Flipkart is an Indian Co with same platform like Amazon and one needs to keep a watch on it when the IPO will come.....
By Arjun Kashyap
BANGALORE (Reuters) - On some days when they were starting out, the Bansals would get on a motorbike to make the rounds of book warehouses around Bangalore, ride back to their two-bedroom apartment and package up orders for online customers.
It was a humble beginning for Sachin Bansal and Binny Bansal, two ex-Amazon.com software developers who set out in 2007 to beat their old employer at its own game long before the world's top online retailer had even drawn up plans to enter the Indian market.
"We were doing everything ourselves for the first four to five months - from packing to shipping. Because our volumes were very low, our courier partners would sometimes refuse to pick up items from our apartment," Sachin Bansal recalls of the six months before they moved into their first office.
"So we used to get on a motorbike, hold the shipment in our hands and personally deliver them to our Bangalore clients."
In those rocky first days, Sachin told Reuters, the Bansals' suppliers -- seeing two youngsters who had quit stable employment with a reputable firm to go it alone -- would sit them down and counsel them to get a proper job.
The young Bansals have since been feted at home as poster boys for entrepreneurial India, establishing their company, Flipkart, as a leader in the fledgling Indian e-commerce market.
Flipkart is now India's biggest online bookseller, with over 10 million titles distributed from warehouses in five cities. It has branched from books into mobile phones, appliances, gaming consoles, music and movies, and now sells 10 products a minute.
It generated $11 million in sales last financial year, expects revenues to cross $100 million this year and is aiming at $1 billion by 2015.
That sharp growth trajectory has attracted $31 million in funding from U.S. venture capital firms Tiger Global Management as well as Accel Partners, which has a stake in Facebook .
Sachin Bansal declined to comment on a media report this week that Flipkart is lining up a $150 million fourth round of funding, but said earlier there are no current plans for an initial public offering.
Flipkart's business model and even its website resemble those of Amazon. But as a company it is dwarfed by the U.S.-based giant, whose revenues stood at $34.2 billion last year.
It is possible to order Amazon products from India, but the cost of postage is high and delivery is slow. Amazon still has no formal presence in India yet, though a source familiar with the matter said it is mulling plans to set up in the country next year.
"Amazon's idea is not new ... It's all about the execution," said Sachin Bansal, 30, now chief executive officer of the company he co-founded.
Sachin Bansal and Binny Bansal, Flipkart's 28-year-old chief operating officer, are not related. But they both grew up in Chandigarh, they are both alumni of the prestigious Indian Institute of Technology (IIT) in New Delhi and they briefly worked together for Amazon in Bangalore, the southern IT hub where numerous global companies have back-office operations.
There is little doubt that e-commerce will one day be big business in India, a country of 1.2 billion people whose rapid economic growth is adding millions to the middle class every year. But for now it is a difficult and diminutive market.
Despite its vast population, India has only 52 million active Internet users and only 40 percent of them have shopped online. What's more, fewer than 18 million people use credit cards, and most of them shop offline.
"The sophistication of the Internet user is the largest challenge. Now, there are between 15 to 20 million sophisticated users in India," said Subrata Mitra, a partner at Accel.
To get around their clients' credit card-aversion, the Bansals offer cash-on-delivery for their products, much as a pizza company does for dinner at your door, and this accounts for 50 percent of Flipkart's sales.
But the market outlook is bright.
For one thing, while printed book sales are slipping in most western countries, India's $2 billion book market is growing at around 15 percent a year thanks to rising literacy rates, the swelling ranks of middle class readers, and a thriving domestic literary scene.
"I don't see offline bookstores closing down anytime soon like they are in the U.S., where the physical book market is shrinking," Sachin Bansal told Reuters, but he said the strong demand for books would help online sellers as well as traditional high street stores.
Then there is the Indian e-commerce market, which is expected to grow by 47 percent to more than 460 billion rupees ($10 billion) this year, according to the Internet and Mobile Association of India.
Online travel is for now the dominant sector. Just last year, Indian online travel firm MakeMyTrip Ltd raised $70 million in a Nasdaq initial public offering.
"By 2015, we're expecting India to be one of the largest Internet-based economies. All these companies are at a stage where they can explode, depending on broadband connectivity," said Mritunjay Kapur, India head at Protiviti Consulting.
