Emerald Emerging Markets Case Studies

Flipkart: journey of an Indian e-commerce start-up

Nirankush Dutta, Anil K. Bhat,
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 Flipkart: journey of an Indian
e-commerce start-up
Nirankush Dutta and Anil K. Bhat
Nirankush Dutta and
Downloaded by Telkom University, Teaching Note Telkom At 01:59 03 January 2019 (PT)
Anil K. Bhat are based at
Birla Institute of
Technology & Science,
Pilani, Rajasthan, India.
Disclaimer. This case is written
solely for educational
purposes and is not intended
to represent successful or
unsuccessful managerial
decision making. The author/s
may have disguised names;
financial and other
recognizable information to
protect confidentiality.
DOI 10.1108/EEMCS-03-2014-0064
Introduction
Founded in 2007 with less than USA$10,000 as investment capital, Flipkart has been seen
as the “Amazon of India” by many. The company has worn down the unwillingness of Indian
customers to buy online and its product range has expanded from just books at its
inception, to almost every retail category. Enthusiastic venture capitalists have poured a lot
of money into the company, giving it an enviable valuation. However, to maintain its
leadership profile and meet the expectations of its investors and the general public, Flipkart
needs to continue its exponential rise. Can it do so, after almost five years since its
incorporation? Can the company continue to delight Indian customers via the timely
delivery of products at reasonable prices and, thus, beat the real Amazon and those other
competitors that are limbering up for battle with the giant?
The big bang
The poster boy of Indian e-commerce, Flipkart Online Services Pvt. Ltd. was founded on 5
September, 2007, by Sachin Bansal and Binny Bansal. Hailing from Chandigarh, the two
Indian Institute of Technology (IIT) Delhi computer science students were classmates of
2005’s batch of graduates. Before jumping onto the entrepreneurship bandwagon, Sachin
was employed for six months by Techspan, a software consultancy firm, which works on US
defence projects, and then at Amazon India for a year and a half. Binny worked at Sarnoff
India (a firm that is involved with high-end automation projects for the defence and
automobile industries) for a year and a half and then at Amazon India for eight months. They
both resigned in September 2007 and launched the Flipkart.com website on the 15
October in the same year (Chandra, 2008).
From its beginning in 2007 as a two-member team, the company now has close to 3,000
employees across the country (The Economic Times, 2013a). Flipkart is the largest online
book retailer in India, with 80 per cent of the online book market share (Lulgjuraj, 2013) and
40-45 per cent of the overall organized book market share by value in India (Mookerji,
2011). It ships out nearly 100,000 items every day (Mookerji, 2011). Boasting of close to one
million visitors on its website daily (The Economic Times, 2013a), Flipkart.com is ranked
tenth by Alexa.com[1] in the top 50 popular websites of India, ahead of Microsoft, Naukri.
com, Twitter, Rediff and eBay. Its registered user base grew to 9.6 million in 2013 (The
Times of India, 2013) from 5 million a year earlier (Choudhary, 2012). Its market valuation
of USA$ 1.6 billion places it alongside P&G India and Tata Global Beverages (The
Economic Times, 2013a) (Figure 1).
Although the growth rate of the Internet in India has been phenomenal for the last few years,
still only a relatively small number of people ever shopped online before 2007. Feelings of
insecurity about divulging credit card details during online purchase processes and fear of
VOL. 4 NO. 7 2014, pp. 1-24, © Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
 Figure 1 Comparison of Flipkart’s market valuation with market capitalization of some
selected companies in India

Market Capitalizaon (Rs. Crore)

10,000 Flipkart
Trent
8,000
Shopper Stop
6,000

9,760

9,613
Future Retail

8,635

7,471

6,712
4,000 Tata Global Beverage

3,085

2,984
2,832
2,000 P&G Hygiene

1,660
Jubilant Foodworks
0

Source: The Economic Times (2013a)

