Amazons Foray into India

Abstract
Amazon, the worlds largest online retailer, which disrupted the way things were bought and sold online
forever, entered the Indian market with its marketplace model in 2013. The Indian e-commerce sector
was the fastest growing sector in the Asia Pacific region and was crowded with a number of home grown
players such as Flipkart, Snapdeal and Jabong. Amazons entry, with its trademark aggression focused on
customer convenience, lower prices and a huge selection of merchandise, turned the heat on the
incumbent market leaders. The global giant soon turned out to be the trend setter in the market with
the leaders mimicking every move that it made. The domestic e-commerce market was still said to be in
the nascent stage and it was predicted that some of the players would soon cease to exist as a result of
a consolidation phase. In this scenario, Amazon was focused on expanding its presence across categories
and providing an easy and convenient platform for sellers. The global giant was also sprucing up its
operation and logistics strategy and was promising one day delivery across most of its categories. The
case while touching upon the latest happenings in the Indian e-commerce scenario highlights the odds
faced by Amazon in the Indian market and the glocalisation strategy the retailer adopted to capture the
fastest growing market in the Asia-Pacific.

Teaching Objectives
To understand and analyse

o the trends in the Indian e-commerce market scenario

o the challenges faced by a multinational when entering new/emerging markets
o the impact of government policies on business strategy
o the impact of consumer preferences and buying behavior on the business model
o the marketing strategy adopted by Amazon in India

Case Study
Amazon entered India in June 2013 with its own digital marketplace. Flipkart the leading Indian e-tailer
came out with its own marketplace model a month before this. A few months within the launch of
Amazons portal, the major players slashed prices across most categories and the leaders announced
either same day or next day delivery in quick succession. Experts felt that the highly competitive
industry was set to witness more such aggressive tactics. Online retailing was growing at a furious pace
in India and was still at a nascent stage in terms of penetration. The major players were trying to grab
market share with attractive discounts, innovative payment options and same day or next day delivery
service.

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Amazon had a magical run in the US from its beginning as a modest online book seller in the US. The
worlds largest online retailer saw similar success in the European markets as well. But in the developing
regions such as Brazil and China, Amazon had a very different experience. The Chinese market was
dominated by local player Alibaba and Amazon had just managed to make a small dent in Chinese e-
commerce. The retailer was not so popular in the LatAm and African markets as well due to local
regulations and changing consumer behavior of the local communities.

In India, the retailer had become one of the largest players in terms of the number of products stocked
within months of its launch. In December 2013, five days after Amazon announced its one day
guaranteed delivery service, Flipkart also came up with the same service. This was followed by Myntra
also introducing one day delivery and Snapdeal planning to extend its one day delivery service to more
cities in India, By 2016, Amazon India planned to cross the $1 billion sales mark. By 2014, only Flipkart
had crossed the mark, Snapdeal was expected to join the billion dollar club in 2014. But with the market
set for a consolidation phase and aggressive moves being made by the local players, it was yet to be
seen whether Amazon would be able to strengthen its position in the country or face failure as it did in
China, LatAm and Africa. Sceptics questioned the rationale behind Amazons huge investments in the
country, especially seen in the light of the recent consolidation happening in the market and its failure in
the other developing markets.

The Emerging Online Retailing Scenario in India

Growth Trends

Indian retail was one of the fastest growing markets in the world and was considered to be one of the
largest five retail markets in terms of economic value. The sector experienced exponential growth, with
retail development happening in the major cities and metros, as well as in Tier-II and Tier-III cities. The
retail market in India was expected to grow from $518 billion in 2012 to $1.3 trillion by 2020.1 The main
factors driving growth was said to be easy availability of credit/ debit cards, increased urbanisation and
consumerism. Online retail penetration was 60% and was a major factor driving retail growth. E-tail was
also expected to drive Indias industry growth. In spite of this growth, the e-commerce industry was at a
very nascent stage accounting for less than 1% of total shopping in the country.

Consumer Behaviour

Only about 12% percent of the Indian population was engaged in online transactions as against above
50% in China and 64% in the US. The reasons for the low penetration were poor Internet connectivity
and other logistics and infrastructural problems which was a big challenge to e-commerce penetration in
the smaller towns. Courier services coverage which was a critical factor governing online shopping,
covered only about 10,000 out of a total of 150,000 pin codes in the nation.

In addition to this, consumers harboured a deep distrust for online payment techniques which resulted
in low penetration of credit cards and online payments. The national postal systems in India were also

1
Indian Retail Industry Analysis, http://www.ibef.org/industry/indian-retail-industry-analysis-presentation, April 2014

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notorious for their unreliability and slow delivery. While fixed line telephone and broadband
infrastructure was not very well developed in India, usage of mobiles in general and smart phones in
particular was on the rise. Hence e-tailers faced the need to adapt their sites to mobile users as well.
Another key deterrent was the low spending power of the Indian consumers. GDP per capita in India
was $3,900 while it was $49,800 in the US.2 Fraught with the problems of limited purchasing power, low
credit card usage and poor delivery infrastructure, the e-commerce players entering the market had to
adopt a whole new technique.

