Amazon famously pledged to invest a total of $5 billion in India over the next few years, clearly pinning its hopes for overseas growth to the country. The investment appears to be paying off.
eMarketer expects digital buyers in India will number 180.1 million this year, and grow to 329.1 million by 2020. Retail ecommerce sales will increase from $23.4 billion to $47.5 billion over the same period, eMarketer estimates.
The massive investment is the clearest sign that Amazon is very serious about taking on perhaps its fiercest domestic rival, Flipkart, while also fending off advances from China’s ecommerce giant Alibaba, which has been gaining a foothold in India through its investments in digital payments processor and ecommerce platform Paytm. Alibaba is also widely expected to make a more direct entrance into India sometime this year.
Amazon’s efforts have convinced at least one constituency—investment bankers—that its strategy to dominate India has more than just a little merit.
A September 2016 report from Bank of America Merrill Lynch projects Amazon will grab a growing share of retail ecommerce sales as measured by gross merchandise value (GMV) over the next few years. (GMV is a measure of the total value of goods sold through an ecommerce platform, but does not represent a company’s revenues or profits.)
The firm estimates Amazon’s GMV share will climb from 28% in 2016 to 37% in 2019, largely at the expense of a withering Snapdeal and other smaller ecommerce players like ShopClues.com.
Meanwhile, Flipkart will see only minimal gains in GMV share through the forecast period, but won’t lose share in the face of Amazon’s onslaught in an outcome resembling something of a Pyrrhic victory.
In its report, Bank of America Merrill Lynch noted that the additional investments promised by Amazon partially accounted for its growing GMV share. But it also expects Amazon will be buoyed by its strong international brand, as well as the July 2016 launch of a version of its Amazon Prime service, which gives subscribers in 100 cities faster deliveries, discounts and access to its Amazon Prime video service, all for INR499 ($7.43) per year.
Since the release of Bank of America Merrill Lynch’s report, Amazon has continued to expand its offerings to customers. The company secured a license for a digital wallet from regulators in India in late March 2017, a move that eliminates the need for consumers to wrangle with two-factor authentication when making online payments. But the wallet license also allows Amazon to offer a raft of other digital payment services, including paying utility bills, ordering food deliveries and hailing taxis, potentially letting Amazon branch out from its core business of ecommerce in India.
In recent years, ecommerce platforms in India have stoked their GMV metrics by offering customers sharp discounts on goods, creating a digital consumer class driven by price more than any other factor. But as investors have taken a harder look at the revenue models of ecommerce companies—and their potential for eventual profits—heavy discounting has increasingly been phased out.
That trend makes nuts and bolts issues of frictionless transactions and fast delivery times increasingly important for winning the hearts of digital buyers in India. Amazon’s advantage lies in its deep experience with logistics; the company recently announced that it would open seven new warehouses, or fulfillment centers, in India, bringing the total number of warehouses it operates to 34 in 10 states.
Recent information from research firm 7Park Data also indicates Amazon is gaining on Flipkart among mobile shoppers in India. According to the company, customer engagement with Flipkart’s mobile app fell by 11.5% year over year in Q1 2017, while Amazon’s increased by 46% over the same timeframe.
Flipkart is not sitting back in the face of the existential threat posed by Amazon, having secured $1.4 billion in fresh funds from investors earlier this month. But it remains to be seen if that will be enough to keep the company viable as Amazon continues to make gains in India.