Flipkart was founded in 2007 by Sachin Bansal and Binny Bansal, both alumni of the Indian Institute of Technology Delhi. They had been working for Amazon.com previously. During its initial years, Flipkart
focused only on books, and soon as it expanded, it started offering
other products like electronic goods, Air Conditioners, Air coolers,
stationery supplies and life style products and e-books.
Recently, with the arrival of Amazon, the survival of Flipkart has become a major question for Flipkart. Among all the business equations, let us spare a moment to appreciate the fact that Ex-Amazon employees have set up a company which will challenge the 'parent' company's monopolistic attempt on Indian market. I do not know whether this fact appeals to you but I had always been a fan of David-Goliath stories.
So, let us look at 3 possible scenarios that I think might happen between Flipkart and Amazon:
1) Amazon buys Flipkart: (Probability: 40%)
This is the dream Flipkart founders / investors are hoping for day in and day out. The question then will be about what the price will be. If we look at history, it's similar to what Ramesh Chauhan of Parle soft drinks faced when Coke was trying to enter India. He sold off 4 brands: Thumsup, Gold sport, limca and one other for a price of 750 crores when a reasonable value was more likely 275 to 300 crores. It's rumored that Flipkart founders have already asked for 2 billion USD which Amazon thought was ridiculous and turned down. This is the kind of exits current investors are hoping for.
3)Amazon crushes Flipkart: (Probability: 50%)
Amazon brings in its own expertise, processes, patents, IP, brand and offers superior buying experience thereby wiping flipkart out of existence. The problem which flipkart has solved( Logistics) is a commodity and can easily be replicated. I am assuming that flipkart doesnt have any IPR or patent ( In fact the founders having worked with Amazon earlier might have exploited Amazon's IPR ). The customers quickly switch to Amazon. Finally, Flipkart is sold for a small amount to Amazon. It would be disastrous for founders and investors. People like Mahesh Murthy will dance on the floor saying, "Didnt I tell you so?"
4) Flipkart does a Lagaan*: (Probability: 10%)
Amazon is not able to find its feet in the country. Flipkart finds the battle tough. Its Bansals get the government to protect it. They bribe Momota di / Fernandez who go on rampage and either drive Amazon out of India or, just like the Naukri Versus Monster showdown, Flipkart becomes #1 and Amazon is comfortable playing the second fiddle.
But I think, Flipkart would have already been prepared for Amazon's entry, it was always on cards. Flipkart would now bank on its established customer base and logistics setup. Flipkart also have the advantage of better insights on local consumers but that would be tested against market intelligence gathered by the best systems in the world.
Recently, Flipkart started to lay off 250 employees by end of this month as a cost cutting measure to fight amazon Due the launch of amazon :
1. Flipkart has started to pay 10% as affiliate commision instead of 5%
2. Flipkart has dropped the prices of many mobiles as high as 10% to maintain market share
3. Flipkart has reduced the market-place-service fee for the resellers to match the amazon service fee.
It is expected that the above 3 steps will increase the Flipkart monthly burn rate by about 3 million dollars.Overall, flipkart really has to watch its back if it really wants to stay in the market.
Its king Leonidas with his 300 set out to fight against the persian king xerxes. Lets just hope there is no Ephialtes.
Recently, with the arrival of Amazon, the survival of Flipkart has become a major question for Flipkart. Among all the business equations, let us spare a moment to appreciate the fact that Ex-Amazon employees have set up a company which will challenge the 'parent' company's monopolistic attempt on Indian market. I do not know whether this fact appeals to you but I had always been a fan of David-Goliath stories.
So, let us look at 3 possible scenarios that I think might happen between Flipkart and Amazon:
1) Amazon buys Flipkart: (Probability: 40%)
This is the dream Flipkart founders / investors are hoping for day in and day out. The question then will be about what the price will be. If we look at history, it's similar to what Ramesh Chauhan of Parle soft drinks faced when Coke was trying to enter India. He sold off 4 brands: Thumsup, Gold sport, limca and one other for a price of 750 crores when a reasonable value was more likely 275 to 300 crores. It's rumored that Flipkart founders have already asked for 2 billion USD which Amazon thought was ridiculous and turned down. This is the kind of exits current investors are hoping for.
3)Amazon crushes Flipkart: (Probability: 50%)
Amazon brings in its own expertise, processes, patents, IP, brand and offers superior buying experience thereby wiping flipkart out of existence. The problem which flipkart has solved( Logistics) is a commodity and can easily be replicated. I am assuming that flipkart doesnt have any IPR or patent ( In fact the founders having worked with Amazon earlier might have exploited Amazon's IPR ). The customers quickly switch to Amazon. Finally, Flipkart is sold for a small amount to Amazon. It would be disastrous for founders and investors. People like Mahesh Murthy will dance on the floor saying, "Didnt I tell you so?"
4) Flipkart does a Lagaan*: (Probability: 10%)
Amazon is not able to find its feet in the country. Flipkart finds the battle tough. Its Bansals get the government to protect it. They bribe Momota di / Fernandez who go on rampage and either drive Amazon out of India or, just like the Naukri Versus Monster showdown, Flipkart becomes #1 and Amazon is comfortable playing the second fiddle.
But I think, Flipkart would have already been prepared for Amazon's entry, it was always on cards. Flipkart would now bank on its established customer base and logistics setup. Flipkart also have the advantage of better insights on local consumers but that would be tested against market intelligence gathered by the best systems in the world.
Recently, Flipkart started to lay off 250 employees by end of this month as a cost cutting measure to fight amazon Due the launch of amazon :
1. Flipkart has started to pay 10% as affiliate commision instead of 5%
2. Flipkart has dropped the prices of many mobiles as high as 10% to maintain market share
3. Flipkart has reduced the market-place-service fee for the resellers to match the amazon service fee.
It is expected that the above 3 steps will increase the Flipkart monthly burn rate by about 3 million dollars.Overall, flipkart really has to watch its back if it really wants to stay in the market.
Its king Leonidas with his 300 set out to fight against the persian king xerxes. Lets just hope there is no Ephialtes.