In a recent piece I did called "Amazon and the India Factor," I dove into Amazon’s (AMZN, Financial) international retail numbers and reasons why India could become its next growth engine. In this article I’ll tackle the issue of the real state of Amazon in India and the kind of competition it faces in a potentially explosive market.
Amazon India’s growth has been like a fairy tale. Though its overall sales numbers are small in terms of the dollar equivalent, its sales have grown sixfold in the last year. In my previous article I also gave out the growth numbers for Amazon India – $152 million for the 2014-2015 period.
But it’s the highly “tilted” three-way fight for ecommerce supremacy in the nation of what the CIA recorded as 1.25 billion people a year ago. Yes, that is the CIA.
Amazon’s domestic competition in India
In a market like that there’s bound to be some competition, to put it mildly. Flipkart and Snapdeal are the other two in this three-way ecommerce tug of war. Until recently, Flipkart was the No. 1 player in India. Amazon came in with its deep pockets and quickly gained enough market share to flip the kart over and become the pole position holder.
With all three companies fighting tooth and nail to increase their user bases, they are doling out discounts and burning cash, leading to severe losses for all. None of the top three are profitable.
But the real problem Flipkart and Snapdeal face as startups is Amazon's deep pockets. To make matters worse, Morgan Stanley recently downgraded Flipkart’s valuation, thus presenting an enormous hurdle to the company for future fundraising.
Though the downgrade alone doesn't mean that the company won't be able to raise money, it puts a lower cap on investor confidence.
"Morgan Stanley has marked down its stake in Indian ecommerce company Flipkart to $103.97 per share, 27% below the price of its last fundraising round. Last year, Morgan Stanley had valued Flipkart’s per share little over $142 per share. Importantly, the markdown comes just a week after Flipkart claimed that it’s valued $15.2 billion. The fall in share reduces Flipkart’s valuation to $11 billion."Â –YourStory
For Amazon, however, the successes are accruing at a rapid pace:
“We started with 100 sellers three years ago and now we have over 85,000 sellers growing at 250% year on year and adding over 90,000 products a day,” an Amazon India spokesperson told Economic Times.
All of that is great, but what is the real state of Internet connectivity and online shopping potential in India?
Internet growth in the Indian subcontinent
The graphs below tell a very interesting story. Have a careful look and then read on below.
So, while Internet growth (along with ecommerce volumes) is expected to double in the next three years, penetration is still less than 20%. Even at that level it is the world’s third-largest country by Internet users – third by a slim margin after the U.S.
Here are a couple of interesting article excerpts that tell the India ecommerce growth story.
“One reason for India’s huge potential is that it starts from such a small base. Barely one-quarter of India’s population has access to the Internet at home, whether on a smartphone or computer, and only a small fraction of those have ever shopped online. For ecommerce, that means explosive room for growth. Morgan Stanley estimates that revenue could soar to $137 billion by 2020, more than 10 times the 2013 level of $11 billion. That is partly thanks to plummeting prices for smartphones (there are cut-rate deals online for Chinese models like OnePlus and Xiaomi), which about 350 million Indians now own. Google GOOG1.38% and Facebook FB0.64% are among those investing heavily in increasing Indians’ online access, having concluded that their future growth — like Amazon’s — depends on massively expanding the world’s Internet users from the current 1 billion or so. –Fortune
"India's ecommerce revenue is expected to jump from $30 billion in 2016 to $120 billion in 2020, growing at an annual rate of 51%, the highest in the world, according to a joint ASSOCHAM-Forrester study paper." – Times of India
The most plausible outcome
With such growth in the offing, it's clear the ecommerce industry is going to be a huge money spinner, and Amazon has enormous strength to take advantage of that growth. With both of Amazon’s rivals being startups, every year this battle drags on the less the ability of its rivals to keep losing money. That doesn’t mean it will go down, but it puts Amazon’s dominance in this market well within its reach. When that happens, this country might be the second-largest revenue earner for the retail giant, and one that could serve the company for a long time.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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