parcels not being delivered were some of the main reasons behind this situation.
Customers who shopped online often complained of poor customer care.
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Considering these issues, the Bansals zeroed in to the online sales of books, as their initial
business venture. Since the amounts involved in book purchases are small, they thought
that this would help overcome the apathy of people for buying online. Moreover, for
purchases of books, the touch-and-feel factor is not important, as to the customer books of
a desired title are generally identical. As Binny Bansal would go on to put it: “Books [. . .]
have longer shelf life, books are cheaper, no taxes, easy to handle & people don’t steal
books” (Mookerji, 2011). Also, in 2007-2008, the market size for online book shopping in
India was expected to be around Rs. 20-25 crore[2]. The market size for the whole book
industry in India was estimated at Rs. 4,000 crore (Chandra, 2008). This presented a
tremendous opportunity to the Bansals.
The Bangalore-based firm, located in the neighbourhood of Koramangala, had its humble
beginnings in a two-room apartment where the two friends worked for the first few months
and from where they launched the website (Chamoli, 2010). Initially, it was intended to be
a site that compared prices offered by different e-commerce websites (Iyer, 2010).
However, the lack of e-commerce sites for comparison prompted the two Bansals to set up
one of their own, with an initial investment of approximately $9,000 (Rs. 400,000) (Singh,
2011a). They resigned from well-paid jobs to establish their own business, only to find that
they did not have even a single buyer, apart from friends and relatives, for the first few
months. About four months later, the company sold its first book on Flipkart.com – “Leaving
Microsoft to Change the World” by John Woods (Rai, 2010).
Initially, the two-person team had to code software for their website, pack books as orders
were received and sometimes they even carried them on their own motorbikes to
customers in Bangalore, when the low volumes of orders caused courier delivery
companies to refuse to pick up parcels from the Flipkart home-office (The Financial
Express, 2011). Some well-wishers advised them to go back to their former jobs, but these
two young men had something else in mind and their hard work, dedication and
perseverance are paying off now.

Intelligent marketing
From the very beginning, Flipkart provided free shipping of books, which built a good deal
of trust among its customers. To undermine the Indian public’s phobia for online
purchasing, a separate page on the Flipkart website addressed the issue of secure online
payment. Customer care had been the Bansals’ top priority from day one.
A clean, quick and user-friendly interface and positive reviews on the Web from early
adopters initially helped Flipkart position itself properly. As Binny Bansal would put it,

PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 7 2014

 “Flipkart.com’s USP is simplicity, convenience and customer service. We’ve made
searching and browsing for books as simple as possible” (Chandra, 2008). Simple ordering
and payment mechanisms coupled with prompt delivery of books at heavily discounted
prices added to its strength.
The Bansals faced two major problems initially. Since they did not have any offline
presence, it was very difficult to get tie-ups with major vendors. Convincing Axis Bank was
also difficult because of their virtual store’s lack of offline presence (Chandra, 2008).
Getting approval for use of credit card payment gateways was another obstacle they had
to overcome, but they had to take this pain early on to ensure they provided a hassle-free
online payment experience for customers.
Low pricing played a vital role in the marketing of Flipkart. Unlike other book stores, they did
not have to pay hefty amounts in rental for shops. Flipkart passed on a part of this saving
to its customers. Their philosophy was based on keeping prices low, maintaining a
delighted customer base and growing mainly via word of mouth.
In its earlier days, Flipkart relied heavily on word-of-mouth recommendations and also on
search engine optimization. About 60 per cent of new customers were generated by word
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of mouth, while the rest would come through marketing channels, according to Binny
Bansal (Mookerji, 2011). Until 2010, they had a Yahoo! News feed on their product pages
to increase the keyword density and introduce original content. As this violated the Yahoo!
News terms for using their service on a commercial site, it was removed later (Goyal, 2011).
Flipkart’s website pages also stated, “We DO NOT sell old books or used books. All the
books listed at Flipkart.com are new books” and “The books listed at Flipkart.com are NOT
available for free download in ebook or PDF format.” Thus, whenever anyone searched for
“free e-book download,” Flipkart would be returned among the top results. This helped the
company to increase its brand visibility and, because they had Adsense integrated in their
website at that time, they would probably have made some money from people clicking on
“Free PDF Download” advertisements.
To take advantage of social media marketing, Flipkart established a Facebook page in the
middle of 2009. With the help of accessible and interesting conversations with customers
on Facebook, it acquired more than 2.2 million likes by the end of November 2013. After
following Twitter streams for more than a year, Flipkart started using Twitter in late 2009 to
help spread the brand’s name via effective use of social networking sites (Eckhouse, 2010).
The Bansals understood that if Flipkart’s staff could offer a great customer experience and
resolve the issues of irate customers efficiently, then retweets would generate huge
publicity for the company at no extra cost. Obviously, being engaging and interesting while
remaining unobtrusive and training people to be sincere and consistent in their attitude and
tone was not easy, but they succeeded in this task too, as is evident from the more than
90,000 accounts that follow Flipkart on Twitter.
From June 2010, the cyber business started selling VCDs/DVDs, which was followed by its
entry into the mobile phone market in August of the same year (Rustagi, 2010). It started by
selling more than 350 different handset models by leading brands like Nokia, Samsung,
Micromax, Sony Ericsson, LG, Karbonn, Motorola, BlackBerry, Videocon, HTC and Apple,
at discounts ranging from 10 to 50 per cent. As a promotional offer, they provided their
customers with a three-day price guarantee, so that those buying mobile phones from the
site could claim the difference in cases when the price of the handset was reduced onsite
within three days of purchase. Flipkart assured its customers about the physical safety of
the phones sold by providing free transit insurance against theft and damage for all cell
phones.
During 2011, Flipkart fliers were put in newspapers in Bangalore with a product listing,
call-to-order phone number and a promise of next-day delivery. This meant more
discoverability for the website, no delivery delays and no payment problems (Goyal, 2011).