Internet & Mobile: The Driving Factors

In India, e-tailing has the potential to grow more than hundred-fold in the next nine years to reach a
value of $ 76 billion by 2021. The countrys growing Internet- habituated consumer base, which will
comprise 180 million broadband users by 2020, along with a burgeoning class of mobile Internet users,
will drive the e-tailing story.

-A Study by Technopak

Undaunted by these difficulties, the spiraling inflation and slowing economic growth more and more
sellers were resorting to this platform. Commenting on this growth, Sandeep Komaravelly (Sandeep)
Vice President of Snapdeal said, Increasing Internet penetration and availability of more payment
options boosted the e-commerce industry in 2012. Besides electronics, customer traction grew
considerably in categories like fashion and jewellery, home and kitchen and lifestyle accessories like
watches and perfumes.

Mobility most likely will be the trend to look forward to the next year. Mobile commerce would be huge
as more and more people access Internet through tablets and smartphones. Most companies are looking
at enhancing their mobile presence.

- Sundeep Malhotra (Sundeep)3

Young Indians were expected to spend 16% of their disposable income online. It was estimated that the
population of Indians under the age of 35 would be 828 million in 2015. This young population was
prone to use mobile devices to shop resulting in the increased penetration of smart phones and tablets.

Competition

A consolidation phase was seen through a spate of mergers and acquisitions. The market leaders were
buying up the upcoming smaller players who were unable to withstand the spiraling operational costs.
Another expert4 felt that this trend of acquisitions and consolidations would continue, ... its just the
beginning and will continue happening over the next few years. Bigger players will acquire smaller
players and more investments will flow into the segment. Social commerce had also become popular in

2
Calhoon Ken, What U.S. E-Commerce Can Learn from Its Global Copycats, http://blogs.hbr.org/cs/2013/04/what_us_e-
th
commerce_can_learn_f.html, April 29 2013
3
HomeShop18.com founder and CEO.
4
Peppercloset.com owner Sumeet Arora.

3
the nation due to aggressive marketing on the social networking platforms. Sandeep felt that, The
ability to customise and personalise shopping experience for customers will become a critical
differentiator. Social and mobile platforms will see increased customer adoption in the coming year.

E-commerce had become a household phenomenon popularised by numerous marketing campaigns of

Flipkart and Jabong. Experts also felt that differentiation would emerge when the e-tailers made use of
social data and social commerce to personalize the shopping experience for consumers. While the cash
on delivery option helped the growth of the sector in the early years, Sundeep was skeptical of the
continuation of this service, Given the various disadvantages like longer cash cycles for retailers,
collection challenges etc, cash on delivery will become less popular and cards will start becoming more
ubiquitous. (Exhibit I). The Indian e-commerce sector was becoming overcrowded and there was very
little differentiation in the products and services being offered. It was predicted that the industry would
see a continuation of the consolidation phase which would result in greater synergies both in terms of
operation as well as offerings.

Exhibit I
The Payment scenario

Source: Indian e-commerce, http://www.slideshare.net/TheHWD/the-state-of-ecommerce-in-india-april-

2014, 2014

Categories

By 2020, about 30% to 40% of total retail in the top 75 cities of India was expected to be conducted
online. Amongst the online retail categories, consumer durables accounted for 34% of online
transactions, apparel and accessories made up 30%, books about 15%, beauty and personal care
accounted for 10%, while home and furnishing made up 6%. More than half of the sales in these product
categories took place in non-metro cities. This growing online retail sector had attracted international
giants such as Amazon and eBay. From 2013 to 2021, e-tailing was expected to show hundred-fold

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growth reaching $76 billion by 2021.5 The growing penetration of the Internet (180 million broadband
users by 2020) and booming mobile internet users were expected to fuel this growth in e-tailing.

Indias e-commerce business grew at a rate in excess of 80% in 2013 and was expected to retain the
momentum till 2019. There were about one million retailers spread across categories such as
electronics, books, apparel, accessories, footwear and jewellery, who sold their merchandise through e-
commerce portals. Apparel and fashion accessories accounted for majority of sales in the eastern and
southern regions, while jewellery, leather and consumer item sales dominated sales in the northern and
western sectors. Online retail sales grew at a faster pace in the western region compared to the extreme
eastern belt. Online retail in India was expected to reach Rs.50,000 crore ($ 8.55 billion) by 2016 (Exhibit
II).

Exhibit II

Online Retail in India

Bailay Rasul and Chakravarty Chaitali, Walmart to expand in e-retailing in India, planning marketplace model
akin to Amazon, eBay, http://economictimes.indiatimes.com/industry/services/retail/walmart-to-expand-in-
th
e-retailing-in-india-planning-marketplace-model-akin-to-amazon-ebay/articleshow/31426105.cms, March 5
2014

Amazon which entered India in mid 2013 had soon become one of the countrys top three retailers. The
other global player, eBay increased its holding in Snapdeal by investing about $133 million. The bulk of
the money in Indian ecommerce had gone to the top players. Many of the e-commerce players had
invested heavily in technology in order to make their sites more efficient and to enter new platforms

5
E-tailing to touch $ 76 billion by 2021 in India: Study, http://articles.economictimes.indiatimes.com/2013-06-
th
09/news/39849899_1_e-tailing-technopak-mortar, June 9 2013

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such as mobile. Shopping through mobile devices accounted for about a third of sales at online retail
sites having grown from 7% in 2012.

