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Flipkart’s valuation markdown (indiatimes.com)
76 points by Jerry2 on Feb 29, 2016 | hide | past | web | favorite | 38 comments



Flipkart losses are growing fast http://www.livemint.com/Companies/UQAIOMlml7iM6oVufedjOJ/Fli... I do not think their business model is unique. They are taking investor's money and giving as discount to customers. Important thing to note here is unlike Amazon in US which was genuine innovation for local customers as delivery to home for millions of product who would hate to go out and shop. In India home delivery by local businesses for as little as 2 dollar worth of goods is common for decades before E-commerce boom. Even banks send in some one for paperwork, opening account or just deliver cash at home. So once delivery part is out of equation and heavy discounts are forced out by investors, I am not sure what will be their value proposition.


> I am not sure what will be their (Flipkart’s) value proposition.

You are missing out on the whole forest. If you think Amazon was an innovation, solving for ‘hate to go out for shopping’ scenario, then ecommerce in India is 100X of that innovation.

It for simple reason that for vast majority of Indians (non-urban, big and small towns, villages etc.) there is simply no alternative if they want to buy a mobile or a SD card for mobile, or a particular book, or that latest Levis, sneakers, and so on… Heck even in big cities it is a struggle to find things.

The local business that you are mentioning who do home delivery is for day to day things, doesn’t extend beyond ordinary grocery items.

Now why Flipkart still has an advantage? It is simply because it had first mover's advantage. Its brand is well settled in the mind of people, particularly if you consider non urban towns and villages. Those people have simple mind, once a brand settles in their life it is very difficult for another one to replace it. Amazon et al will need to work 10X hard to replace Flipkart from their habits.

Another angle is - mobile.

At the afore mentioned places, the primary device for online shopping is mobile. Now if an app has entered into their device and they have gotten used to it (mind you these folks are not as tech savvy, smart yes but not tech savvy as they never owned a PC before), it becomes very difficult for another online retailer’s app to replace the app that they are used to.

Flipkart still has lot of advantage over Amazon, Snapdeal due to its brand recall (still today if you walk out of city area, online shopping means Flipkart to majority of Indians - almost same as what Xerox is to Photocopy).

That is their value proposition (to investors).


> Those people have simple mind, once a brand settles in their life it is very difficult for another one to replace it.

This sounds offensive and it is obviously not true in my first hand experience. The main issue is cost effectiveness once merchandise is not heavily discounted. One good example is telecom. There is no brand loyalty even in remote areas as people keep changing already cheap prepaid plans for something cheaper. See this: http://www.gartner.com/newsroom/id/1963915

> At US$40, the ARPU in India is among the lowest in the world and about one-third of that of China

Much less talked advantage in India is extremely cheap labor who deliver merchandise to homes, and that is available to any new competitor. Flipkart/Snapdeal etc are not much different from Indian IT industry which talked a lot about innovation. However it was(is?) mainly about 1/3rd or less cost comparable to west. But for E-comm it is going to be worse as all/most of their customers are in India.


First mover advantages are weak, at best. A second mover that executes better and or has a meaningfully superior product or value proposition will win just about every time.

See: Atari (Nintendo), Friendster (FB), MySpace (FB), Motorola (Apple, Samsung, Nokia), AltaVista (Google), Nintendo (PlayStation), Apple (Windows), Microsoft (iPhone, iPad, Android), Betamax (VHS), RealMedia, Ford (GM), Walkman (iPod), 3dfx (nVidia), Yahoo, AOL (open web), Hotmail, Woolworth's (Sears), Kmart/Kresge and Sears (Wal-Mart), US Steel, Blockbuster (Netflix), Kodak & Polaroid (digital), Sun Microsystems, Xerox, Borders & BN (Amazon), Blackberry & Nokia (iPhone), VisiCalc (Excel), Lotus Notes (MS Office). All examples of first/early movers that got displaced.


>It for simple reason that for vast majority of Indians (non-urban, big and small towns, villages etc.) there is simply no alternative if they want to buy a mobile or a SD card for mobile, or a particular book, or that latest Levis, sneakers, and so on… Heck even in big cities it is a struggle to find things.

This is so true. Even today. Moreover there is an impression of complete lack of transparency in brick and mortar stores, since you are never sure when a shopkeeper is fleecing you.

But sadly Flipkart has pivoted away from customer satisfaction to seller satisfaction as an end goal. As a result their quality of service has gone for a toss, whereas Amazon has always been single mindedly pro-buyer.

Brand inertia will help them retain customers for some time and this also helped because Amazon's android app is just not good enough, but eventually they will crash if they keep ignoring customers.


Flipkart is still a market leader by a considerable margin. Its main stay has been electronics and fashion retailing. It is excelling at both, and shows no signs of slowing down. It has managed to attract top-tier engineering talent in the Country (India), by offering generous wages and generally because it has some very tough problems to solve.

