Indian e-commerce firm Flipkart tries to outdo Amazon

It was a humble beginning for two former software developers for Amazon.com who set out in 2007 to beat their one-time employer at its own game long before Amazon entered India.

“We were doing everything ourselves for the first four to five months, from packing to shipping,” Sachin Bansal, the 30-year-old chief executive of the company they called “Flipkart”, recalled of the six months before they moved into their first office. “Because our volumes were very low, our courier partners would sometimes refuse to pick up items from our apartment.”

“So we used to get on a motorbike, hold the shipment in our hands and personally deliver them to our Bangalore clients,” he said.

In those rocky first days, Sachin Bansal said, their suppliers, seeing two youngsters who had quit stable employment with Amazon, the world’s top online retailer, to go it alone, would counsel them to get proper jobs. The two men have since been cheered at home as poster boys for entrepreneurial India, establishing their company, Flipkart, as a leader in the fledgling Indian e-commerce market.

While Sachin Bansal and Binny Bansal, the company’s 28-year-old chief operating officer, are not related, they have much in common. Both grew up in Chandigarh, both are alumni of the prestigious Indian Institute of Technology in New Delhi and they briefly worked together for Amazon in Bangalore.

They have made Flipkart into the biggest online bookseller in India, with more than 10 million titles distributed from warehouses in five cities. It has branched from books into cellphones, appliances, game consoles, music and movies, and now sells 10 products a minute.

It generated $11 million in sales during its most recent financial year, expects revenue to top $100 million this year and is aiming at $1 billion by 2015. That sharp growth trajectory has attracted $31 million in financing from the US venture capital firms Tiger Global Management and Accel Partners.

Flipkart’s business model and even its Web site resemble those of Amazon. But as a company, it is dwarfed by Seattle-based Amazon, whose revenues totaled $34.2 billion, last year.

Amazon still has no formal presence in India. It is possible to order Amazon products from India, but the cost of postage is high and delivery is slow. “Amazon’s idea is not new,” Sachin Bansal said. “It’s all about the execution.”

There is little doubt that e-commerce will one day be big business in India, a country of 1.2 billion people whose rapid economic growth is adding millions to the middle class every year. But for now it is a diminutive and difficult market, especially for Western companies unaccustomed to the onerous bureaucracy. Despite its vast population, India has only 52 million active Internet users and only 40 per cent of them have shopped often online. What is more, fewer than 18 million people in the country use credit cards.

“The sophistication of the Internet user is the largest challenge,” said Accel partner Subrata Mitra. “Now, there are between 15 to 20 million sophisticated users in India.” To get around clients’ aversion to credit cards, the company offers cash-on-delivery terms for its products, which account for 50 per cent of Flipkart’s sales.

The market outlook is bright. While printed book sales are slipping in most Western countries, the $2 billion book market in India is growing at about 15 per cent a year, reflecting rising literacy rates, the swelling ranks of middle-class readers and a thriving domestic literary scene.

Then there is the Indian e-commerce market, which is expected to grow 47 per cent to more than Rs 460 billion, or $10 billion, this year, according to the Internet and Mobile Association of India.

Online travel is for now the dominant sector. Just last year, the Indian online travel company MakeMyTrip raised $70 million in a Nasdaq Stock Market initial public offering.
“By 2015, we’re expecting India to be one of the largest Internet-based economies,” said Protiviti Consulting head (India Operations) Mritunjay Kapur. “All these companies are at a stage where they can explode, depending on broadband connectivity.”

PricewaterhouseCoopers’ executive director in India Anand Dikshit is more cautious about an industry now in a “trial-and-error” phase. “I am not gung-ho on this in India right now,” Dikshit said. “Let’s see where these companies are after a couple of years because the sustainabil-ity is more important. There are no sustainable models as of now.”

The founders of Flipkart, however, are optimistic. They expect higher profit margins from honbook products, which now account for 60 per cent of revenue, and are even looking forward to the competition from Amazon.

“Amazon entering the country will be a good thing for e-commerce, which is very small in India in relation to its potential,” Sachin Bansal said. “The largest challenge we face now is to make e-commerce more viable for people to come online and shop.”