Venture Funding

Since January 2013, about $840 million had been raised across 35 deals. This was dominated by the
leading e-tailers. Flipkart (valued at $1.6 billion) had raised a total of $550 million as of 2014 since its
inception, Snapdeal ($650 to 750 million) raised $237 million, Jabong ($150 to 200 million) $150 million
and while Myntra ($250 million) raised $83.9 million. In 2014 alone there had been 5 deals worth $298.8
million. This funding enabled the top players to advertise aggressively as well as to chase customers via
discounts and promotions.6

Flipkart considered the leading player, known as the Amazon of India for having replicated Amazons
model in India, grew at a brisk pace utilising over $180 million in venture funding. It had cornered about
20% of the online retail market. But in 2012, the retailer was forced to let go of its employees,
streamline its operations, reduce discounts and shipping subsidies offered, and cut down the number of
categories to bring down burn rate or loses every month. These initiatives helped the company to bring
down its monthly loses of $8 million to about $6 million in the last six months of 2013.7

FDI Regulations

Indias industrial policy8 agreed that easing rules in the e-commerce sector would result in price
reduction and improve the efficiency of supply chains. But it was concerned that Indias small and
midsize businesses were not in a position to compete with the deep pockets as well as technological
capabilities of the global giants, The market is not yet ready for opening up e-retail space to foreign
investors. The third party market place model, which was new to the Indian market, provided the
platform for others to sell. The fact that it allowed new foreign entrants to side step regulatory hurdles
which prevented them from owning a direct sales Indian unit was the main advantage of this model.
eBay was the pioneer in the Indian market with this model and the model was soon adopted by Flipkart
and Jabong.

Snapdeal was also a pure marketplace player. The marketplace model was considered to be more
advantageous because its operating costs were much lesser than the direct sales model thus generating
higher and faster profits. The marketplace model also gave access to much larger inventory of goods at a
significantly lesser investment. In larger markets such as China, South Korea, Japan and Latin America
the marketplace had emerged as the dominant model.

6
Nair P Radhika, Gooptu Biswarup and Julka Harsimran, How increased flow of funds injects new life into India's e-
commerce industry, http://economictimes.indiatimes.com/tech/internet/how-increased-flow-of-funds-injects-new-life-
th
into-indias-e-commerce-industry/articleshow/31361438.cms, March 4 2014
7
Dharmakumar Rohin, Amazon's Perfect Timing for India, http://forbesindia.com/article/big-bet/amazons-perfect-timing-
nd
for-india/35517/1, July 2 2013
8
According to the Consolidated FDI Policy of India 2013 by Department of Industrial Policy and Promotion (DIPP) (PDF), the
foreign direct investment (FDI) in e-commerce activities in India was permitted up to 100% via the automatic route. E-
commerce activities included buying and selling by a company using the e-commerce platform. These companies would only
engage in Business to Business (B2B) e-commerce and not in retail trading. This implied that existing FDI restrictions in
domestic trading would also apply to e-commerce.

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Amazons Evolution
Jeffrey P Bezos (Jeff), the Founder of Amazon, in contrast to many dot-com entrepreneurs, was not in
the business for a speedy cash-out but had the long-term in mind while setting up the online retailing
giant. He was also adept at convincing stakeholders to overlook short term metrics such as profits in the
pursuit of his inspiring long term vision which was to reinvent retailing. In spite of channeling its profits
into expansion plans for further growth, the online retailer did not fail to attract investors throughout
its nearly two decades of existence. The credit of catapulting a fledgling e-commerce industry into the
mainstream goes to Jeff who had a major in Electrical Engineering as well as Computer Science from
Princeton. In 2012, 48 year old Jeff, with a net worth of $19 billion, was one of the 30 wealthiest men in
the world. 9

Amazon was founded in 1994 as an online book retailer. Expanding beyond selling books was not a
planned move. But incessant demands from customers for more products drove expansion of the
retailer. Jeff revealed in an interview, We actually started to get e-mails from customers saying, Would
you consider selling music, because Id really like to buy music this way, and DVDs, and electronics? This
was the inspiration behind its growth from a book retailer to a global powerhouse which ultimately
ended up selling anything from banjo cases to wild boar baby back ribs. In 1997, Amazon introduced
the 1-Click TM which allowed customers to buy books in a click and was granted the patent for this in
1999.

In 1998, Amazon made the first move to extend the range of products to music and DVDs. The year,
1999, saw the retailers expansion into home improvement items, toys, games, electronics, software
and video games. An industry analyst10 commented, Theyve developed an extremely loyal customer
base, and theyve cultivated that by continually lowering prices and adding features to their Web site. In
November 2000, Amazon launched its marketplace model. The alliance with popular toys brand Toys R
Us was also formed in 2000, followed by the Target Store Alliance in 2001. Amazon was one of the iconic
brands to survive the dot-com bubble burst. Though it faced concerns about its business model after the
bubble burst, the online retailer made its first profit in 2003.

