Flipkart's currently the leading e-commerce player in India. According to Punit Soni (Chief Product Officer at Flipkart), Flipkart currently dominates 50% of the e-commerce industry in India and e-commerce in turn represents 1% of Indian retail. So Flipkart's already owning 0.5% of India's retail market.
Flipkart has recently had a "app-only" frenzy. The company has terminated access to its website from mobile devices. Starting September this year Flipkart plans to completely stop access to its website irrespective of which device the user's using.
This has led to a huge outcry on social media platforms such as Twitter, many people are angry at Flipkart's decision to shut down its website and have decided to go to Amazon or Snapdeal.
I can understand the anger of people who regularly use desktops and even people who browse the web on their mobile before buying anything. But I feel Flipkart's decision to shut down its website is a financially sound decision.
1. The risk has already been taken -
During May last year Flipkart bought its rival Myntra for roughly $300M , during April this year Flipkart had shut access to Myntra's website in all forms. Myntra was now app only . There was an impact on traffic but not as high as originally expected. The traffic had dropped by roughly 10%. This gave Flipkart more confidence to make itself app only. As stated by Flipkart, 70-75% of its traffic comes from its app. So even if we were to take the worst case scenario, Flipkart would end up losing around 30-25% of its user base as stated in this article, assuming those who currently browse Flipkart on its app would continue to do so.
2. Locking down the customer and not competing on price -
Flipkart has always learnt a lot from Amazon, in fact Flipkart's founders have been ex-Amazon employees themselves. Just like Amazon, Flipkart has launched it own devices and just like Amazon Prime even Flipkart has Flipkart First.
Although Flipkart's been trying to mimic Amazon a lot, one thing Flipkart wants to avoid copying is Amazon's profit margins. Amazon as a company had grown its revenues significantly over the years since its website opened in 1995 but has been doing so at the expense of profits. The below chart from Jan Dawson's Beyond Devices explains this trend.
Amazon's one of the very few companies in the tech industry to have such low profits despite having such enormous revenues. Other big companies in the tech industry that I know have some amazing profits, Apple for example has the largest pile of cash on earth. Amazon is one of the very few exceptions.
The reason for this ridiculously low margins are constant price cutting between Amazon and other retailers, notably Walmart. Amazon keeps competing with others online to make sure they have lowest prices so as to either keep gaining market share or protect existing market share and this leads to a ridiculously low 1-3% operating margin. This leads to Amazon posting very small profits and in case Amazon decides to do some experimentation such as Fire Phone etc, the small profit turns into a small loss.
Despite such low margins and profit, Amazon shareholders continue to have faith in the company. Over the past few quarters a few shareholders have become skeptical but the majority of them still have faith in the company. The faith is based of Amazon's CEO Jeff Bezos' logic that they need to sacrifice short term profits in order to invest in other areas and grow bigger and ultimately obtain monopoly in certain fields. This has led to Amazon's FirePhone devices, Amazon buying up Twitch, Amazon investing in video content etc etc. Of all these initiatives some like AWS have worked out and are starting to show results. The company's AWS division in the most recent quarter had posted some really good profits despite cutting its prices continuously because of competition from Google and Microsoft.
I "assume" Flipkart's CEO can't sell its shareholders (when it goes public) the same vision as Jeff Bezos and do away with quarter after quarter of low profits or losses since Amazon's logic of operating at razor thin margins and investing the small profits they get elsewhere hasn't really worked out except for AWS, similarly Flipkart doesn't have any AWS or any other division apart from its core e-commerce group. Flipkart has to go public sometime down the road and has to show real, proper profits in order to win the confidence of its shareholders.
The only way Flipkart can be hugely profitable is if it stops competing on price as Amazon does in the US.
As long as people search for products via Search Engines such as Google price comparisons will be inevitable. As long as price comparisons exist undercutting each other will continue to take place unless and until the competitors go out of business. Also as long as undercutting takes place turning out a decent profit will still be a distant dream.
In the above paragraph the source of low profits end up pointing to people searching for products from Search Engine. That's the core reason in my opinion as to why retailers keep undercutting each other. The only way Flipkart can avoid price comparisons is if it can distant itself from these Search Engines/Price comparisons. This is why Flipkart is so aggressively trying to push its own app so that users while searching for a product open Flipkart's app directly rather than searching the web and indulging in price comparisons.
3. So what is Flipkart doing to promote its app -
Well as mentioned at the beginning of the article Flipkart's completely terminating access to its website irrespective of the kind of device used.
Flipkart's providing special app-only offers on certain days to promote their app
They have been spending on unique forms of marketing to drive app downloads. See this article in Tech in Asia.
Flipkart's taking consumer feedback very seriously for its app A look at Flipkart on Play Store would show how promptly the company's been replying to comments/feedback made on its app by various users.
