Amazon India growing at double digits in a flat landscape: Amit Agarwal
Seattle-based e-commerce giant Amazon.com Inc. entered India in 2012 through discovery and price comparison site Junglee. Its seriousness about India became evident in 2014 when it committed $2 billion for expansion. Flipkart was already the undisputed market leader then and Amazon was nowhere close. But Amazon had what others didn't--a vast pool of capital. In 2016, Amazon founder Jeff Bezos upped the commitment to India to $5 billion. This helped Amazon breeze past Snapdeal and Shopclues and go neck and neck with Flipkart. Simultaneously, Amazon built logistics and payments arms and expanded its Prime membership programme.
In an interaction with TechCircle, Amazon India head Amit Agarwal shares his India strategy and rubbished leadership claims by rivals. Edited excerpts:
Amazon has completed four years in India. What has been the strategy so far and what's the plan ahead?
India is a very strategic geography for us where we have very long-term outlook with the single objective of transforming how India buys and sells. E-commerce in India is at a very early stage. It would require a lot of investments to build the infrastructure that allows anyone, anywhere in India to find and buy anything. That's what we are focussed on.
Our approach to this has been on offering customers the greatest selection of products. We are focussed on ensuring that they get the greatest value on all their purchases and the way we do that is by partnering with sellers and removing cost of operations for them.
We are focussed on selection, value and convenience. The good part is that these three things don't change with time. Therefore, having a strategy that's focussed on these three pillars allows us to make investments that would yield dividends for many years.
When Jeff Bezos committed $5 billion in 2016, was it only for the Indian e-commerce business. Have you exhausted it? Any revised commitments?
The $5 billion was for investments in India, in general. We are investing largely in technology, AI, machine learning to constantly improve our supply chain, selection process, besides investing on physical infrastructure, on building a fast and reliable delivery system, a strong payment mechanism and more.
We consider this market important and large enough that we would not constrain ourselves by an investment amount to achieve our vision. The $5 billion investment should be thought of as an indication of that commitment.
There has been a lot of noise over the leadership position in Indian e-commerce...
Over the last four years we have not only achieved leadership in offering the largest selection of products -- we have more than 160 million products, of which more than 25 million products are Prime-eligible -- but we also have more than 285,000 small and medium businesses running their livelihoods on Amazon. We offer next-day guaranteed delivery to over 200 cities, we have millions of Prime members.
Not only we are leaders in these three basic pillars that customer really care about, it is because of the investments in these pillars that we find ourselves as leaders in areas that are the outputs of these. If you look at traffic whether it is desktop or mobile, Amazon is way ahead. We had our 100th million download in October and became the most downloaded shopping app in India.
We have a very systematic statistically significant study that gets done in India that looks at customer share and order share. It is done by IMRB, which is a retail organisation that looks at 32,000 customer samples in 200 cities and we have been sharing the data very explicitly with people. It clearly shows how we have the customer and order share leadership.
In fact, the recent January report shows that two times more shoppers shopped on Amazon than anywhere else. While there is a lot of speculation out there on factors such as market leadership, we are very confident when we look at hard data and we look at customer adoption that we are in a leadership position. It's compounding exponentially.
We are still growing at a high double-digit rate when a lot of the landscape has been mostly flat and trying to revive growth. I think all of these are the results of investments that we made two years ago. What we are doing today in 2018 will show itself in 2020.
Anybody who gives you a market share is bluffing because there is no study in India that can give an authentic report. I don't care about the market share claims. I'm so focussed on what's its going to be 30 years down the line. The customers 30 years later are going to care about massive selection, low prices and faster delivery.
What will be the new focus areas going forward?
There are lots of new areas that we are investing in. A big area of investment for us is Prime in general and Prime videos in particular. We are working with story tellers, actors and directors to bring out great stories without having to bother about screens, which I think is a huge constraint in India.
Other focus areas include Alexa, which is artificial intelligence for the masses, soon-to-launch Prime Music and Fire stick. Then there are new areas that we are expanding to in our marketplace like Amazon Business, which allows businesses to transact each other. We have over 115 million items on Amazon Business marketplace.