By 2004, with sales of $6.92 billion, Amazon was ranked number one in the Internet Retailers annual
top 400 list. 11 In 2005, Amazon Prime12, a service which offered free shipping in two days for a charge
of $79 a year for its members was launched. Amazons spending on technology since 2002 continued to
increase and was channeled towards developing newer services such as A9 (a search site) for its
suppliers to access its backroom database and commerce engine. Amazon also was consistently

9
Anders George, Inside Amazon's Idea Machine: How Bezos Decodes The Customer,
th
http://www.forbes.com/sites/georgeanders/2012/04/04/inside-amazon/, April 4 2012
10
Dan Geiman, an analyst with McAdams Wright Ragen in Seattle.
11
Gillespie M Elizabeth, Amazon: E-Commerce Success Story, http://www.cbsnews.com/2100-205_162-
th
706351.html?pageNum=1, February 11 2009
12
Amazon Prime was a service that offered unlimited free two-day shipping aimed at boosting customer spending at
Amazon. In less than two years membership in Prime doubled. The service came at an annual fee of $79, though it was
cheaper for college students ($39 annually, after six months free). Amazon Prime reached break even in three months.
Customers ended up spending about 150% more at Amazon after becoming Prime members. Not only did they order more
frequently, but after paying the $79 fee, they started buying things at Amazon that they would not have bought otherwise.

7
increasing its investment in areas such as recruiting engineers, setting up fulfillment centers and offering
shipping discounts to customers in order to recharge sales growth. In 2007, Amazon introduced the first
version of its e-reader Kindle which went on to become one of the key drivers of its success.

In 2008, over 900,000 third party sellers sold their merchandise on Amazon accounting for more than
25% of overall sales which amounted to $7 billion.13 Amazon enjoyed 49 million active consumers. The
site sold 31 product categories and had a presence in seven countries. Amazons global sales accounted
for about 50% of its revenues in 2008. According to analysts the key reasons for the success of Amazon
were its huge selection of goods, a popular brand name, a site which was user friendly in terms of
navigation and its reputation for reliability.

Amazon was also one of the first internet companies to offer excellent customer service. By mid 2011,
sales of Kindle and e-books were the key drivers of growth at Amazon and were expected to account for
10% of total sales in 2012. By 2012, the retailing giant which sold massive volume of goods 24/7/365
had about 80 huge warehousing and fulfillment centers across the globe. These multi-football arena
sized centers handled sourcing, organizing, packing and shipping of the millions of daily orders received
by Amazon. Each center employed a number of workers equipped with bar-code scanners to locate
items in the huge warehouses. Amazons warehousing system adopted the concept of chaotic storage
where products were shelved randomly thus making efficient usage of the available storage space

Amazon had more than 2 million sellers and over 200 million active customers across the 9 market
places including Canada, Japan, China and the UK. The share of third party sellers had increased to 40%
in 2013 from 26% in 2007.

In 2013, Amazon shifted its focus from shipping books and other physical items to selling digital items
such as e-books, music and video files. Contribution from its third party merchant business, wherein
Amazon received a percentage of sales of the seller listings on its website, was also growing at a good
pace. An analyst14 commented that this helped in improving margins, Over the long term it does help
margins. You dont have to put these things on a truck and ship them. In Q1 of 2013, Amazons top ten
selling items were digital goods or Kindle gadgets such as e-readers or tablets used to buy and consume
digital content. Since 2007, Amazon had tripled its market share in the digital music business. Its cloud
computing arm, Amazon Web Services (AWS) generated revenue of $1.8 billion in 2012 and was
expected to see rapid growth in the coming years.

By 2013, the internet retail giant had a diversified business which encompassed revenue streams such as
digital content, advertising and AWS cloud computing business. Amazon had also started developing its
own TV shows which it planned to broadcast through the Internet. In Q1 2013, net sales from AWS and
Amazons advertising services saw a sharp increase of 59%.15 According to an analyst16, Amazon is

13
Amazon: E-Commerce Success Story, op.cit.
14
Ben Schachter, an analyst at Macquarie.
15
Barr Alistair and Berkowitz Ben, Amazon's success formula: move bits instead of boxes,
th
http://www.reuters.com/article/2013/04/26/amazon-results-digital-idUSL2N0DC28Y20130426, April 26 2013
16
Topeka Capitals Victor Anthony.

8
really getting leverage from shipping costs. AWS is becoming a big part of their mix. They are also
benefiting from a greater mix of advertising revenues. Well continue to see that improve.

2013 also saw the online retailer experimenting with same-day delivery. Industry experts expected this
service to expand as Amazon increased the number of distribution centers situated near major urban
hubs and that this would also necessitate taking on the responsibility of sales-tax collection
requirements. In June 2013, Amazon made the announcement that it was planning to roll out its online
grocery services which it had been testing in Seattle, Amazons hometown, for five years. The online
grocery service which was called AmazonFresh delivered fresh produce which included eggs,
strawberries and meat with the help of a self-owned fleet of trucks. The initial plan was to extend
AmazonFresh to Los Angeles and San Francisco Bay area and in 2014 to 20 urban areas some of them
outside the US too.