Amazon has been making in-roads, capturing a size-able market share, but dare I say they're imitating Flipkart to an extent, and that's a testament to innovativeness with which Flipkart has worked all along.

Despite the picture the article is trying to portray, Flipkart is well and truly an established business at this point. Sure they're making losses, but retailing is a tough-nut. In order to capture a rapidly growing internet-base, Flipkart and others need to take those hits-- they need to trade growth with profit, unless their end-game is to get acquired.

It is pretty natural trajectory an e-commerce company to take, IMO. These firms doing a re-valuation of their investments does look scary, and probably they did so having looked at the financials and the potential-- but the correction in the valuation is just a blip. Retailing is hard-- customers want discounts, VCs want growth, Markets want profit... you have to choose two and ignore the rest, I guess.


Can you elaborate on your comment that Amazon is imitating Flipkart to an extent? Are there specific examples where Amazon is doing this? Is it possible to learn from the Indian market and bring those ideas to a more global audience?


Popular myth is COD (Cash on Delivery) model was pioneered by Flipkart which other e-tailers (Amazon including) adopted.

The myth is not without it's merit, Flipkart is perhaps the first one which did it at massive scale and showed how it can reduce the friction when converting a website visitor to a paying customer.

Further read on COD http://www.businesstoday.in/magazine/cover-story/cash-on-del...


Flipkart's COD model has many innovations. Ecom's main payment option in US is credit cards; India does not have many people having credit cards. Also people did not want to prepay because of their past experiences with other services. Flipkart was able to COD on a large scale, became reliable and trusted, and was able to overcome people's reluctance to purchase online. Flipkart's other innovations, easy returns, their own delivery network, not depending on 3rd parties.


I don't think this is a new concept by any means. It is primarily due to the fact that a large majority of consumers in India might not have the means or the comfort level to put in a credit card. The concept has been around for a long long time. [1]

[1] https://en.wikipedia.org/wiki/Mail_order


As mentioned it is a myth. Even within India, the postal dept had this for ages - called 'Value Payable Post' (perhaps going back to colonial days). http://www.indiapost.gov.in/VPPost.aspx

Also, seems like mail order for most part still had to depend upon credit cards. See https://en.wikipedia.org/wiki/Card_not_present_transaction

The point that I was highlighting is Flipkart showed the way as to how this forgotten system (COD) can be leveraged in the days of internet to acquire new customers.

The relevant question here is - If Amazon India came before Flipkart, would they have thought of putting this system in place? Maybe, Maybe not.

But one can hazard at least this much guess that looking at the kind of customer traction Flipkart was getting due to COD system, Amazon India's product managers perhaps had to write far lesser emails to Seattle for incorporating that in Amazon.in.


Yes?

The idea is not novel, it's been conceived off several times in human history as suggested in this thread alone. So flipkart has no claim to special talent, or high barriers in conceiving of the idea.

Since Amazon also wants to be a market place enabler, and builder of market places themselves, it's quite likely they would see this model being played out in other parts of the world and try it out.

Yes, the number of emails required to sell the idea would be lower with an Indian paragon to point to.



Was Cash on Delivery introduced by Flipkart before Amazon in India? If so, I think amazon is 'imitating' flipkart in this area. I see COD on UPS, Fedex in USA but not as popular as COD in India.


eBay.in offered cash on delivery waaay before flipkart (as a matter of fact, the original site Baazee.com which got merged into eBay did it very successfully too)


There were some catalogs, which offered in the earlier days, I remember in 80s and even earlier than that. Its been around long before Interwebs.


The form of COD in India has been around for over a century across nearly the entire industrialized world. There's nothing innovative about it, the debate (Flipkart vs Amazon) is pretty moot given the history of COD stretches so far back.


I used Cash on delivery using much smaller website 12-14 years ago in India. IIRC it was just a local company that delivered within the city.


Yes, long before Amazon started operating in India.


Absolutely, I was offering Cash on Delivery using VPP back in 2004 for my baazee.com store(eBay acquired baazee to enter Indian market as ebay.in)

India Post offered Reverse Money Order as a service aka VPP(http://chennaipost.gov.in/vpp.aspx)


I beg to disagree, the use of Flipkart has gone down considerably because their prices are much higher than of Amazon. I personally have not used Flipkart in a long time now. Latest buy was from Amazon three days ago.


I actually visit Flipkart once in a while to see if the prices have changed and in every visit I provide feedback that the prices are ridiculously high and that I'm buying from Amazon or Paytm. I don't believe anyone in Flipkart with the authority to do anything reads the feedback or wants to act on it. I've done this several times over the past couple of years and Flipkart still remains the most expensive for the electronic/electrical products I'm interested in.