One of our key focus is on adding more selection. India is a very diverse country, a large manufacturing hub. There are a lot of products that do not get visibility on a national scale because of the inherent inefficiencies. Then, just adding selection is not enough. We need to make sure that these items are available in stock and shipped as fast as possible.
This requires a lot of forecasting and supply chain management so that sellers know exactly what to place where based on these diverse demands. We are trying to build technologies and solutions that can serve these customers and sellers appropriately to their capabilities and preferences. This is a very hard challenge and that is what we are most excited about.
What's your take on the concept of omnichannel? There have been media reports about Amazon’s possible evaluation of this model.
I don’t really have much to comment about speculation or add to it. At the end of the day, we don’t think of terms like online, offline, omnichannel as they are not very specific. The way we look at things is always from the perspective of the customer.
You need to work backwards from what the customer wants and give it to them. If a certain need requires you to have a physical access point, you have to provide it to them. Our Udaan programme is one such example.
The next phase of growth for Indian e-commerce is touted to be in the hinterlands...
We get around 65% of our units from lower-tier cities and more than 50% of our sellers are from there. Around 99.7% pin codes in India have placed at least one order with us, which means we have built an infrastructure that can deliver almost anywhere in India.
Likewise, selection is very important. An underserved location becomes an automatic choice for consumers to explore organised retail. Lower the tier, less likely that one might find all that you are looking for. Organised retail hasn’t really penetrated that part.
Hence, selection becomes very important before one even gets into price and convenience. We have some successful experiments like the Udaan programme, which allows the customers to step in, look into a television screen, browse through products, pay in cash and gets the product delivered. This has now been expanded to 15,000 stores in 21 states.
We also have the IHS (I have space) programme, which allows any local shop to become a logistics provider for us. When you try to deliver in rural areas, it becomes really hard to build connections. So this plug-in mechanism helps us solve the problem of delivery in dense and remote areas. It provides more income to them and better reliability for us also.
E-commerce is perceived to be 10-15-year business cycle and it has been your fourth year in India already. How long before it turns profitable?
At this point in time, we are very much focussed on building the foundation that will allow us to be transformational. When you try achieve those kind of aspirations, you don’t really plan for that milestone. The question we ask ourselves is whether our investments are having the desired impact on this transformation front.
Having said that, we are obviously not running a non-profit organisation and the way you try to build things is with a right foundation.
The Prime subscription offering is off to a flying start. How do you see it going forward now that you have hiked the subscription price?
To me, the adoption of Prime with millions of customers, paid Prime members, is already proof that customers care about convenience. In fact, in the debut year of Prime last year we signed more members in India than anywhere in the world ever Amazon has done in its debut year. It goes a long way to say how sophisticated the Indian consumer is.
I can't talk for other companies, but our approach has always been based on offering great selection, great value and great convenience. The question to be asked is if a particular marketplace is being used on a daily basis, not once or twice a year when you have your events. Is e-commerce becoming a daily habit? For us the biggest benchmark of that is Prime because nobody parts away with Rs 999 a year unless they know that they would use it big.
Prime subscribers account for more than one of three items that are ordered everyday on our platform.
You have largely followed a build-from-scratch approach. But there were reports of Amazon looking to scale up the grocery business through inorganic means, which did not work out.
We don’t really comment on speculation as well as on what we may or may not do. I can just say that whatever we are doing is working. It is important to note that organised grocery in India is so miniscule that this is not something that is going to runaway like a train and it is going to take decades for this to take a larger form.
While we may fantasize the idea of all this investment going into the largest grocery chain in India, the fact is they are still small relative to consumption levels of the people. Hence, it is important to do the business right, convert the unit economics into positive. You cannot really ship a Rs 40 Maggi and make money. We have been very purposefully restricting ourselves related to the pin codes where we operate.
What about taking an omni-channel approach in India like the Whole Foods play and an Amazon Go store in the US?
I would not like to comment on that. But there is always a possibility of doing similar things. But this is not a priority for us right now. The basics need to get strong before we can think of something like that.