In December 2013, Amazon revealed its secret R&D project using Octocopter drones which would
deliver parcels to the buyers doorstep in 30 minutes. The delivery-by-drone service called Prime Air
was to be made available to customers by 2017. The octocopters would be programmed to pick up
packages from Amazons fulfillment centers and deliver them to the customers doorstep 30 minutes
after they placed the order online at Amazon.com.

While the companys aggressive strategy to push digital content put it in a comfortable position over the
long term, in the short term Amazon faced several challenges. The sluggish economy in Europe and
Amazons inconsistent efforts to enter the Chinese market which was dominated by Alibaba were some
of these short term challenges. Watch the one hour interview with Jeff bezos at this Video link
http://www.cbsnews.com/news/amazon-unveils-futuristic-plan-delivery-by-drone/. Amazons Q1 2014
results showed strong revenue growth as the retailer continued to increase its presence in the global e-
commerce markets leveraging its size, strong vendor network and technological advantage. But higher
expenses which resulted in higher spending had a negative impact on its margins in the short term. The
retailers 2013 revenues stood at $74.5 billion (Annexure I).

Amazons Entry into India

Business Model

Amazon Seller Services Pvt. Ltd., the Indian unit of the worlds number one online retailer Amazon.com
operated an online market place in India in accordance with the rules which prohibited FDI in e-
commerce. While in the US, Amazon sold to customers directly and also adopted the marketplace model
where third party retailers could list and sell their wares. Indian laws did not permit international online
retailers to engage in multi-brand retail. The worlds largest online retailer launched its marketplace
platform in India in June 2013. It started with about 100 sellers selling books and video content. Amazon
also started by directly attacking the strategy of the leaders by giving free shipping as an introductory
offer, higher than average commissions for referrals (10% versus the industrys 5 to 6%) and discounted
prices on many books.

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The retailer gradually expanded its product offering to include electronics, toys, music and other
consumer goods. In about eight months since its launch, its seller population has grown by more than 30
times and expanded their presence to 18 categories (or stores as Amazon.in referred to them). Amazon
was focused on entering new categories as well as expanding selection in existing categories. It had
become Indians largest online store in categories such as books, video games, music, home and kitchen,
jewellery. About 75% of shipment was done through fulfillment by Amazon model. Amazon was the
first retailer to launch next day delivery in about 150,000 items.

Amazons Country Manager and Vice President Amit Aggrawal17 (Amit) viewed India as a long term
opportunity. According to Amit, the companys mission for India was the same as it was globally, to be
the earths most customer centric company with the vision to enable customers to discover, find and
buy anything online. In India, Amazon had a two prong strategy with Junglee.com and Amazon.in.
Junglee.com was launched in February 2012. It helped the customer to find the best way to buy
anything and was run as a separate business with a separate team. Junglee18 hoped to make profits by
offering customers a service that helped them make purchase decisions and provide sellers highly
motivated traffic with high conversion rates. The site had also launched analytics in order to help sellers.

Junglee.com would also continue its presence in the Indian online market. Amit commented on the
complimentary role to be played by Junglee, In a way, Junglee is a map of the e-commerce space, and
our goal is to have Amazon.in show up on that map in a good position. Junglee served to confirm and
validate our views about India, about what the customer is looking for. Its also helped us to see a lot of
sellers, who arent well known, but are offering a great catalogue. They would make great candidates for
Fulfillment by Amazon, so in that way, we see Junglee as very complementary to what were doing with
Amazon.in.

When Amazon entered India, the Indian e-commerce market was estimated at just $1 to $2 billion and
experts felt that it was not worth the effort for Amazon with revenues of over $61 billion in 2012 to
enter a sub-billion dollar market. But then estimates by Forrester showed that the market was to grow
at a CAGR much faster than any other market in the Asia-Pacific and that by 2016 the market size would
reach $8.8 billion.19 So it turned out that Amazon was not only entering a sufficiently large market but
was also able to incorporate the market share winning tactics like cash-on-delivery payments, liberal
return policies, free or subsidised shipping and in-house logistics into its operations right from the start.

17
He has had a 15-year career with the Seattle-based Amazon, including a stint as executive assistant to Jeff Bezos. He was a
shadow or technical adviser to Bezos between 2007 and 2009. Something like a chief of staff, the shadow spends most of
the work day with Bezos - travelling with him, attending meetings with him and, at the end of the day, discuss the day with
him and preparing for the next one.
18
Junglee, founded in 1996, developed a virtual database technology that makes it easier to search for items. Junglee carries
more than 15 million items in the Junglee Shopping Guide and more than 90,000 job listings in its Job Canopy. Junglees
customers and partners include Yahoo, Compaq, and Snap, a division of CNET: The Computer Network, publisher of
News.com.
19
Dharmakumar Rohin, Amazons Perfect Timing for India, http://forbesindia.com/article/big-bet/amazons-perfect-
nd
timing-for-india/35517/1, July 2 2013

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We want to bring all our offerings to India but its still day one. We cant say anything about
regulations, of course, thats in the governments hands, but we would certainly encourage any steps in
this direction. The law is a little consumer unfriendly right now.

