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Amazon flows into India, eBay ‘Snaps’ a US$50 mn ‘Deal’: e-commerce in APAC to get fillip

It took 18 years for the world’s largest online retailer to come to India. We hold no grudges, considering that e-commerce in India has picked up pace only in the last couple of years. But Amazon’s official entry into India, in the amazon.in avatar, reiterates the fact that India has arrived on the e-commerce zone.

Ironically, it were ex-Amazon employees, Sachin Bansal and Binny Bansal who arguably made grounds for Amazon Seller Services to explore India. The Bansals became pioneers of e-commerce in India, when they founded Flipkart.com in 2007. The duo can be credited for the now so popular Cash-on-Delivery payment method, which actually gave a spur to e-retailing, realising that credit-card penetration was poor in the country. Working on the Flipkart model, other e-commerce players in the country have come up with ‘choose and trial-at-home’ delivery models too.

The Seattle-headquartered company’s entry into the South Asian country is important from the view that it would not only give boost to e-commerce to India but to the entire Asia Pacific region. Not that Amazon wasn’t present in the region before. It had launched its Japanese version as early as 2002 (about 11 years ago) and the China edition in 2010. When Amazon entered Japan, the online sentiment was the lowest across the world and many an internet entities had shut shop. It took about eight years to get the confidence back on track. And e-commerce in India has been prevalent for while now. Even today, about 75 per cent of the US$14 billion e-commerce business comes from travel bookings – airline, railway and hotels. But given the sheer size of Amazon, the development will be a shot in the arm for e-commerce in India.

Testing times
Amazon tested the Indian waters last year with the launch of Junglee.com, which was largely an advertising platform for retailers to drive targeted traffic to their on-ground stores. It was very clever of the online retailer to make an entry that way. The online real estate for advertising was given free. That way, Amazon could build up a huge database of sellers before it actually dived into the market. Amazon’s late entry into the Indian market only means that eBay got a free run all this while. eBay expects global e-commerce market to be worth US$ 300 billion by 2015 and it expects its 12 per cent sales to come from BRIC (Brazil, Russia, India & China) countries.

Consolidation ahead?
There’d been reports coming as early as April this year that eBay was fishing to invest into another online retailer, SnapDeal. Within two days of the announcement of amazon.in, eBay and SnapDeal closed the deal, with the latter raising about US$90 million from this round of investment. Rest of the $40 million coming from Recruit Co – and six venture funds and other individual investors. eBay is now the leading investor in the company. What a timing? Lest we forget, another online Indian retailer, Myntra too secured about $25 million in investment from existing investors Tiger Global and Accel Partners, last month.

While the e-commerce industry has just touched the tip of the iceberg, the latest developments are important from the view that it is time for much of the daily launched fly-by-night operators to shut shop; or an opportunity for entrepreneurial adventurists to set shop for acquisition and exit. The time for consolidation will start soon and many a start-ups can be expected to crop up in the near future just to put up themselves for sale.

India hub for APAC?
The latest developments, let me repeat for deeper effect, will have a bearing on e-commerce not only in India but also in South Asia and the South-East Asian regions. While strategically, Singapore may become the regional hub for the digital world, it has to be India for e-commerce considering the demand and supply chain of the business model. Electronics is huge on the e-commerce world and much of manufacturing units are in China, Korea or Taiwan, but from a distribution point of view India makes more sense, considering that it can also be the hub for warehousing and customer support. The economies of scale are in India, which has just taken off; and it also opens up frontiers for countries like Pakistan, Afghanistan, Sri Lanka, Nepal, Bhutan and Burma. And to the Middle-East too. However, that’s a futuristic outlook and isn’t happening any time soon, considering the ‘2G-4G divide’ in the Asia Pacific region.

The 2G-4G divide
Both digital marketing and e-commerce will get a fillip from mobile – 3G doesn’t really factor in the ‘divide’. While there are countries such as Japan and Malaysia, which are seeing a spurt in 4G, there are countries like Thailand, which got a taste of 3G, just about towards the end of last month. On the other hand are countries like Pakistan, which still operates on 2G and there are political roadblocks for 3G to take off. Afghanistan is yet far off. India while will see 4G sometime later this year, the push is on upgradation from 2G to 3G.

Coming back to e-commerce, while the likes of Myntra, Jabong and others will have place under the Indian sunshine, it will be the likes of Amazon and eBay that will control the region from India. The others will have to find their niches. Myntra has already paved way from being a customised product retailer to an online apparel store.

Easy play?
Speculations are rife that Amazon is looking to extend business into online food delivery in the US and replicate the model in UK too if the model succeeds. The company is touted to roll out the service in California, starting with Los Angeles and San Francisco, and could launch in 20 other urban areas – inside and outside the US – in 2014. In India, it has just started with selling books (its very primary business), movies and TV show videos – .

It will extend its services to mobile and cameras in the coming weeks. According to media reports, France’s culture minister, Aurelie Filippetti, recently called Amazon a destroyer of bookshops. “Everyone has had enough of Amazon which, by dumping, slashes prices to get a foothold in markets only to raise them once they have established a virtual monopoly,” she said. However, selling books, music and videos wouldn’t be easy – not even for Amazon – in the near future. Remember, Kindle? An Amazon innovation, which has been killed by the smartphones. Kindle remains a mere software now, which too is facing challenge from Play Books.

Google Play – with integrated Play Books and Music and Movies is already getting quite popular, renting out movies for as low as US$ 1 (about INR 50) and selling for download-and-keep for about US$4. With 4G on the anvil, nobody’s got time to wait for movies to be delivered at home. HD capable smartphones are already available in the market and Google Play is giving an option to download an HD version for as low as US$5. But that will be the case for India, Japan or Malaysia. Amazon could look at delivering Indian Bollywood movies and music to countries such  Pakistan and Afghanistan until 4G comes there and they have a long way to go. Till then, home delivery will get the business.

But where does Amazon have an edge over its competitors?
First and the foremost, it comes with deep pockets to overturn them and go for the kill – marketing and advertising budgets and even buy-outs not to build up verticals but to kill them to have a monopolistic arena. With this money, it can scale up its distribution, which other e-commerce players have shied away from. It can afford to cover more PIN codes than any other player and that can really help the e-commerce business grow and spread and bridge the urban-rural drive when it comes to choices available.

Amazon brings with itself a unique distribution model, called ‘Fulfilment by Amazon’ (FBA). When using FBA, sellers across India can send their products to Amazon’s fulfilment centre – currently located on the outskirts of Mumbai. Once an order is placed, Amazon packs and ships the order to the customer without the sellers having to do anything. Sellers save money by replacing their upfront capital expense with low variable cost and pay only for the storage space they use and the orders Amazon fulfils.

Two, it comes with a global distribution network and learnings from other markets (It is present in US, UK, Japan, Germany, Canada, France, China, Italy, Spain, and now India. It is touted to launch services in Poland, Netherlands and Sweden too soon), which can be implemented here. User databases can be cross-connected networked and shared and give APAC an excess to global buyers-sellers and products.

Three, it comes with huge data backing of consumer behaviour and analytics, which can be used to benefit for not only Amazon.in but for its ancillary services like Junglee.com. It can also offer to extend this database to run websites for larger brands in APAC. It already operates retail websites for Sears Canada, bebe Stores, Timex, Marks & Spencer, Mothercare, and Lacoste.

Will malls become redundant? Will they become places for window-shopping and eventually go online for buying where one can get a better deal? A far-fetched idea, but still. Happy ‘shopping’ times ahead, either way.