I listened to Professor Ramesh Johari of Stanford University last night talking about the dynamics of online markets. He spent 18 months at a company called oDesk (now part of eLance, online marketplace for freelance workers) and tried several models to understand what creates successful online markets. Besides complex matching algorithms and collaborative filtering, there are other interesting factors such as human behavior that can affect such markets. Let us look at what is happening in emerging markets like India.
Yesterday, Flipkart, an Indian e-commerce site for commercial goods got an infusion of $1B from investors from Russia, South Africa, USA, Singapore, and India. The two founders came from Amazon and no wonder they are following the same model- start with books, then open your fulfillment engine to other merchants and charge a fee. Flipkart is the fast rising e-commerce site in India and its founders just joined the billion dollar club on paper based on the latest valuation at $7B. India’s e-commerce market is currently at $13B, poised to grow to $76B by 2021, according to Technopak. Out of this total market, travel sector is 70% and type of goods sold through the likes of Flipkart and Amazon yields $1.6B. By comparison, e-commerce sales in China will likely surpass $180B this year!
Speaking about Amazon, Jeff Bezos just announced that he will invest $2B in India, via five more warehouses (doubling to half a million square feet), same day delivery, and aggressive marketing. In a statement this morning he said, “With this additional investment of $2 billion, our team can continue to think big, innovate, and raise the bar for customers in India. At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales.” Amazon makes its money in India by charging third-party suppliers to use its website to sell 17 million different products including books, electronics and clothing.
The government is considering allowing foreign retailers to sell directly to customers. It recently took a step in that direction by allowing retailers to sell online products manufactured in India. Amazon and Flipkart are also joined by Snapdeal, another e-commerce site backed by eBay and Jabong (fashion designer). The new prime minister Mr. Modi wants to open up rural markets to such brand names for easy access without building physical stores. It will also enable growth for small town stores as front end to such goods.
Alibaba’s success in China is also an example for other such emerging markets. The founders of Flipkart dream of a $100B valuation for their company some day. But as Ramesh Johari pointed out yesterday, what is illusive is the secret formula for success and many unknown factors. Earlier this week, Lyft (online taxi service like Uber) users got highly frustrated when they could not get cars fast enough and trashed the company in social media.
Online markets are hot for sure and Flipkart will see some real competition from Amazon and eBay.