-Greg Greeley (Greg), Vice President of International Expansion at Amazon.com

According to Greg, Amazon planned to expand its services and offer its entire global line of programmes
in the Indian market. Amit commented on what Amazon set out to do in India, We want to do the
heavy lifting, and let the sellers focus on their core business. We help them to cut costs on logistics and
discovery, and theyre able to offer lower costs to the customer, which, in turn, benefits them by giving
them a bigger audience. Amazon planned to handle the payment infrastructure, fulfillment, customer
service, shipping and returns for the seller.

By December 2013, Amazons Indian website had 6.77 million visitors a month while Flipkart received
about 13.22 million, and Snapdeals visitors tally was at 9.35 million (Exhibit V). Amazon had more than
440,000 products, as well as 12 million books and e-books numbering two million. The number of sellers
had increased to 2,300 sellers from just 100 sellers in June. At the time of launch, Amazon already had a
150,000 square-foot fulfillment centre, in Bhiwandi, located on the outskirts of Mumbai. Sellers could
stock their goods in the warehouse, and the retailer managed the packaging as well as delivery free of
cost. This delivery process was called 'Fulfillment by Amazon', (Exhibit VI) and accounted for 75% of
total deliveries by Amazon in India. For the Indian market Amazon had multiple payment systems
including Cash on Delivery, credit card, debit card and net banking. In India, bulk of the retailers
investments was in the area of payments and logistics while mobile technology was next. Diego
Piacentini commented on Amazons plans for mobile internet shopping, We are looking forward to
facilitating mobile internet shopping, as it is an important factor for technology investments for us. He
hoped to apply the lessons in mobile shopping learned in India in other countries.

Exhibit V

Amazon in December 2013 in India

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Source: Sen Sunny, Moth to a Flame, http://businesstoday.intoday.in/story/how-amazon-is-faring-
in-e-commerce-online-space-in-india/1/202613.html, February 16th 2014

Amazon was also entering India at a time when the e-commerce players were struggling to conserve
cash, grow the business and when smaller players were closing shop. Even the larger players were
finding out that making profits required a never ending source of funding. Thus while the leader Flipkart,
was struggling to withstand Amazons onslaught, with its burn rate increasing and sales dropping,
Amazon in contrast, with its vast resources as well as long-term investors did not have any difficulty
increasing its investment in India. In addition to this, with the launch of mobile phones and electronics,
Amazon was soon expected to be competing with about 75% of Flipkarts overall revenue base.

Exhibit VI

Amazons Fulfillment Centers

Source: Amazon launches its India marketplace Amazon.in, http://ibnlive.in.com/news/amazon-launches-its-

th
india-marketplace-amazonin/396344-11.html, June 5 2013

In June 2013, we launched with just two categories. But in just 10 months our total selection now stands
at over 15 million products across 20 categories. The pool of sellers in our marketplace has grown more
than 30 times since launch. Today, over 75 per cent of units shipped are fulfilled by Amazon.

-Amit

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Logistics and Distribution

In February 2014, Amazon announced that in the next two years it would set up its own logistics
network to deliver almost all products sold on the Indian portal. This along with the retailers plans to
expand into high-value products such as apparel as well as to increase tie-ups with local sellers were to
form the core of its competitive strategy in India. In its fight to become the number one online retailer in
India the company had silently ramped up operations and aggressively added on merchants to its site.
Amazon was already the leading store in categories such as books, music, video games, toys, home and
kitchen appliances, bags, luggage and fashion jewellery. Amit added, We have been able to make
available over 165,000 products for next-day delivery across hundreds of pin codes in India. More than
50 per cent of our customer demand is eligible for next-day shipping. According to Amit Amazon.in was
the fastest growing mobile commerce site for the retailer globally.

In April 2014, Amazon started selling apparel, a fast growing and higher margin category in Indian e-
commerce. By this time the retailer had become the largest player in the Indian e-commerce scenario
with 15 million products, across 20 categories, overtaking Flipkart (10 million) and Snapdeal (approx 4
million). Flipkart was the lone player in the $1 billion club in India with Snapdeal expected to join the
club in 2014. Amazon India expected to enter the $1 billion club within 12 to 18 months.

We are continually innovating to find solutions that enhance convenience and experience for our
customers. We are running a pilot for in-store pick-up service in Bangalore. We have identified and
trained staff at small kiosks and stores, run by individual entrepreneurs, to be our shipment pick-up
points.

-Amit

In March 2014, Amazon offered its customers payment through the EMI option for the purchase of its
Kindle readers. In April 2014, Amazon was gearing up to the take the kirana route to beef up its last mile
delivery service. Amazon tied up with Biteme Foods, a cupcake store in an up market locality in
Bangalore. Biteme offered a portion of its store space to Amazon to stock its deliveries. Kingsley Joseph,
owner of Biteme said, Anyone who is coming to pick up their Amazon package is going to know that we
are there. This creative initiative by Amazon was aimed at saving on delivery costs and promoting
same-day delivery in key markets.