VOL. 4 NO. 7 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3

 In an attempt to reach customers in remote areas, build a high level of brand recall and
generate more business, Flipkart started advertising on television in 2011. Ravi Vora, (Vice
President, Marketing at Flipkart) said that although they had seen a rise in the customer
base in Tier II and Tier III cities, “traditional mediums like TV, outdoor and print are more
appropriate not only due to their reach but also (because of) the higher level of
engagement they enjoy” (Vardhan, 2011). After the first phase of the television
advertisement campaign, the website traffic, orders and revenue all doubled. In August
2011, Flipkart was clocking Rs. 30 crore/month. By the end of the campaign, they clocked
in excess of Rs. 60 crore each month. The campaign was skewed towards the new
electronics categories whose contribution to sales went up from 40 to 60 per cent in the two
months of the first burst of the campaign (MXM-India, 2012). This campaign attempted to
break customers’ phobias regarding online transactions for physical goods and to highlight
that products purchased online were as good as the ones bought during physical visits to
traditional stores.
In November 2011, the company launched a prepaid wallet feature on its e-commerce
platform that allowed shoppers to store up to Rs. 10,000 on the site and use them to
purchase items, without having to reach for their credit card for each transaction (Singh,
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2011b), and thus decreased the security risk associated with the use of credit cards on
different computers. The wallet could be filled by using any one of Flipkart’s regular
payment modes such as credit card, debit card or Internet banking and then could be used
across multiple purchases. The wallet had no expiry date and, once stored in it, money
could be refunded back to the payment source. This would also reduce the time spent on
order processing and make it simpler, faster and completely hassle-free for customers.

Look before you leap

Despite its vast population, India had only 52 million active Internet users during 2011 and
only 40 per cent of them shopped online. Although 18 million people used credit cards,
most of them preferred offline shopping (Reuters, 2011). However, the past few years have
seen a tremendous upsurge in online buying among India’s 130 million Internet users,
thanks to rising broadband penetration, acceptance of online payment gateways, deeper
penetration of smarter mobile devices and some great deals being offered online. Flipkart
gained most by being a late entrant in the online book market and by entering at just the
right time.
The size of the online book-market in 2011 was estimated to be about Rs. 70 crore in annual
sales, increasing at a rate of 50 per cent year on year, while the entire two-billion-dollar
Indian book industry was growing at a rate of 15-20 per cent annually, thanks to rising
literacy rates, the swelling ranks of middle-class readers and a thriving domestic literary
scene. As estimated in 2011 by Rahul Sethi, (President, e-Commerce at ibibo Web Private
Limited, which launched TradusBooks.in, an online retail store in India):
On an average 10,000-12,000 people shop for books every day. Most are men within age group
of 25-35. Almost 50 per cent of the orders come from the top eight cities and the remaining
come from B & C class towns (D’Souza, 2011).

