Recently, Amazon CEO Jeff Bezos announced that Amazon would be making an additional $3 billion investment in India, on top of the $2 billion already invested two years ago. What’s interesting about this investment is not just the size, but what the investment will be used for.
Part of the reason for Bezos’ huge investment is that he sees a real threat from eCommerce giant Flipkart in that market. Having lost ground to AliBaba in China, Amazon wants to retain its foothold in India as much as possible. Other local eCommerce players such as Snapdeal are also vying for a piece of the pie, but Amazon’s new investment must be keeping executives at both companies up at night.
Two years ago, Flipkart introduced same-day delivery, an attempt to stop Amazon from making in-roads within that business model. India is an interesting model. Given its relatively recent emergence as a growing economy, the growth in investment of companies doing last mile delivery and on-demand has been incredible. Additionally, on-demand/same-day delivery is a concept that is hundreds of years old in India, long before Uber was a gleam in Travis Kalanick’s eye. Dabbawalas have been delivering hot lunches throughout India – via train, bicycle, or foot since the 1800s. Their sophisticated supply chain, especially for their time, can be looked at with awe today.
With Amazon’s entrance into the Indian market a few years ago, incumbents such as Flipkart saw logistics as a way to differentiate. Same-day delivery became the ultimate goal, and seen as the only way to block Amazon from taking over the entire market. That’s Flipkart said it was investing $2.5 billion in logistics, and Snapdeal bought stake in 3PL firm GoJava.
However, without the operational efficiency, technology, and customer experience in place, just offering same-day delivery doesn’t mean it will be profitable.
Flipkart and others are starting to feel the funding crunch that other startups are facing, they and others spent upwards of $1 billion in shareholder money to provide same-day delivery, but did not show enough profit to justify further investment – this was around 2014-2015.
Amazon, on the other hand, with their superior logistics operation and supply chain have begun to perfect quick delivery.
Bezos himself stated that since Amazon handles their own Last Mile Deliveries within India, they will put the money towards growing that aspect of their business. This is an interesting (and very telling) strategy for the company. Over the last years, as we have written about extensively, Amazon has been working towards phasing out reliance on third parties for their logistics such as last mile, and beginning the process of owning their entire supply chain.
What’s interesting is that India is fertile and new ground for Amazon, as well as other players. In the United States, and other markets, the logistics operations of many of these eCommerce companies are entrenched – based on older models. Those models ignore the new realities of customer expectations of faster delivery times, a better shopping experience, and a more enjoyable and engaging delivery experience.
Will Amazon take over the Indian eCommerce market? Will faster delivery times be the key to doing so? Time will tell, but Flipkart and others are surely taking notice.