This would result in a hybrid model where online players leverage the advantage of the neighbourhood
kirana stores to deliver convenience. Amazon planned to pay a small fee to the mom-and-pop stores.
This was to be an indigenous improvisation of its global strategy of Amazon Lockers20. The success of
this project would also garner the support of the powerful kirana shop owners for online retailing.

20
Lockers were huge metal cabinets installed in grocery, convenience and drugstore outlets that functioned like virtual
doormen, accepting packages for customers for a later pickup. In 2011, Amazon began putting lockers in Seattle, New York
state and near Washington, D.C. The working of Amazons locker program was simple and came at no extra cost to
customers. Customers who ship their item to a locker, located in 7-Elevens, grocery or chain drugststores, were emailed a
code after a package arrived that would unlock the door holding their merchandise. The lockers could hold only smaller

13
Amazon had also tied up with India Post Services on order to leverage the government postal systems
extensive reach across the country. Amit said, We use IPS for over 19,000 pin codes through 1,40,000
post offices across all 35 states and Union Territories in India. The number of deliveries through India
Post has increased from 800 last June to over 10,000 by March this year. In addition to this, Amazon
also tied up with Bharat Petroleum Corp. Ltd., one of Indias largest gas station chain owners, and ran
pilot pick-up service projects in Delhi and Mumbai.

According to Amit, The India operation is one of the fastest build-outs for Amazon globallyin terms of
selection, sellers, traffic and even mass media advertising. Amazon gave a lot of importance to its one-
day delivery in top 20 cities. It also introduced a scheduled delivery programme for high-value products
like televisions. Amazon had built two delivery centres, over 150,000 square feet each, in Bhiwandi and
in Bangalore in order to extend its reach and delivery speeds. According to the company, during peak
days it shipped nearly 130,000 products in a day. Amazons strong backend infrastructure helped it to
meet the growing demand in the market. The company paid special attention to selection of products,
product delivery, logistics, payment options provided as well as website experience.

This changed customer and seller perspective about Amazon and its competition. A Delhi-based
communications professional. Shradha Patnaik, felt, I used to buy books from Flipkart, but now I buy
from Amazon.in as I see better variety there and it is the same price if not cheaper than Flipkart.
Merchants like Hysterias Arif too were happy with the site, Margin cut at Amazon is about 6-7%,
compared with 10-12% at Flipkart.

In order to train the small retailers to sell online Amazon had set up a small business accelerator with
teams spread across major cities to help more merchants get online. Amit Deshpande, General Manager
said, The SMB Accelerator helps sellers set up an account, manage inventory and payments and also
teaches business analytics. Towards the end of April 2014, the retailer announced that sellers would be
able to sell on the site on the same day of registration. On competitors platforms such as Flipkart and
Snapdeal it took about two weeks. The global giant launched a couple of initiatives for sellers the Self
Service Registration (SSR) and the Amazon Easy Ship which promised an accelerated and friction-free
experience on the platform. According to the company, SSR provides sellers an accelerated and
friction-free path to selling on Amazon and with Amazon Easy Ship, sellers can leverage Amazons
investments in logistics to have their orders on Amazon.in shipped straight from their own warehouses.

Sellers, irrespective of their size, location and catalogue size, could self register on the Amazon market
place and start selling within a day without the intervention of any third party (Exhibit VII). While the
Amazon Ship collected the shipment from the seller when it was ready and delivered it to the customer
in 2 to 4 days. Amazon India GM and Director (Seller Service) Amit Deshpande said, Initial response to
Amazon Easy Ship, has been extremely encouraging. Within two weeks of adopting the service, our
sellers have seen an average of 30 per cent growth in sales.

items that weighed less than 10 pounds, such as books, DVDs or electronic devices like iPads. Users could retrieve their
merchandise within a time period which usually ran to several days.

14
A few months within the launch of Amazons portal, the major players slashed prices across most
categories, the leaders announced delivery on the same day or the next day in quick succession. Experts
felt that the highly competitive industry was set to witness more such aggressive tactics. As the
importance of differentiation increased with category spread across players looking similar, Head,
Advisory firm eTailing India, Ashish Jhalani, commented, In the horizontal space when even price
become similar, it remains to be seen how differentiation will happen. Experts felt that in addition to
the width and depth of selection which attracted customers, logistics would also be of critical
importance. Arvind Singhal, chairman of advisory firm Technopak felt, The quality of logistics right from
pick-up of merchandise to packing, storing, transporting and delivery will help create differentiation.

Exhibit VII

Plan for Sellers

Source: Nair Radhika P & Shrivastava Aditi, Amazon lures online retailers from Indian rivals Flipkart and
Snapdeal; expands range for same-day delivery,
http://economictimes.indiatimes.com/articleshow/34083479.cms?curpg=2&utm_source=contentofinterest&ut
rd
m_medium=text&utm_campaign=cppst, 23 April 2014

A seller21 commented that Amazon.in had the best back-end set-up among all online retailers. Since
Amazons back-end was totally automated, sellers could upload new products or change prices without
anyones help. Parag Rao, Head, Credit Cards business, HDFC Bank said, There is a large factor of trust,
and they are bringing the best practices and service guarantees. According to another seller22, Amazon
provided better analytics and its control panel was much more advanced. Its analytics even provided
details such as units sold in addition to inventory left in the warehouse. Amazon, realizing early on that
India had problems in locating addresses, added details such as PIN code and address landmark to the
address form to be filled on its delivery page. This was something which was not used in the US site.