Rivals in the Indian e-commerce market include Letsbuy.com, which sells electronics, and InfiBeam.com, which sells electronics and books.
Anand Dikshit, executive director at PricewaterhouseCoopers in India, is more cautious about an industry now in a "trial-and-error" phase.
"I am not gung-ho on this in India right now. Let's see where these companies are after a couple of years because the sustainability is more important. There are no sustainable models as of now," Dikshit said.
The Bansals, however, are optimistic. They expect higher margins from non-book products, which now account for 60 percent of revenue, and are even looking forward to the competition from Amazon.
"Amazon entering the country will be a good thing for e-commerce, which is very small in India in relation to its potential," said Sachin. "The largest challenge we face now is to make e-commerce more viable for people to come online and shop."
Setting up flipkart.com
PrefaceBrowse, click and wait. Online book-shopping should really be a breeze. But all too often, in India, the wait turns endless, and frustration mounts. There could be disappointment in store at various levels. Either the book is out of stock, or the book arrives late, or sometimes never arrives. It is the freedom from this frustration, and the unfailing efficiency of its service that has contributed to making Flipkart.com the most popular Web site to buy books in India. At a recent e-commerce event organised by VC Cirlce in Bangalore, not a session went by without a reference to Flipkart. One panelist remarked that if Flipkart had not launched in 2007 and if makemytrip had not gone for an IPO, we would not even be talking about e-commerce in India today.
Sachin and Binny Bansal (not related to each other, but friends since their school days), engineers, book lovers, travel buffs and founders of Flipkart.com
– The Beginning –
Sometime in 2006, Sachin and Binny Bansal found themselves at the Bangalore centre of Amazon.com. The two young engineers were drawn into the entrepreneurial, technology-obsessed and metric-driven culture of the firm that swore to be the earth’s most customer centric company. There were stories of how Jeff Bezos, Amazon’s founder, would visit the warehouses and get his hands dirty, never failing to get a valuable insight or two in the process.
And of course, there was the engineer’s focus on efficiency — the urge to automate and measure in order to make better decisions. Sachin and Binny Bansal could get a definite sense of what it takes to succeed in e-commerce: A relentless focus on the back-end. This insight eventually helped them when they set upon their entrepreneurial journey.
The young engineers were getting restless at Amazon and wanted to do something on their own. It did not take long for them to decide on e-commerce; and selling books online was the obvious choice.
In many ways, it was too obvious a choice. Even at the start of the dotcom boom in the Nineties it was fairly obvious that the books business will do well on the Net. The business model can’t get simpler than it does in books: Tie up with book distributors,
India had its own set of
– The Firm –
The idea of selling books online wasn’t new. Amazon has been doing it since 1995. Nor was Flipkart the first to try it in India. Yet, Sachin and Binny Bansal saw that they could still make an impact. When they came in there were two relatively big players in the market — Indiamart and Rediff Books. “We knew there was nothing fundamentally different that we can do. We have to figure out ways to do things better than others,” says Sachin Bansal. “We started by saying, if we have to satisfy our customers much better than others, what should we do?”
One aspect was offering customers something that others were not. At that point of time, free shipping was not the norm. Pre-order of books was limited, cash on delivery was not an option for consumers. Flipkart offered these, fully aware that others would follow. The key was its ability to launch such offers over a period of time, and to do that it had to get its back-end right. It broke the different elements of the books business and tried to do better than the competition in each one of those. That clicked for it.
These days, Flipkart sells two books a minute. Two venture funds — Accel Partner and Tiger Global — have placed their bets on the firm. Industry players say about Rs. 100 crore worth of books are sold online (that’s about a percent of all the books sold in India), and Flipkart does a quarter of that.
– The Plot Thickens –
Sudhir Sethi, founder chairman, IDG Ventures India, which has invested in e-commerce companies, says that in one way, entry barriers are low for online retailers, but in another way, they are not. “Getting the logistics right is more difficult than one would imagine,” he says.
That, the two Bansals found out soon enough. In the US if you want to cover about 80 percent of all the books that are published, you just have to tie up with three or four distributors. But in India you have to tie up with hundreds. A typical customer in a bookshop knows that shelf space is limited and the books she will see are the ones in demand. An online customer sees no need for such restraint. “Many books that we sold, we sold just one copy. We might never sell that book again, but the customer who bought that book will come back for more,” says Sachin Bansal.
