India's e-commerce story is getting spicier day by day.
A report in The Economic Times today has said that Amazon, which started its Indian operations just two years back and committed a $2 billion investment last year, has readied another $5 billion war chest for aggressive expansion in the country. The plan, according to the report, is to make India the biggest market outside the US.
The company is also planning to launch Amazon Prime in India later this year. Amazon Prime is a subscription-based service offered by the company. Subscribers of this scheme get to avail of big discounts and at times even free services. It has services such as instant video streaming, music streaming, video sharing and unlimited photo storage on Amazon cloud.
Amazon chief Jeff Bezos on his visit to India last year. Reuters
It will also increase the number of warehouses and data centres. The big-bang strategy will take on rivals Flipkart, Snapdeal and Paytm, said the report citing people aware of the plans.
"...We are really long on India, investment figures are easily in multiples of billion dollars," one of the sources has been quoted as saying in the report.
Amazon Web Services, the company's cloud platform, had said on 29 June that it plans to open a new infrastructure region in India.
“Tens of thousands of customers in India are using AWS from one of AWS’s eleven global infrastructure regions outside of India,” a report in Geekwire quoted Andy Jassy as saying in a press release.
"Several of these customers, along with many prospective new customers, have asked us to locate infrastructure in India so they can enjoy even lower latency to their end users in India and satisfy any data sovereignty requirements they may have. We’re excited to share that Indian customers will be able to use the world’s leading cloud computing platform (AWS) in India in 2016 – and we believe India will be one of AWS’s largest regions over the long term,” the release said.
With the e-commerce giant's investment plans, Flipkart and Snapdeal are likely to see heightened pressure. As the ETreport rightly points out, the big impact will be on the valuation of these companies, which is already sky high.
Flipkart has until now raised $3 billion. This Forbes article says the company is raising $500 million from Tiger Global at a valuation of $15.5 billion. Snapdeal, meanwhile, is valued at $5 billion. The valuation of e-commerce companies has been soaring in the recent past. As the competition hots up with Amazon's aggressive India plans, the companies will have to raise more funds to win more, if not retain the existing, market share.
Meanwhile, none of these companies, which offer deep discounts to woo customers, have yet started making profits. A recent report in the Businessworld magazine said Flipkart losses Rs 2.23 for every rupee it earns, Amazon was Rs 1.90, and Snapdeal Rs 1.72.
The report further said, citing data from Accounting and Corporate Regulatory Authority (ACRA), Singapore, that Flipkart's losses had widened to Rs 1,028.9 crore in FY14 from Rs 544 crore a year earlier. Its turnover in FY14 stood at Rs 2,937.7 crore. Snapdeal, meanwhile, incurred losses of Rs 530 crore.
All the three companies have spent Rs 9,774 crore on discounting and reverse logistics in the last financial year, theBW report said. Reverse logistics is the transportation of goods that are rejected by customers back to the company's warehouses. Discounting and reverse logistics are the two major strategies of these companies to woo customers. A UBS report recently said Indian e-commerce companies will have to continue burning cash until 2020, when they are likely to turn profitable.
But despite all these the Indian e-commerce industry continues to be a very attractive bet. The reason is the huge potential. According to UBS, the market will grow to $50 billion by 2020.
"...We estimate the India etail market could be worth $ 50 billion by 2020, growing 10x from the current level. This is not a conservative estimate and assumes wide acceptability of online purchases by Indian consumers and etail companies overcoming the challenges of logistics and banking," it said.
“We see huge potential in the Indian economy and for the growth of e-commerce in India,” Amazon chief Jeff Bezos had said last year while announcing his $2 billion investment in the country.
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