21
Shreya Vora, Director at Peora, a company which sold silver jewellery on Amazon.in
22
Kaushal Arora, Founder of Techeye Creations & Technologies. Techeye sold health-care devices

15
Realising the growing importance of mobile commerce Amazon also introduced mobile apps for Android
as well as iOS devices.

Competition

Competition in the market was intensifying with moves by Flipkart and Snapdeal, which had a head start
over Amazon and also given that they were home grown players. Flipkart came out with its own
marketplace a month before Amazon launched in June 2013. In December 2013, Flipkart launched its
one-day guaranteed delivery service just five days after Amazons23. Myntra, the fashion focused portal
also started same-day delivery in some cities. Snapdeal was planning to extend this service to cities
beyond Delhi-NCR. It was rumoured that the order size at Amazon.in had grown considerably. The
average credit card transaction at Amazon had also grown to match that of Flipkarts at about Rs 2,700.

Harminder Sahni (Harminder), Managing Director at Wazir Advisors, a consulting firm felt that, Amazon
has an unfair advantage over home-grown portals in global branding. Local players need to make a lot of
effort to reach out to customers. But Harminder added that in some sectors such as fashion and dcor,
there are considerations beyond price and product. Customers also look at assortment and service.
Somebody doing everything cannot do as good a job as speciality retailers. Technopaks Arvind Singhal
believed that the supply chain was the key to success here, The logistics companies here have strengths
in the B2B (business-to-business) space and not in B2C (business-to-consumer). This is going to slow the
growth of e-commerce companies unless somebody invests in B2C logistics here.

Technology innovation was also gradually playing an important role as companies were beginning to
build customised offerings with the help of data. Flipkarts co-founder and CEO Sachin Bansal (Sachin)
said that he was planning to introduce data based innovations, We will tailor a customers experience
from customised website to customer support and delivery based on their past usage. The same platform
will be different for each customer and this will be automatic. Snapdeal also went in for a revamp of its
website providing Hindi and Tamil versions. Both Flipkart and Snapdeal were also launching features
such as personalised apps and location-based deals with mobile users accounting for almost 30% of their
sales.

Future Challenges

In seven months Amazon achieved in India what market leader Flipkart took six years to achieve. While
the homegrown players were likely to run short of funding, Amazon did not face that problem. The
global giant had deep pockets and was capable of pouring in money without worrying about profits.
Amit said, You have to have the conviction that, over long periods of time, you can generate a large free
cash flow for shareholders. Long term according to Piacentini, Amazons International Business Head
was ten years or more. He commented about their long term plans for India, We want to build India
operations so that, when we look back 20 years from now, it will be bigger than the US.

23
Amazon had also announced its one day delivery service for an extra payment of Rs.99 in select Indian cities. The one-day
delivery was only applicable to items that were fulfilled by Amazon and when the order was placed within a certain time
frame. This varied according to the delivery location. Amazon was also introducing a two-day delivery, which cost Rs 79 but
was in December being provided for Rs 49 under a limited period offer.

16
In March 2014, there was news about Walmart planning a major e-tailing push in India. The retail giant
was planning to enter the online retailing market in India with the electronic marketplace model.
Walmart had set up a team of 15 to 17 people to develop an electronic platform which was expected to
be operational in a few months time.

In May 2014, Flipkart launched Flipkart First which was a yearly subscription-based service which aimed
to reward its registered shoppers. Out of its 18 million shoppers the retailer planned to offer the service
free to 75,000 randomly selected members for a period of three months. The Flipkart First planned to
offer customers unlimited access to In-a-Day Guarantee delivery, free standard delivery without the
restriction of minimum purchase price, Same-day Guaranteed delivery at a discounted price, and a
bonus 60-day replacement guarantee, instead of the usual 30-day period. In addition to this Flipkart
First also planned to offer its members access to priority customer service with minimal waiting
period.

May 2014 saw a landmark deal when Flipkart acquired Myntra in a Rs.2000 crore (about $300 million)
deal. This was said to be the biggest consolidation in Indian e-commerce. Sachin commented on the
deal, It is a 100% acquisition and going forward, we have big plans in this segment. Flipkart and Myntra
are getting together to create one of the largest e-commerce stories and together we will dominate the
market. The acquisition was to help Flipkart become a leader in the fashion category in addition to
making it a dominant player. This news along with Walmarts pending entry into the Indian market and
the innovative services offered by the home grown players would be a major threat to the expansion
and growth of Amazon India. Will the local online giants be able to vanquish the Amazon? Was
Amazons plans to invest huge amounts in the Indian e-commerce space a prudent move? Will Amazons
long term plans for India bear fruit or go the way of its Chinese experience?

17
 Annexure I

Annual Financials - Amazon.com Inc.

Source: Amazon.com Inc.,

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=AMZN, April 2014

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