What’s the big deal with India’s Ecommerce market?
India seems to be one of the most hot-button topics in the Ecommerce world at the moment. It’s easy to see why: the country is massive, lacks significant physical infrastructure, and is fast-evolving. Like China before it, this developing market has the potential to be an Ecommerce market of global importance. Yet, Ecommerce in India is currently a no-win game.
Amazon has delivered a shocking 1180% rise in share price over ten years
SOURCE: Yahoo Finance
In April, India’s homegrown Ecommerce giant, Flipkart, raised $1.4 billion in a funding round that included input from eBay, Microsoft and Tencent. But it lost $800 million last year. And it’s not alone: competitors Snapdeal and Amazon India both lost more than $450 million. So why keep pumping money into losses? The answer is two-fold: future potential, and market leadership.
Amazon is the overwhelming market leader of online sales in the U.S., with a staggering 43% of the market. This lets them operate economies of scale that their competitors can only dream about. It also gives them the ability to diversify their services into multiple areas on a single platform: you might sign up to Amazon Video, but if you do, you’re probably going to become an Amazon Prime member, and – perhaps a year from now, as you buy into the company more and more – you’re probably going to start reading all your books and magazines on Kindle. This success is the ultimate Ecommerce business model, and all the big Ecommerce players (including Amazon) want to replicate it in every market.
But India is a particularly attractive market – it might not make any money right now, but it’s predicted to be a $48 billion opportunity in the near future. The rise of electronic payments and decent internet could transform a country where thousands of villagers do not have access to the products they want in a physical location.
So who is going to win the race to the top of Indian Ecommerce? It’s too early to tell. But there are a few points worth noting: first, after multiple rounds of cash raising, Flipkart managed to parse together $4.65 billion. Jeff Bezos’ response? To allocate a cool $5 billion to his Indian operation. Those Amazonian pockets are deep. Second, remember that the business model all these companies are trying to clone is Amazon’s. Who better to manage it than the same company’s Indian arm?
Dominion holds Amazon in its Global Trends Ecommerce Fund.
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