Amazon: Thy name is Innovation
Amazon is known for doing things differently and some of these innovations will find their way into India sooner than later. It is opening book stores across major cities in the US. It has plans to sell cars online in Italy. Its Dash program makes buying products as easy as pressing a button. Its Echo speakers and Alexa AI assistant are changing the way we get our tasks done. It has launched a Pinterest-like feature “Interesting Finds” that offers shoppers a curated feed of products across categories.
The ecomm pioneer is also testing delivery of packages by using drones in the UK. Amazon has already leased aircrafts for its dedicated air-cargo network to reduce dependence on third-party logistics players. Some other ideas like, flying warehouses and self-driving trucks, are more fantastic and will take years to see the light of day. Nevertheless they indicate the scale of the company’s ambition and risk taking appetite. As Jeff Bezos notes in last year’s Annual Report:
“Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom…Given a ten percent chance of a 100 times payoff, you should take that bet every time.”
Recently, Amazon launched its Prime Video service in India giving its loyal base of Prime subscribers another reason to choose Amazon over Flipkart. Offering video services is uncharted territory in Indian e-commerce and is something that Flipkart will find both difficult and expensive to match.
The Amazon Prime list is already the world’s greatest marketing list. And every time it adds exclusive items to the Prime service, it makes it even more valuable drawing in more subscribers. With customer acquisition being the most important thing in the sector right now, the launch of Prime Video is likely to attract well-heeled and high-spending customers to the Amazon Prime platform and could tilt the scales decisively in favor of Amazon (In the US, nearly half of all Prime members spend nearly double than regular users to buy goods on its platform).
Flipkart made fun of Amazon when it was announced that the single highest-selling product for Amazon during the October Sale period was its Prime subscription. But given the loyalty and high-spending power of the Prime customers, it is very likely that Amazon will have the last laugh.
Way forward for Flipkart...In a growing market like India, user acquisition and market share should be the topmost priorities for Flipkart. All this talk about turning profitable appears ambitious to say the least. The second-largest player in China, JD.com, is still not profitable even after being in business for more than 12 years. Flipkart will need to continue spending on bolstering logistics, tech platform, its presence in new areas such as grocery and private label goods while at the same time ensuring that it continues to match Amazon’s price points and commission rates so as not to lose its current base of buyers and vendors.
Where can it cut costs? Flipkart should definitely look at its people costs. Its reported headcount of 35,000 seems high for a company of its size. Also a recent report indicates Flipkart is more than generous when it comes to paying its management team in stark contrast to its American rival.
Flipkart will do well to follow one of the leadership principles at Amazon - 'Frugality’ which states:
“Accomplish more with less.
Constraints breed resourcefulness, self-sufficiency and invention. There are no extra points for growing headcount, budget size or fixed expense.”
One last thingIn a recent interview, top leaders of Flipkart – Binny Bansal and Kalyan Krishnamurthy – criticized Amazon for copying every move of Flipkart.
“They copy everything, or they wait for someone from somewhere to tell them what to do.”
This from a company which started off as Amazon’s Indian clone. Such statements belie the anxiety within Flipkart with Amazon looming large in the rear-view mirror. Flipkart has been one of the “poster-boys” of the new breed of Indian startups. Whether it can continue to defend its turf against onslaught from the U.S. retail giant, only time will tell. But one thing is for sure. After losing to Alibaba in China, Amazon is in no mood to lose in India. We are all set for a battle royale!
Guest Author
Biplab Chakraborty is group manager of M&A at Tech Mahindra. He has more than 17 years of diverse experience in mergers and acquisitions (M&A), investments, technology
consulting and business development.