The e-commerce industry was expected to grow by 33 per cent in 2013 to reach Rs. 630
billion (USA$10.2 billion) from about Rs. 473 billion in 2012 (Krishna, 2013). Ten per cent
of the 130 million active Internet users in India transacted online, with most of them
possessing some form of electronic card (Nair, 2013). Nearly 400 million electronic cards
in use in India made the population a lucrative target for online retailers.
Flipkart pinned its hopes for growth on increasing rates of Internet access, greater use of
iPads and smartphones, the introduction of sophisticated technology that gives
three-dimensional (3-D) views of products, the time poverty of consumers, increasing real
estate costs, better penetration by the banking system, the earlier employment of younger
generations and increases in disposable income. Their belief has been justified by a report

PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 7 2014

 from Technopak which suggested that the total size of the business of selling retail goods
on the Internet, commonly known as e-tailing, was set to touch USA$70 billion by 2020 in
India (Vardhan, 2012).
According to a report released by Comscore, 60 per cent of all Internet users in India
visited an online e-commerce site during 2011, with the number of online shoppers
increasing to 18 per cent. However, that traditionally popular online shopping item – books –
witnessed a negative growth of ⫺3 per cent over the previous year (Prabhudesai, 2011).

Behind every success there is strategy

By February 2010, Flipkart grabbed market share from e-commerce veterans like Rediff.
com in the books category, and even edged out early Amazon wannabes such as
FirstandSecond.com[3] (Dua, 2010). It established three distribution centres in Bangalore,
Delhi and Mumbai. After raising funds of approximately USA$1 million (StartupCentral,
2011) from Accel India, which is the Indian arm of Accel Ventures that funded start-ups like
Facebook, Flipkart started to expand its book list, open more distribution centres and
concentrate on becoming a full-fledged e-commerce site by expanding its offering beyond
books. It also planned to provide customers with the option of payment on delivery and
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mobile commerce, while continuously upgrading the technological back-end of the site. In
the book segment, they planned to offer regional titles. By March 2010, they started
shipping one book per minute on average (Money Control, 2010).
To increase sales and profitability, Flipkart introduced its cash-on-delivery model in early
2010, hoping that more students and others who did not have access to plastic money
would be able to buy online using this option. Thus, they intended to address the challenge
of the low penetration of Internet banking and credit card use in India. In just its initial two
months, the cash-on-delivery model provided 30 per cent of Flipkart’s overall sales and, by
May 2011, almost 50 per cent of the orders were cash-on-delivery bookings (Jayaram,
2011).
At the end of 2010, Flipkart acquired the social book discovery tool weRead from Lulu, a
US-based on-demand publishing firm (VC Circle, 2010). Started as a Facebook app
(launched by uGenie, which was later acquired by Lulu), weRead went on to become a
full-fledged online network, enabling users to discover and recommend books using
existing social networking sites like Facebook and Orkut.
Having built a network of 1,500 suppliers across the country (Chandra, 2008), Flipkart
ended 2011 with seven warehouses located in Bangalore, Chennai, Delhi, Kolkata,
Mumbai, Noida and Pune (John, 2012) to ensure timely delivery to potential customers from
different parts of India. The acquisition of Manoramic International Media Exchange
(MIME360), which enabled Flipkart to enter the digital distribution space, marked the
beginning of a period of inorganic growth for the company. It also acquired the rights to the
digital catalogue of a Bollywood site, Chakpak.com, giving Flipkart ownership of 40,000
filmographies, 10,000 movies and close to 50,000 ratings (Singh, 2011b).
To expand its presence in electronics retailing and become India’s largest e-commerce
player by far (The Economic Times, 2012), Flipkart acquired Letsbuy.com in February 2012.
The purchase was backed by two common investors – Accel Partners and Tiger Global
Management, which used to be the second largest e-commerce player in consumer
electronics.

There emerges the King

By March 2011, Flipkart had already become the largest online book store in India, with
more than 10 million titles distributed from five warehouses in India and selling around 1.5
lakh books a month at an average rate of four books per minute. In 2010-2011, Flipkart’s
turnover was approximately USA$11 million (Reuters, 2011) (approximately Rs. 50 crore)
(Mookerji, 2011). Employee numbers rose dramatically by four times to 4,800 in 2011-2012