But they found the
“But, what’s really important is predictability,” says Subrata Mitra, Partner, Accel Partners, which has invested in Flipkart. Mitra, who sits on the board of Flipkart, feels you need a system to track where books are available and predict how soon and reliably they can be delivered.
– The Good, the Bad and the Ugly –
For the fledgling success, it’s a tough balancing act. To increase predictability, it should ideally hold a large inventory; but doing that with no clarity on when it will be used, will make costs shoot up. The system the team developed — it’s still evolving, says Sachin Bansal — helps optimise the use of warehouses. Flipkart has four warehouses; all are being expanded. “The one thing they got right is the focus. Unlike other online retailers who are into a lot of products, the two Bansals decided to focus on books, get that right and then move on,” says Chawla of UBS. Flipkart is now moving on. It has started selling movies and music online, and more recently,
Getting into other segments is a must for Flipkart because books alone cannot give scale. “We want to eventually sell everything that can be sold online. That’s the reason why we chose a neutral name like Flipkart. Still, we believe books will be the staple for some years to come, given the growth potential. We have an advantage in this space,” says Sachin Bansal.
Sceptics argue that India is still a brick and mortar market, and people prefer to buy books from physical stores. Flipkart’s argument is that bookstore chains are an urban phenomenon and there is a huge demand in the smaller towns and cities. Online retailers could also score in the area of regional language books. Accel’s Mitra says Flipkart found customers from unexpected segments. “We noticed that there are a lot of bulk orders, for 30, 40, 50 books, and we realised they were reselling it somewhere and that we were bringing a new set of customers to the Net.”
Physical stores selling books online will pose a bigger threat. Landmark has had an online store for a long time. Recently, Odyssey launched Odyssey360 and Crossword is set to launch its own Web stores shortly. They have the advantage of a bigger brand. But, pure-play Web companies tend to offer bigger discounts, and Sachin Bansal believes they also tend to be more focussed.
An even bigger threat is likely to come in the form of e-books. Recently, Amazon announced that e-book sales has equalled the sale of hardcover books. The two Bansals are aware of the potential of e-books. But they see no reason to rush into it. They believe that executing what they presently do — selling books, adding more products to their catalogues, reducing the time between order and delivery — is important. They see the segment growing to cover 10 percent of all books sold in India from about 1 percent now. Sethi is optimistic about online retailing for two reasons. “First, I believe they will rapidly transit from physical books to digital books. Bookselling companies worldwide will have to take a leap of faith very fast. Secondly, I am not commenting on Flipkart, but any company in the e-commerce space in India will have to be global to achieve scale.”
‘Paying customer’ is a recurring phrase in their conversations — perhaps to stop themselves from getting distracted by other metrics such as ‘eyeballs’ that pushed dotcoms into investing on things that never resulted in revenues. That also explains why the two Bansals haven’t done much about the way the Web site looks (ugly). Customers don’t pay for looks. Flipkart’s success depends on how well the two Bansals balance their attention between what customers pay for today, and what they will pay for tomorrow.
Recently, Sachin and Binny Bansal hired a set of designers to make the Web site look good in the next two to three months. “In the last two-and-a-half years, 90 percent of our work went in getting the back-end right — the supplier relationships, IT infrastructure, logistics and so on. Now, we think we have a pretty good handle on that. We will be launching more products shortly. It’s time to get a little more aggressive on marketing. It’s not enough to be efficient, we also need to look good,” says Sachin Bansal.
More from Forbes India.
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But that’s not the reason why Flipkart is being talked about here. Last week, the
Flipkart has introduced new categories like movies, music, games, cameras and computers. Now, if only Flipkart got into e-readers and e-books as well!
These type of visitor friendly things which comes up on site which we also like to have and we feel that well, it is good that it shows which page we visited last time and hence if we have to buy that thing which we decided not to buy when we first visted the site , becomes easy and saves lots of time and perticularly in a country like India where the Internet is not that speedy.These are small things which a layman do not understand but somethings is working on that......and that we call Cloud Computing.
Well, it is a very lenghty subject but as I use to write here find out what is Cloud Computing, what is E Commerce, what is Payment Gateway.....
I know many must have read flipkart somewhere but lacks the visibility and hence I have posted those text and also discussed it here.........hope readers will now follow it....it is all about reading the finer prints...able to makeout things comimg up from what you read.....