How do you perceive the competition landscape in the grocery segment now? Alibaba is making inroads through BigBasket and Flipkart’s Grocery 2.0 strategy seems to be serious.
We have three different offerings in this segment - Amazon Pantry, Amazon Now and Grocery Gourmet. We have been in this business for the last two years. Consumables, in terms of units, is perhaps one of our largest categories and in terms of value as big as many other categories that we have.
So where will that $500 million commitment into food retail and processing go into? What about physical stores?
That investment is in improving our grocery offerings by organising our supply chain. There is a lot of wastage happening between the manufacturing and consumption time. We believe we can leverage our experience in supply chain.
As far as physical stores go, we don’t share details of what we may or may not do. Our current focus is very squarely on the online side of things.
What's your take on the vertical e-commerce segment in India? Is there a space in the medium to long term for vertical players?
E-commerce in India is so miniscule that any innovation and investment holds good. It is like the biggest tailwind. If we have the whole world come here, compete and then invest, that’s the best thing to happen for e-commerce in India. It will just accelerate infrastructure development and customer adoption.
We are talking not about an industry that is so matured that one solution will eat up another solution. The opportunity is so vast that we have barely scratched the surface. The more the innovations, the more e-commerce becomes likeable to the consumers.
Fashion is one sector where your users would like to have differentiated offerings. Would you prefer continuing with the same approach in this category?
To set the record straight, as a standalone marketplace, we are the largest in the fashion space. Having said that, like everything we do, it’s always just a matter of time before we start focusing on these things. Two years ago, we were barely there in this space and have been growing (two-three times) faster than everybody else since then.
Fashion is already a very large part of our business, if not the largest and among the two. If I were to break down our e-commerce business broadly in terms of five categories, there is wireless, consumer electronics, other home accessories and industrial supplies, consumables and fashion.
Needless to say, we will keep adding more private labels in the fashion space. We now have an investment in Shoppers Stop and we have a relationship with them to bring their range of selections over on to our platform.
These five categories are equally distributed for us and they are growing at a very rapid pace. We are not heavily indexed into one area and that is very important for us.
Your Junglee experiment did not turn out as you expected. Any lessons?
An experiment is an experiment because you don’t know the outcome. In case of Junglee, the experiment has actually become a permanent feature. Junglee was all about facilitating P2P commerce between two highly sophisticated individual sellers. Now in Amazon, you have a feature called Amazon Finds, which is driven by a highly personalised targeted ad platform and it has been working very well for us.
On top of it, there are also convenience and safety elements like an escrow account, paying through Amazon Pay, delivery enabled through our logistics arm. Junglee allowed us to build this capability. There was no point in having a separate website.
The idea of having multiple websites might sound good, but is expensive to scale. While it might be different from other people’s approach, our belief has always been that consumer shouldn’t be going to multiple platforms to get things done. In case of P2P, if you are looking for someone who sells handcrafted mobile phone cases, it is best shown on the mobile phone page rather than a separate website.
Your payment 2.0 strategy has been touted as much broader in scope than just Amazon Pay. Where does it stand today?
Our aim has always been to do away with the payment friction. Over the last two-three years, we have been working with several banks to improve connectivity and ensure that the success rate of transactions in Amazon is best in class.
So our objective with Amazon Pay is a little different, with the focus again being squarely on the customer. We found that a lot of customers we are acquiring are primarily cash customers coming into the digital load. That is why we launched this notion of cash load at doorstep, where you can actually top-up cash into your Amazon Pay balance while delivery.
Nobody else does this at this scale. We needed a PPI (prepaid instrument) licence for that because you are giving cash and converting to digital. That feature has done exceedingly well over the last six months and this is helping in our tier-2 and tier-3 centres strategy. While we realise that we are not a payments company, we also recognise that our customers need to have this option on other sites they visit.
What are the main elements of your financial services play related to seller-side benefits?
We provide lending to sellers as well as consumers on our marketplace because as we expand deeper into the country, we need to make things more and more affordable.