VOL. 4 NO. 7 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5

 compared to the previous year and daily sales occasionally touched one crore rupees, with
ten products being sold every minute, seven of them being books (Menon, 2011).
Flipkart co-founder Binny Bansal claimed that by this time they had already delivered to
almost every pincode in India, although nearly 50 per cent of their orders would come from
the metros of Mumbai, Bangalore, Delhi, Chennai, Kolkata and Hyderabad (Jayaram,
2011). Besides using courier services and their own delivery boys, they would also send
1,000-odd items daily through the government book post because so many villages are not
served by courier facilities.
Although dwarfed by the US giant, Amazon, which had revenues of USA$34.2 billion in the
same period, Flipkart started to be seen as the Amazon.com of India, the site which has
been the inspiration for its entrepreneurs.
In December 2011, the Chief Executive Officer (CEO) of Flipkart, Mr Sachin Bansal, said
that although the company was making profits per transaction, it was in the red at an
operational level due to investments being made to scale-up the business in areas such as
technology, the supply chain, logistics, customer support and marketing (Mookerji, 2011).
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In an interview in February 2012, Flipkart CEO Sachin Bansal claimed that their growth rate
had been 100 per cent Quarter-on-Quarter (QOQ) (Business Today, 2012). Almost 60 per
cent of the orders were made on a cash-on-delivery basis. It also offered customers the
ability to pre-order unreleased books at good prices. Though all bookstores used to get up
to 50-60 per cent discounts from publishers, its low overheads enabled Flipkart to pass on
the savings to customers in the form of discounts. By this time, Flilpkart had gained 80 per
cent of the online book market. It claimed to have recorded repeat purchases of more than
70 per cent consistently (Singh, 2011c; Rao, 2011).
Its satisfied customer base and its well-informed dedicated employees, known as
“Flippies,” have been the backbone of the Flipkart success story. In a letter written to his
employees in the first quarter of 2012, Sachin Bansal said:
[. . .] customer delight remains our single-minded focus, as always. We understand that
customer delight is a moving target and we need to be constantly on our toes to hit this target,
again and again.

He summarized Flipkart’s journey of 2011-2012 in an interesting mail to employees, which

included the following details (Rai, 2012a) (Figure 2).
In 2012, Flipkart was the winner of an annual VCCircle Award as the “Best Venture
Capital-backed Consumer Internet Company.” It shipped 739 orders in an average hour, or
over 12 shipments every minute during that year. It ended 2011-2012 with revenues of Rs.
500 crore (Das, 2012a).
In June 2012, for the first time, Flipkart clocked Rs. 100 crore in monthly gross merchandise
value (GMV). The number of daily orders rose to 25,000 (Das, 2012b). The estimated
revenue of Flipkart in 2012-2013 was around Rs. 2,000 crore (Sen, 2013), with their target
for 2015 being raised to USA$1 billion in sales, against an expected Indian online market
of USA$34.2 billion.
Flipkart raised around USA$10 million in 2010 (Singh, 2012) and USA$20 million in 2011
(Vikas, 2011) from Tiger Global. They again obtained USA$150 million in 2012, of which
MIH India, an arm of the South African media giant Nasper, contributed around USA$90
million. Iconiq Capital, one of Silicon Valley’s hottest wealth managers, was another new
investor, while existing shareholders Tiger Global and Accel Partners made follow-on
investments in that round of fundraising (Sharma, 2012). With this deal, Flipkart became the
most heavily funded e-commerce company in India (Rai, 2012b). This deal, perceived to
have secured the company’s finances for the next three years, valued Flipkart at around
USA$800 million (Rai, 2012b):

PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 7 2014

 Figure 2 Flipkart’s journey of 2011-2012

Flipkart
New Categories
• Audio Players
• Health and Personal Care
• Large Appliances
• Stationery
• Digital
People
• 4,800 employees (1,200 in FY 2010-11)
FKL Expansion
• 37 cities (7 cities in FY 2010-11)
New Features
• Wallet
• EMI
• Product Comparison
• Cash on Delivery
Acquisitions
• MIME360
• Letsbuy
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Items Shipped
• 64.72 lakhs (9.63 lakhs in FY 2010-11)
Awards
• Internet Company of the Year (CNBC)
• Best e-Commerce Portal (IAMAI)
• India’s Top 10 Marketers of 2011 (Financial Express)
Customers
• 20.8 lakhs (2 lakhs in FY 2010-11)
Website Visits
• 10.20 crores (4 crores in FY 2010-11)
Revenue
• Rs. 500 crore (Rs. 50 crore in FY 2010-11)
Source: Rai (2012)

The money raised in this round will be invested in expanding supply chain capacities, launching
new categories and in growing the talent pool to continue building upon our leadership position,
said Flipkart’s CFO, Karandeep Singh (Reuters, 2012).