I've narrowed down to Paytm as the first source and Amazon.in as the second source to look for products at good prices. Snapdeal comes a distant third.


Yes, it certainly looks like that. I had once attended their recruitment drive, in a college. It feels like their processes are screwed up.

We had 90 minutes for developing an application, language was of our choice, college had not bothered to set up the lab, then somehow we started, and they told we'd have 90minutes and then suddenly in 60minutes they came up and said okay we are done, now time to evaluate.

They rejected me because my code didn't compile, so nobody cares about your approach, it is like being in college where your architecture is shit, approach is shit, design is shit, we'll consider only when your code runs :D

I am happy I didn't get through. Also, for a company which looses crores of Rupees per year, it is a bad sign if they start using Mac books for development! Bootstrapping!


Anecdotal evidence: within my circle of friends, Flipkart use has dropped considerably over the last couple of years. Personally, I haven't made a single purchase off Flipkart in 3+ years. Their prices are now usually higher than Amazon and they don't have the "long tail" of products I want.

Myntra, which Flipkart bought, is still my go-to source for buying clothes. It helps that Myntra has really the best user experience of all the other apps. Their delivery is incredibly fast too - I ordered a shirt last night and received it today morning!


For much of Amazon's history, it was lucky to get a 1 to 1 sales to valuation ratio. Amazon's early participation in the dotcom bubble, the money they raised then, funded its ability to survive the drought years afterward. Their stock was net flat for nearly a decade. The market weakness in 2008 for example, pushed their market value below where it was at times in 1998. Between 1998 and 2008 their sales went from $20 million to $20 billion and their valuation didn't change much.

What are Flipkart's sales today? You can expect it won't be worth dramatically more than its recent peak, years from now - and that's the good outcome. It's the routine outcome of extremely high valuations; to the extent they're too high, is the extent to which they pull future returns forward.


Flipkart's valuation increased more then 1000x, then went down 27%. There's nothing catastrophic about that.

Are journalists really this myopic or just eager for clicks?


It's about expectation and projection. You say 27% today. Tomorrow it's going to be 50%. The valuation adjustment problems in tech aren't over, they've only just begun.

When the Shanghai Composite Index started falling over after China created a market bubble there, people said: it's up 150% in under a year, and now it's only down 20%, no need to worry. Well, now it's down 50% from that high - below where it was five years ago - and those people are no longer talking about it. It was never the initial drop that mattered, it was all about what was coming next, not what happened the day before.


They might be even myopic, but you have to take into consideration the very strong narrative of perpetual explosive (unsustainable) growth thrown around by investors and company themselves. From a journalist standpoint every sensible correction to the mainstream narrative is always quite news worthy.


Well not catastrophic but I think they will be seriously constrained to raise cash at some frothy, unrealistic valuation.


I think these are extremely useful corrections. Investors are really worried about an implosion and are basically scrambling to defuse the ticking bomb. If they'll show enough maturity and they'll be willing to let greed subside for a couple of years, maybe we'll end up having a better, more realistic, high-tech scene pretty soon without any bubble having to burst.

Or it won't be enough and they're all screwed nonetheless. Who knows!


If only there were a way to automatically mark down poorly performing companies based on incoming market data on a daily, nay!, hourly basis...


I don't think it could work. Computers with specifically designed algorithms and extremely fast connection could exploit such a real time market and outperform human traders. Nobody in his right mind would let that happen!


So true.

No, it's best to just stick to what we know.


A swath of private companies are getting huge public markdowns because they took capital from investors who are subsidiaries of publicly traded company companies. This is going to make is much more difficult for this class of investor to access these markets in the future, or they're going to have to pay a premium to do so.


Most Indians don't want credit cards because they don't want to fall prey to them. Those who have them use them only when it's absolutely necessary. They buy what they need and pay by cash. Credit cards are addictive.


Credit cards are just one way to manage payments. Whether they're addictive or not depends on the person. Some people even move money out of their savings accounts into some other bank account in a deposit they cannot easily access because having "cash at hand" is a problem for them. That doesn't make bank accounts addictive or problematic overall.

More to your point, there are many in the cities who have credit cards and use them often because they're convenient. Carrying cash or using debit cards when more people are moving to credit cards is foolish and a way to subsidize the people using credit cards.

I have credit cards that I use wisely. Always pay fully on time (no interest), make the most of the credit period by timing purchases as much as possible, etc. I don't have to worry about carrying lots of cash and getting change (or worse, rounding things up while paying). Taking advantage of marketing related discount offers from credit card providers is also another positive. Overall, credit cards provide a lot of value for me, although the social benefit could be argued one way or the other.


It appears that Flipkart did all the heavy lifting of preparing the market and then Amazon showed up. This story might not have a happy ending for Flipkart.


Flipkart is copying Amazon in every single way it can, just like Samsung with Apple.




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