Just like Amazon, Flipkart's also launched Flipkart First where by giving a fixed fee every year consumers get benefits such as free shipping, one day delivery, Exclusive offers etc etc
Flipkart's also making deals with manufacturers to have exclusive smartphones on its e-commerce platform. Most of these smartphones come with Flipkart's app pre-loaded on them. Going by that logic, Flipkart's app is now pre-loaded on 10-13% of smartphones sold in India given its partnership with Motorola, Xiaomi etc all..
4. Is it too early to go app only ? -
I don't feel its too early for Flipkart to go app only. I agree that e-commerce is in a very nascent stage in India and has a lot of future growth potential. But the smartphone market in India is at a point where any middle class family can afford it.
Smartphones are already being owned in India by people who fall in the lower upper class and above category. These users will end up being the most profitable for e-commerce companies. The next growth/adoption of smartphones would come from the very bottom of the pyramid and targeting these people isn't attractive for e-commerce companies given their spending capacity is a lot lesser. If Flipkart's able to convert even 20-30% of the current smartphone users to open the Flipkart app alone to buy products, it would be of great help in terms of profitability in the long run assuming they stop competing on prices
Apart from helping with improving margins, going app only will also help Flipkart cut off the cost required for maintaining and hosting a website but that's a minor expense at best, the biggest benefit would be to prevent consumers from doing price comparisons.
5. Ensure best in class quality -
For Flipkart to ensure that people buy products from its app directly, it needs to ensure best in class service and quality. If users are dissatisfied with the service of Flipkart or the quality of products it sells, Flipkart's plan of locking them up in its app wouldn't really work out as dissatisfied customers will look out for alternatives. Ensuring product quality would require Flipkart to keep a check on its sellers and remove sellers that have ratings below a specific threshold.
Apart from ensuring good quality products, easy exchanges/refunds and timely deliveries, Flipkart would also need to ensure a wide product catalog where everything from socks to shoes is available
6. Will this surely work out ?
There is no guarantee that this app-only plan would work out. Even though there isn't something like Google Search for apps like how its for the web, there are standalone apps that do the job of comparing prices for the end users. Some of the most popular apps are My Smart Price.
Apart from this Indian consumers are some of the most witty and shrewd consumers. Comparing prices before buying is something natural for us. Before the advent of online shopping, many Indians would visit at least 4-5 physical stores. They would ask the price of the product to be bought in all the stores they visit and then buy the product from the store which gives it at the cheapest price. Remember that this was being done at a time when people had to physically travel to each and every store. When Indians would take so much effort in visiting every store to buy a product, the effort to compare the price of a product on a app is relatively effortless.
Flipkart has recently had a "app-only" frenzy. The company has terminated access to its website from mobile devices. Starting September this year Flipkart plans to completely stop access to its website irrespective of which device the user's using.
This has led to a huge outcry on social media platforms such as Twitter, many people are angry at Flipkart's decision to shut down its website and have decided to go to Amazon or Snapdeal.
I can understand the anger of people who regularly use desktops and even people who browse the web on their mobile before buying anything. But I feel Flipkart's decision to shut down its website is a financially sound decision.
1. The risk has already been taken -
During May last year Flipkart bought its rival Myntra for roughly $300M , during April this year Flipkart had shut access to Myntra's website in all forms. Myntra was now app only . There was an impact on traffic but not as high as originally expected. The traffic had dropped by roughly 10%. This gave Flipkart more confidence to make itself app only. As stated by Flipkart, 70-75% of its traffic comes from its app. So even if we were to take the worst case scenario, Flipkart would end up losing around 30-25% of its user base as stated in this article, assuming those who currently browse Flipkart on its app would continue to do so.
2. Locking down the customer and not competing on price -
Flipkart has always learnt a lot from Amazon, in fact Flipkart's founders have been ex-Amazon employees themselves. Just like Amazon, Flipkart has launched it own devices and just like Amazon Prime even Flipkart has Flipkart First.
Although Flipkart's been trying to mimic Amazon a lot, one thing Flipkart wants to avoid copying is Amazon's profit margins. Amazon as a company had grown its revenues significantly over the years since its website opened in 1995 but has been doing so at the expense of profits. The below chart from Jan Dawson's Beyond Devices explains this trend.
Amazon's one of the very few companies in the tech industry to have such low profits despite having such enormous revenues. Other big companies in the tech industry that I know have some amazing profits, Apple for example has the largest pile of cash on earth. Amazon is one of the very few exceptions.
The reason for this ridiculously low margins are constant price cutting between Amazon and other retailers, notably Walmart. Amazon keeps competing with others online to make sure they have lowest prices so as to either keep gaining market share or protect existing market share and this leads to a ridiculously low 1-3% operating margin. This leads to Amazon posting very small profits and in case Amazon decides to do some experimentation such as Fire Phone etc, the small profit turns into a small loss.
