Flipkart, India’s biggest e-commerce company, has just hit the billion dollar milestone in annual GMV (Gross Merchandise Value), a goal the founders had forecast to achieve only by 2015.
In an internal note sent to employees, Sachin Bansal and Binny Bansal, the former Amazon employees who founded Flipkart in 2007, said this reflects 100x growth since March 2011 when the company was doing around $10 million in GMV.
India’s e-commerce market is projected to grow sevenfold to $22 billion in the next five years, as Internet infrastructure improves further, making it easier for the country’s nearly 200 million online population to shop on-the-go.
“With this scale, we are in a much better position this year to explore acquisitions across the areas we have identified,” Binny said in an interview.
Being an early mover has clearly helped Flipkart, but the growth came with some challenges that are unique to emerging economies like India.
“India, especially, is extremely different from the rest of the world. Consumer maturity is at a different stage, transport/logistics is still largely disorganized, the tax structure is different,” Binny added. “We understand and have solved for these uniquely Indian problems and the kind of data we have with us today in terms of consumer preferences and market needs puts us way ahead of others, at least in the domestic ecosystem.”
How eBay is attempting to catch up
But Indian e-commerce is not “a winner takes all” market. Rival SnapDeal, which received $134 million additional funding from eBay a week ago, is also set to hit the billion dollar GMV mark in a month or two, its founder Kunal Behl had said in an interview sometime back. Unlike Flipkart, which started as an inventory-led e-commerce company and has only recently diversified into marketplace model, SnapDeal has been a marketplace from the very beginning.
For eBay, SnapDeal investment is a very crucial bet, especially given how its Indian unit has lagged newer entrants over past few years. Despite entering India quite early, eBay has somehow missed the opportunity to become a leader. SnapDeal, which pivoted from being an online deal site two years ago to an e-commerce marketplace, is now at least 6-7-times bigger than eBay in volume of business.
For its part, eBay has been desperate to catch up, and tried to make up for past mistakes by aggressively chasing the opportunity to invest in SnapDeal. To date, eBay has invested around $170 million in SnapDeal.
The Amazon angle
Flipkart is often referred to “as the Amazon of India”, but Binny said the markets dominated by Amazon and Flipkart are completely different.
“Every player comes with their own strengths and weaknesses and while there can be some broader learnings – we believe each market comes with its own unique set of challenges. Even the retail market is extremely fragmented. In the US, for example, you can work with two – three sellers or publishers to list 80% of the titles available in the market. In India, you need to work with hundreds.”
Until two years ago, many investors believed Flipkart can be acquired by Amazon for its India entry. But existing regulations and Flipkart’s own growth, valuations, have made it a tough acquisition target.
Amazon is quietly taking the marketplace route for now to ensure it complies with existing ban on foreign investments in the country’s e-commerce sector, and preparing aggressively to push when the environment becomes conducive.
Walmart wants a piece of the action, too
As we reported earlier this week, Walmart wants to beat the existing regulations and challenges of doing a big-bang offline retail entry by building an e-commerce marketplace in India. It has already hired professionals and from the little, but strong progress Amazon has made so far, Walmart looks confident to challenge existing rivals.
The Greater Fool’s Theory in Indian e-commerce
I also spoke to a bunch of investors, entrepreneurs and several others tracking the sector to understand if the Indian e-commerce is indeed as hot as it’s being made out to be. One of them told me investors should carefully study the number of new transacting users that companies like Flipkart are adding.
“While this plays well in the press, it doesn’t fly with seasoned investors. So, it has to go to a new class of investors aka retail investors in US. Flipkart and SnapDeal are rushing into an IPO. This is the classic Greater Fools Theory way of raising more money,” this person told me over the weekend.
While Flipkart has raised around $500 million to date, SnapDeal’s latest round took the total capital raised to over $300 million.
Investors such as Accel, Tiger, Naspers, eBay and several others have rushed to invest in companies like Flipkart and SnapDeal hoping that they will keep adding fresh transacting users. They are also looking at the overall number of 200 million Internet users in India. But most of them are not shopping online yet.
“Flipkart’s valuation is based on China comparisons. Investors want to see that Flipkart (or SnapDeal) could be like Alibaba-owned Taobao. For this story to be credible it has to grow transacting user base to 100m users,” the person quoted above said.
India’s e-commerce market (sans travel sites) is currently worth $3.1 billion annually — just 1.5% of the value of China’s e-commerce sales, which are approaching $200 billion.
Clearly, the biggest challenge facing Flipkart, Snapdeal and others will be to increase the number of transacting users. Many of these fresh online shoppers are likely to come from mobile, which is already contributing over 30% of Indian e-commerce traffic. So expect some more action on mobile commerce front going forward.