E-commerce is booming in the South Asian nation, with one recent study forecasting a 67% hike in average annual spending on online purchase in 2015.
Amazon, the world’s largest online retailer, is planning to invest as much as $5 billion to flip India into its most significant market outdoors the U.S., the Economic Times Newspaper reports.
Last year, the online behemoth which entered India in 2013 with a website that offers a platform for local retailers to sell their goods online, it committed to invest $2 billion in its India operations in expanding its network of warehouses and data centres and beefing up its online marketplace to compete better with the likes of Flipkart, Snapdeal and Paytm, the people aware of its plans said.
Amazon, which turned 20 last week, has completed two years in India, where its business is now worth at least $2 billion in gross merchandise value on the ecommerce side, and includes fast growing revenue from top Amazon Web Services customers in the country.
The person aware of the company’s plans said that ” Our largest financial backer Jeff Bezos (Founder of Amazon) doesn’t need a new pitch while deciding every investment- we are really long on India, investment figures are easily in multiples of billion dollars.”
Amazon plans to launch its ambitious Amazon Instant Video (AIV) service in India this year and has started conversations with music labels and producers for sourcing content. In December, it hired Nitesh Kripalani, a former Sony Entertainment executive, to lead its new initiatives.
An Amazon India spokeswoman declined to offer specific comments for this story, citing the company’s financial earning coming up nest week. For India’s three biggest ecommerce firms Flipkart, Snapdeal and Paytm, Amazon’s fresh investments and aggressive new launches will result in cutthroat rivalry and pile pressure on their valuations as they seek more funds from venture capital investors.
Already, the top three Indian ecommerce giants have raised around $5 billion among them, with Flipkart garnering nearly $3 billion in more than one dozen funding rounds. Investors are often enthused by the Indian Internet market, which according to a Morgan Stanley report in February, could rise to $137 billion by 2020.
The one of the top executives at an Indian ecommerce company said that “Unlike us, Amazon doesn’t have to get worked up on upcoming valuations, or getting a fresh investor in every round- they can keep funding themselves to ensure the others in the market bleed.” He also pointed to high cash burns for Flipkart, which is around $2 mllion per day.
Kartik Hosanagar, professor at The Wharton School, said some of Amazon’s new bets such as Amazon Prime could take longer to take off in India.
“Overall, the bet on India will pay off well for Amazon — it’s a high-volume, low-margin business in the US; Amazon India will be similar. I don’t expect high profits from India but definitely good scale. So, while we shouldn’t expect Alibaba-like financials from India, Amazon will find that India nicely complements its efforts in the US,” said Hosanagar.