Despite such low margins and profit, Amazon shareholders continue to have faith in the company. Over the past few quarters a few shareholders have become skeptical but the majority of them still have faith in the company. The faith is based of Amazon's CEO Jeff Bezos' logic that they need to sacrifice short term profits in order to invest in other areas and grow bigger and ultimately obtain monopoly in certain fields. This has led to Amazon's FirePhone devices, Amazon buying up Twitch, Amazon investing in video content etc etc. Of all these initiatives some like AWS have worked out and are starting to show results. The company's AWS division in the most recent quarter had posted some really good profits despite cutting its prices continuously because of competition from Google and Microsoft.
I "assume" Flipkart's CEO can't sell its shareholders (when it goes public) the same vision as Jeff Bezos and do away with quarter after quarter of low profits or losses since Amazon's logic of operating at razor thin margins and investing the small profits they get elsewhere hasn't really worked out except for AWS, similarly Flipkart doesn't have any AWS or any other division apart from its core e-commerce group. Flipkart has to go public sometime down the road and has to show real, proper profits in order to win the confidence of its shareholders.
The only way Flipkart can be hugely profitable is if it stops competing on price as Amazon does in the US.
As long as people search for products via Search Engines such as Google price comparisons will be inevitable. As long as price comparisons exist undercutting each other will continue to take place unless and until the competitors go out of business. Also as long as undercutting takes place turning out a decent profit will still be a distant dream.
In the above paragraph the source of low profits end up pointing to people searching for products from Search Engine. That's the core reason in my opinion as to why retailers keep undercutting each other. The only way Flipkart can avoid price comparisons is if it can distant itself from these Search Engines/Price comparisons. This is why Flipkart is so aggressively trying to push its own app so that users while searching for a product open Flipkart's app directly rather than searching the web and indulging in price comparisons.
3. So what is Flipkart doing to promote its app -
Well as mentioned at the beginning of the article Flipkart's completely terminating access to its website irrespective of the kind of device used.
Flipkart's providing special app-only offers on certain days to promote their app
They have been spending on unique forms of marketing to drive app downloads. See this article in Tech in Asia.
Flipkart's taking consumer feedback very seriously for its app A look at Flipkart on Play Store would show how promptly the company's been replying to comments/feedback made on its app by various users.
Just like Amazon, Flipkart's also launched Flipkart First where by giving a fixed fee every year consumers get benefits such as free shipping, one day delivery, Exclusive offers etc etc
Flipkart's also making deals with manufacturers to have exclusive smartphones on its e-commerce platform. Most of these smartphones come with Flipkart's app pre-loaded on them. Going by that logic, Flipkart's app is now pre-loaded on 10-13% of smartphones sold in India given its partnership with Motorola, Xiaomi etc all..
4. Is it too early to go app only ? -
I don't feel its too early for Flipkart to go app only. I agree that e-commerce is in a very nascent stage in India and has a lot of future growth potential. But the smartphone market in India is at a point where any middle class family can afford it.
Smartphones are already being owned in India by people who fall in the lower upper class and above category. These users will end up being the most profitable for e-commerce companies. The next growth/adoption of smartphones would come from the very bottom of the pyramid and targeting these people isn't attractive for e-commerce companies given their spending capacity is a lot lesser. If Flipkart's able to convert even 20-30% of the current smartphone users to open the Flipkart app alone to buy products, it would be of great help in terms of profitability in the long run assuming they stop competing on prices
Apart from helping with improving margins, going app only will also help Flipkart cut off the cost required for maintaining and hosting a website but that's a minor expense at best, the biggest benefit would be to prevent consumers from doing price comparisons.
5. Ensure best in class quality -
For Flipkart to ensure that people buy products from its app directly, it needs to ensure best in class service and quality. If users are dissatisfied with the service of Flipkart or the quality of products it sells, Flipkart's plan of locking them up in its app wouldn't really work out as dissatisfied customers will look out for alternatives. Ensuring product quality would require Flipkart to keep a check on its sellers and remove sellers that have ratings below a specific threshold.
Apart from ensuring good quality products, easy exchanges/refunds and timely deliveries, Flipkart would also need to ensure a wide product catalog where everything from socks to shoes is available
6. Will this surely work out ?
There is no guarantee that this app-only plan would work out. Even though there isn't something like Google Search for apps like how its for the web, there are standalone apps that do the job of comparing prices for the end users. Some of the most popular apps are My Smart Price.
Apart from this Indian consumers are some of the most witty and shrewd consumers. Comparing prices before buying is something natural for us. Before the advent of online shopping, many Indians would visit at least 4-5 physical stores. They would ask the price of the product to be bought in all the stores they visit and then buy the product from the store which gives it at the cheapest price. Remember that this was being done at a time when people had to physically travel to each and every store. When Indians would take so much effort in visiting every store to buy a product, the effort to compare the price of a product on a app is relatively effortless.
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