Among all start-ups that have emerged from India in recent and not-so recent times,Flipkartis likely to be at the top of most people’s minds. The list is admittedly weighed heavily in favour of newer companies, given that the Indian start-up ecosystem has only in the last decade or so started to pick up steam. But that is changing, and thelist is getting longer and diverse, with such names as Urban Ladder, Zomato, Reel, Druva Software, WebEngage, etc… in just the online segment. But today, in 2015, Flipkart is the big daddy of them; with total equity funding of US $2.5 billion and a valuation of a whopping US$11 billion as of April 2015, it wasranked the seventh most valuable start-upin the world (though that was still a far cry from the $178 billion market cap enjoyed by US online retailerAmazonand $220 billion market cap of Chinese online retailerAlibaba).
Yet Flipkart seems to be in trouble.
Let’s ignore for the time being the fact that it loses much more money than it makes, and that scale does not seem to have lessened the bleeding of money – it’s caught in a situation wherethemore it sells the more it loses*. How much of it is by design – i.e. a result of a decision to focus on scale and top-line, consciously sacrificing the bottom-line in the interim – is up for debate, but that Flipkart is a long way from profitability is undeniable. Let’s ignore this for the time being.
First off, it is no mean feat to start a company out of the proverbial garage and grow it, in less than a decade (since its start in 2007), into abillion dollar start-up. And make it a leader in an industry. And do it in India. Flipkart has managed to do all that, and more. It has established, spectacularly so, that an Indian start-up can make it to the very top in a fiercely contested space. Flipkart, for the most part, has been a spectacularly successful start-up by most counts. Let nothing distract from that fact.
So why the hand-wringing? In one word, focus. Flipkart seems to be losing focus. Three reasons stand out in my mind.
First, the ongoing controversy and its decision to shutter its browser-based web site and force customers to use only its mobile app – on smartphones and tablets.
It has already shut down the mobile browser site ofMyntra– the online fashion retailer itacquired in 2014. Navigate to Flipkart’s website on your browser from your smartphone or tablet and you have no choice but to download and install the app. Come May 1, and Myntra’s website isplanned to be shut down completely! Elsewhere, there have been more than a whiff of rumours that Flipkart is contemplatingshutting down its website. This seems not only quite unnecessary, but more importantly, indicative of the grandstanding that is coming to mark some of Flipkart’s actions. Shutting down the web site to become an app-only retailer harms the company in tangible, monetary terms, while benefiting it in the currency of zero-value digital media ink.
WhatsApp, the world’s largest instant-messaging application and which started out and since its launch existed as only a mobile app – with more than700 million users- launched a browser version of its application inJanuary 2015. Facebook, the world’s largest social network,launched a browser versionof its mobile app, Facebook Messenger. In case you are tempted to argue that Facebook took that step out of some sort of desperate need to boost numbers, keep in mind that Facebook Messenger had500 million usersin March 2015, before it launched its browser version of Messenger. Let’s round off with one more example: Flipboard, with more than100 million usersin 2014 , launched a browser version inFebruary 2015.Yet Flipkart wants to shut down its website.
Is it because of technology? Limitations of mobile browsers? Well, yes, if you are still living in 2010. Half a decade is an eternity in Internet years! Small screen sizes were a big reason why apps were preferred a few years ago, where browser chrome (the title bar, address bar, footer, etc…) would eat up a substantial amount of precious screen real-estate. But in today’s world of gigantic 5” and larger screens, with HD or higher resolutions,this is a moot point. Smartphones are becoming faster and more powerful – quad-core processors and multiple gigabytes of memory are more and more commonplace, 3G is gaining increased adoption even in emerging markets as India. With the availability of UI systems like jQuery Mobile and frameworks like PhoneGap that make a web site adapt to different form factors and which provide substantial support for gestural interactions without additional coding, old arguments hold little water. Unless perhaps you are a gaming developer. Which Flipkart is not.
Another much-touted argument is that in a country like India, most of the online usage is now coming from mobile devices – smartphones and tablets. India has been ahead of the curve – perversely thanks to its anaemic and sparse broadband coverage. According to Mary Meeker’s much-watched-read-downloaded “Internet Trends” presentation at the D10 Conference in May 2012, “Mobile Internet Usage Surpassed More Highly Monetized Desktop Internet Usage in May, 2012, in India”. Indicative of this shift is the fact that in 2014, global smartphone sales overtook feature phone sales, for the first time. A little more than a billion phones weresold of each type. Most of India’s billion mobile users will move towards smartphones by 2020. However, there is, and should be, scepticism over numbers – especially that project into the future. A report that estimated the number of Internet users in India at 300 million by December 2014 wasquestioned by NextBigWhat, a “A Global Media Platform For Technology Entrepreneurs” .
But with so little revenue coming from the website, a Flipkart cannot afford to continue to maintain its website. “It just isn’t viable to have three separate platforms” -so goes one argument. But this thinking betrays a lack of understanding of the distinction between a platform and a consumption channel on the one hand and an even poorer understanding of how complex software applications have been architected for many years now (and especially those that live in the cloud). The code, APIs, database, web server, middleware, identity management, authentication, shopping cart, order fulfilment, security – all of these are common whether you are accessing a site through a website or a mobile app or a mobile browser or even via a wearable device. If you prefer techno-alphabet-soup to describe this, you use aSOA-based approachto software design. Developing a new user interface – desktop, mobile, tablet, etc. - becomes an incremental effort rather than a multi-year, multi-million dollar exercise.
Yes, many technology innovations in the world of retailing are happening in a way that is inextricably intertwined with mobiles – like mobile payments and hyperlocal retailing for instance. Wal-Mart uses its mobile app to guide customers to and within its stores (using location tracking via GPS). But they are not shutting down their website either.
If you are in the happy situation of having too many customers, and are okay with ceding a third or more of theonline retail marketto your competition, then shutting down an important channel for your sales is a good idea. And no, let’s not have the argument about cars and buggies either.
So why is Flipkart so obsessed, to the point of distraction, with the mobile app strategy? Customer information and its mobile search ambitions for one.
More on this in Part 2 of this article.
* As perthisreport, for the year ending March 31, 2013, “Revenue soared fivefold to more than Rs.1,180 crore from Rs.204.8 crore in the previous year”, but “expenses jumped more than five times to Rs.1,366 crore from Rs.265.6 crore last year” – clearly, they were not yet at the point where they could reap economies of scale. As an aside, Flipkart’s Mar 2009 FY revenues were approximatelyRs 2.5 crore - and approximatelyRs 30 crorerupees for FY 2010.
"For the year ended 31 March 2014, the losses of all Flipkart India entities amounted to Rs.719.5 crore on revenue of Rs.3,035.8 crore, according todata compiled by Mintfrom the Registrar of Companies (RoC) and Acra.", This tells us that both expenses and revenues are growing almost in lock-step – economies of scale are still elusive.