commerce in India came of age.

Over the last eight to 10 years, these hungry entrepreneurs have established a new industry in the country. In recent years, $8 billion has been raised from blue-chip funds like Accel Partners, Sequoia, NVP, SoftBank and several others by the companies founded by these people.

Such was the frenzied interest created within the space that in 2016 Amazon took a considered decision to allocate $2 billion to its Indian subsidiary. While the majority of these companies are still making losses, all stakeholders have set their gaze on the year 2020, by which time the Indian e-commerce market has been pegged by Nasscom to grow to $100 billion.

Here is an overview of how the first crop of e-commerce entrepreneurs who have stayed in the game have fared so far and what the future may hold for them...

Bestsellers: Flipkart, Snapdeal, Amazon India Launched in 2007, Flipkart had a three-year head start on Snapdeal and almost six years on Amazon India. While Flipkart initially followed an inventory-driven model, in 2013 it was compelled to transition to a marketplace model which Snapdeal had adopted early in its life-cycle. In 2014, as per a Morgan Stanley report, the Big Three among the e-tailers accounted for 91 per cent of the market share of the Indian e-commerce market. Flipkart was at 44 per cent, with Snapdeal and Amazon at 32 and 15 per cent respectively. Paytm accounted for another 7 per cent and the remaining 2 per cent comprised various smaller retailers.

Since Flipkart and Snapdeal have made many more acquisitions, and the market has changed somewhat as these entities have pulled back some of the deep discounts they were earlier offering to users.

In 2015, the market share of these companies registered a significant change. Flipkart saw its share go up marginally to 45 per cent.

Snapdeal’s fell to 26 per cent and Amazon’s went down to 12 per cent, while Paytm’s share remained steady at 7 per cent. The real gainers were the smaller retailers who witnessed their market share climbing up to 10 per cent. Therefore, in one year, the combined share of the three e-tailing giants dropped from 91 per cent to 83 per cent, while that of the smaller players rose from 2 per cent to 10 per cent.

Amazon, while still behind the other two players in this space, has demonstrated rapid growth in the three years in which it has been present in India. The fact that their Indian subsidiary accounted for their fastest billion-dollar GMV is exciting for Amazon. Jeff Bezos has commented that India could be the second largest market for Amazon, after the US. This might explain the $2 billion allocation Bezos has swiftly approved for Amazon India. Flipkart and Snapdeal, between them, have received close to $3 billion in funds so far.

Snapdeal has grown at a faster pace than Flipkart, given that it started with the marketplace model much sooner. This model allowed it to develop a larger base of sellers and a much wider variety of products on its platform. Hence, while Snapdeal had close to 100,000 sellers on their network in 2014, Flipkart had to be content with 3,000.

Since then, Flipkart has endeavoured to ramp up the number of sellers. Moving to a marketplace model has helped. Though it is difficult to say how many sellers the company has as of date, the Bansals had earlier set a target of 100,000 sellers by the end of 2015. Most sources place the present number between 15,000 and 30,000. Meanwhile, Snapdeal and Amazon continue to try and woo more sellers.

The race for acquiring more sellers and merchants heated up with players like Paytm and Shopclues entering the fray, and the bar was raised accordingly. While Flipkart and Amazon are endeavouring to reach where Snapdeal was in terms of the number of sellers a year ago, Snapdeal is targeting to have a million sellers on board over the next three years. A later entrant in the marketplace model, Paytm, wants to achieve that number in two years.

However, mere acquisition of merchants is not going to be enough. For one, a merchant is not bound to a particular platform, unless there is a reason to be so. Right now, none of the marketplace models is being able to provide the level of differentiation that sellers need to stick to a particular marketplace. Which means that, like customers, merchants, too, will need to be engaged significantly if the players want to make a difference. As a result, each player is rolling out initiatives that range from training programmes, warehousing facilities, discounts on marketing fee or even offering zero-commission incentives. The three big players offer promotional rates for commissions on every order.

In some cases, they also waive the subscription fee. Paytm has, to a degree, pitched itself as a zero-commission network.

However, while this might get sellers to sign up, it may not necessarily produce winning merchants. This is where the businesses need to mentor the sellers, at the time of joining as well as later. Since most of the sellers have very little experience in selling online, such guidance needs to come from the platform. The ones who provide better hand-holding and deeper engagement with sellers will be the ones the sellers will remain loyal to. With almost all players offering multiple delivery options to sellers, the sellers have been spoilt for choice. Most prefer third-party logistics partners and that’s something every player offers today.

Each of these companies has innovated in some manner or the other. Flipkart was the first to offer the COD payment option, something that every company in the business has moved to today. Amazon showed its understanding of the Indian market by launching a timely and creative Diwali sale for its customers in 2015. Snapdeal has engaged deeper with suppliers in order to get them financing, thereby earning their goodwill.

However, innovation has become commoditized in today’s age, with each player quickly emulating the other. There is scope to do more here. Recently, Snapdeal showed that they have what it takes when they came up with their innovative outdoor campaigns and their ‘Work for India’ stance that had a patriotic touch to it, to attract potential talent. It meant breaking away from the routine hiring process and internal referral programmes that most companies employ.

While Flipkart pioneered 24×7 customer support, today it’s Amazon that customers really talk about when it comes to customer orientation. Somewhere down the line Flipkart has lost the primary advantage it accrued in this area. Ineffective resolution of complaints in some cases and mix-ups in delivered goods are hurting its reputation and this is one area that Amazon is capitalizing on. Snapdeal, too, has had rough episodes in this area and recognizes that they need to make their customer support more robust.

While companies like Amazon, Flipkart and Snapdeal are all quick to resolve customer issues, Amazon is seen to be the quickest to respond resulting in increased customer loyalty.

Amazon, with its years of experience in structuring successful businesses in different countries, has a few advantages over its competitors. For instance, the company uses data science to perfection.

This, for one thing, enables Amazon to strategically tweak pricing of products based on various parameters through information on which products need more discounting at what time and for how long. Their pricing is strategically optimized to suit the sale of a product in a particular situation or a point in time. This is where it initially scored over both Flipkart and Snapdeal.

To be fair to Flipkart and Snapdeal, the two companies have not been sitting idle. While their initial focus was on developing supplier networks, logistics and customer acquisition, they have realized the importance of predictive analytics in their business. Snapdeal, for instance, has significant data on selling trends on their platform, including what product is sold at what time of the day or during a particular season. Data analysis of the sales happening on their platform allow Snapdeal’s sellers to decide what price they want to set for particular products. Flipkart, too, has set up a data scientists’ group focused on machine-learning problems...

Amazon has been able to differentiate itself somewhat from the deep discounting image built around the other two major players.

While Flipkart and Snapdeal largely attract users looking for the best discount deal, Amazon has attempted to market itself on better products and reasonably low prices. That said, all three sites have registered tremendous cash burn. Between them, the combined cash burn every year would easily be close to $1 billion. A large part of this is diverted as ‘promotional expenses’ but in reality it is what the sites pay to their sellers to compensate them for extraordinary price cuts.

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