The company registered two new companies in India, named Flipkart Payment Gateway
Services (FPGS) Pvt. Ltd. (approved on 31 August, 2012) and Flipkart Marketplace Pvt. Ltd.
(approved on 12 September, 2012).
Flipkart has expanded its product basket aggressively in recent years, adding a host of
new categories including toys, beauty and care, watches, belts, bags and luggage, pens
and stationery, among others. It also made a low-key entry into private labelling, selling
digital accessories such as laptop bags and camera pouches under its own Digiflip brand
name (Reuters, 2012). However, its Flyte Digital Music Store, which was launched in
February 2012 with a catalogue of a million tracks from 150,000 unique albums, was
shutdown in June 2013, as paid song downloads did not become popular, in spite of the
store boasting 5 million Indian and international tracks at later stages (Next Big What,
2013). The availability of music streaming sites, the problems of piracy and issues with
micropayment led to the failure of Flyte.
By the end of the last quarter of 2012-2013, the company partnered with Visa and started
to accept international cards for payments (Sareen, 2013a), enabling customers to buy
products from abroad, which would then be delivered within India.
Flipkart introduced its fashion and lifestyle category in three phases. It started, first, with
men’s fashion in October 2012, and then introduced women’s clothing in February 2013,
while kids’ clothing ranges were launched in April 2013 (Sareen, 2013b). For the first time,
Flipkart advertised a particular category on television, when they launched a teaser advert

VOL. 4 NO. 7 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7

 on 27 April, 2013, in which they stated, “Fashion has a new address,” without mentioning
the brand or logo. After a week, the main campaign was aired. In line with its other
campaigns, this set of three advertisements, by Happy Creative Services, Bangalore, also
featured kids promoting Flipkart products. As a part of the advertising teaser, a contest in
Facebook, conducted from an anonymous page, gave away daily prizes to people who
could guess the brand correctly, in spite of the missing brand name and logo. This not only
helped them to drum up interest for the campaign but also gave them an idea of the
campaign’s strength of association with the brand. Close to 3,000 people participated in
the competition in three days, proving it to have been a success (Campaign Brief Asia,
2013). The campaign appeared in print and outdoor media too. With more than 350
clothing brands featured in its store by May 2013, Flipkart endeavoured to emerge as the
market leader in this category too, banking on a revamped website, superior service and
the trust factor that it had generated over previous years to help it flex its muscles and go
into direct competition with fashion market leaders such as Myntra and Jabong (Table I).
Since the beginning of the current fiscal year, Flipkart has launched a marketplace, in the
manner of eBay, Amazon, Tradus, Snapdeal, Infibeam, etc. It started with 50 sellers on
board dealing in the books, media and consumer electronics categories (Sareen, 2013c).
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This has since allowed multiple third-party companies to create their own e-commerce
stores by listing their products and inventory information on the Flipkart website. This
much-anticipated step enabled the company to move towards reduced inventory levels
and to comply with foreign direct investment (FDI) norms in India. Thus, small-sized
entrepreneurs can benefit by having access to the large Flipkart customer base and deliver
products via Flipkart’s delivery system, while customers can enjoy broader competitively
priced product ranges and rest assured of timely delivery, product authenticity and better
service. Having roped in more than 1,500 sellers on their platform to date, their target is to
scale-up to several thousands in short order (The Economic Times, 2013b).
Next, the company went on to launch an online payment gateway, Payzippy, and a newly
registered company, FPGS Pvt. Ltd. (Sareen, 2013d). This service would be available for
Indian merchants selling products via the Web and mobile devices. Although priced higher
than some existing services, this payment gateway’s features concentrated on reducing
transaction times and drop-out ratios, and improving payment success rates and refund
times. Flipkart aimed to partner with 2,000 merchants by 2014 and to compete with other
gateway services like E-billing Solutions, CCavenue, PayU and Zakpay.
In July 2013, the company raised USA$200 million from its existing investors, including
Naspers, Accel and Tiger Global (Reuters, 2013), at a valuation of approximately USA$1.5

Table I Product category extension timeline of Flipkart

Month/year Category expansion

September 2007 Started as online book retailer

June 2010 Music, movies, games
October 2010 Mobiles and accessories
February 2011 Cameras and computers
July 2011 MP3 players, personal and health care
August 2011 Home appliances
October 2011 TV and video
November 2011 Pens and stationery, kitchen appliances
February 2012 Flyte digital music store
April 2012 Fragrances
May 2012 Belts, bags and luggage
August 2012 Baby care and toys
October 2012 Clothing (men’s), footwear, sports and fitness
December 2012 Flyte eBooks
February 2013 Clothing (women’s)
Source: I am wire (2013)

PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 7 2014

 billion (John, 2013). By that time, it was selling products in 17 categories and had 96 lakh[4]
registered users with more than 10 lakh unique visitors every day (PTI, 2013). In October
2013, Flipkart closed the latest round of funding by raising USA$160 million from Morgan
Stanley Investment Management, Sofina and Vulcan Capital, Dragoneer Investment Group
and Tiger Global to build and strengthen its technological capabilities, bolster its robust
supply chain, develop its talent pool and thereby enhance the end-user experience
(Business Standard, 2013) (Table II).
After the first phase of the fifth round of funding, Flipkart introduced voice search features
to its website, and thus proved the technological advancements it had achieved over the
years (Sareen, 2013e). Almost simultaneously the company launched an Android-based
app, which listed all the website’s retail categories unlike the preceding app which listed
books only (Agarwal, 2013). This enabled buyers to navigate through different departments
to search for and find products, categories or brands using text, voice or barcodes. It
enabled users to share interesting products with their friends through different
communication platforms, especially social media, and to compare prices.

All that glitters [. . .]

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All these successes did not come without their fair share of controversy and criticism. A
senior ex-employee of Flipkart complained in an interview that the company espoused
nepotism and an E&Y annual report of 2011 also pointed towards flaws in the company’s
internal control and reporting system (Dharmakumar, 2012).
People with knowledge about its operations claimed that in the first half of 2012 Flipkart was
running into losses, amounting to Rs. 6 crore per month (Das, 2012a), which later increased
to Rs. 50 crore per month (The Economic Times, 2013b), with the rising volume of orders.
Flipkart’s filings with the Registrar of Companies said that it lost Rs. 1.37 lakh in 2008/2009
and Rs. 91.27 lakh in 2009/2010 (Das, 2012a). The increase in losses was attributed to the
cost of customer acquisition, improved advertising and search engine optimization. The
cost associated with the Flipkart brand’s increased visibility amounted to between Rs. 800
and Rs. 1,500 per order approximately, contrasted with the average price of a book, which
was Rs. 300 in the period (Table III).
The gross margin of an online bookseller has been estimated at ⫺24 per cent because of
high marketing costs. For example, a burst of television advertisements could cost more
than Rs. 15 crore. In spite of being an online company, Flipkart used to manage its own
warehouse to facilitate the fast delivery of its products, which added to its costs. Some
suppliers complained that Flipkart would attempt to return more books than was the
industry norm and made delays in payments (Dharmakumar, 2012).
Although offering the cash-on-delivery option definitely increased the number of
customers, it increased Flipkart’s operational costs from Rs. 50 to Rs. 100 per order. Ashish
Jhalani, founder of eTailing India, claimed that cash-on-delivery added about 3 per cent in

Table II Funding of Flipkart

Round of funding Amount Investors Year

Seed capital Rs. 400,000 Sachin Bansal and Binny Bansal 2007
Funding round-1 US$1 million Accel India
Funding round-2 US$10 million Tiger Global 2010
Funding round-3 US$20 million Tiger Global 2011
Funding round-4 US$150 million MIH India (an arm of South African media giant 2012
Nasper), Iconiq Capital, Tiger Global, Accel India
Funding round-5 US$360 million
(Phase I-US$200 million; Nasper, Accel India and Tiger Global 2013 (July)
Phase II-US$160 million) Morgan Stanley Investment Management, Sofina 2013 (October)
and Vulcan Capital, Dragoneer Investment Group
and Tiger Global

VOL. 4 NO. 7 2014 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9

 Table III How costs stack-up
Cash flow Book (%) Mobile (%) Apparel (%)

Sales 100 100 100

Cost of item 60 88 65
Discount 30 10 15
Packaging 1 1 1
Free shipping 10 2 10
Cash on delivery 8 2 4
Warehousing 1 1 1
Inventory and write-offs 4 4 2
Manpower costs 10 5 10
Gross margins ⫺24 ⫺13 ⫺8
Source: Das (2012a, 2012b)

additional costs (Nair, 2013), caused by the increase in instances of refusals by customers
to accept products at the last moment, additional processes required for verification calls,
longer payment cycles and due to the collection charges levied by courier companies.
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Flipkart raised the bar for free home delivery for shopping to above Rs. 300 in the middle
of 2012 (Surana, 2012) and, subsequently, it was raised to cover orders over Rs. 500. They
also stopped shipping products worth more than Rs. 10,000 to customers in Uttar Pradesh
and its nearby NCR regions (Sareen, 2013f). With the introduction of these measures, the
average order size of Flipkart increased to Rs. 1,200 (Choudhary, 2012).
In November 2012, the Enforcement Directorate announced that they would look into alleged
violations of FDI rules by Flipkart, covered by the penal provisions of the Foreign Exchange
Management Act, 1999 (The Economic Times, 2012). As per the law, e-commerce companies
with foreign investment may carry out business-to-business transactions but not
business-to-consumer (B2C) transactions by creating complex structures. E-commerce
companies with foreign investments are allowed to trade wholesale with B2C companies that
are unrelated and can trade wholesale with a group company only if it does not exceed 25 per
cent of its total turnover and is used for internal consumption.
Many people frowned upon the rate at which Flipkart raised money and spent that, while
some other e-commerce companies apparently managed to perform efficiently with less
funding. Myntra, an online fashion and lifestyle retailer that started operation in the same
year as Flipkart, raised only USA$75 million in several rounds, while another player Mydala
managed to operate with a meagre USA$6 million (Soni and Mookerji, 2013).
Even since it has revamped its model to become a marketplace, some experts have continued
to believe that it still burns USA$8-10 million per month (Agarwal and Mookerji, 2013).
To get funding from investors, they have had to limit that cash-burn. In the process, they
have also let go of some employees (Sareen, 2013g). Flipkart has to be a foreign-domiciled
(offshore-structured) entity for US listing since SEBI regulations require Indian companies
to trade first on local bourses. The Indian market regulator stipulates profitability norms for
listing on local exchanges, but till recently Flipkart had to bear negative gross margins and
just slipped into 2-3 per cent profit margins after expanding its product catalogue.

Path ahead
T.C. Meenakshisundaram, Founder and Managing Director of IDG Ventures India, a
venture capital fund, said in an interview, “Given the cost of customer acquisition, a
customer must transact more than three or four times to make the company profitable”
(Das, 2012a). Some veterans like Subrata Mitra (Partner at Accel Partners, on the boards
of Flipkart and Myntra) said that companies could take up to five years to show profits.
Amazon, the world’s biggest online retailer, started in 1995 but only became profitable in
2001 (Das, 2012a).

PAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 7 2014

 Flipkart’s founders stated that they were spending money to upgrade technology and
logistics capabilities to gear up for future business needs which would see higher demand
and to ensure their leadership position in the fast-growing Indian e-commerce market,
which has already outgrown Brazil and Russia to become the fifth largest e-commerce
market in the world, behind China, Japan, Germany and the USA (Krishna, 2013).
With the advent of Amazon in the Indian e-commerce market, existing players would
definitely have to attempt to upgrade their capabilities. Flipkart raised enough funding to
Keywords: give the global retail superpower a tough run for their money. Now, it will be interesting to
Marketing, note whether Flipkart actually succeeds in its endeavour to maintain its leadership position
Entrepreneurship, in the Indian e-commerce market, or whether by simply running along its present high-burn
E-Commerce, track without profitability, it will end up being acquired by the global e-commerce giant –
Strategy, Amazon. Can Flipkart fulfil its expectations of exponential growth and meet its target of
Flipkart USA$1 billion sales by 2015?

Notes
1. Alexa Top Sites in India, Alexa www.alexa.com/topsites/countries/IN
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2. 1 crore (Cr) ⫽ 10 million.

3. FirstandSecond.com does not exist by the same name any more.
4. 10 lakh ⫽ 1 million.

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Further reading
Shivaprashanth’s Blog (2011), “Flipkart.com case study,” Shivaprashanth’s Blog, 22 February,
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November 2013).

Tejaswi, M.J. and Sharma, S. (2013), “Flipkart needs big money to keep delivering,” available at:
www.economictimes.indiatimes.com/tech/internet/Flipkart-needs-big-money-to-keep-delivering/
articleshow/15012624.cms (accessed 29 November 2013).
The Indian Express (2013), “1 lakh books sold on Flipkart in single day,” The Indian Express, available
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December 2013).

Corresponding author
Nirankush Dutta can be contacted at: nirankushdutta@yahoo.com

PAGE 14 EMERALD EMERGING MARKETS CASE STUDIES VOL. 4 NO. 7 2014

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