This essay, previously unpublished, was originally written in September 2023.
It was a quarter past seven in the morning. By no means early, especially on a midsummer morning in Mahuli village, about 78 kilometers away from Prayagraj. Amit was woken up by the notification tone on his smartphone. He glanced at his phone, he had been waiting for this message for the last four days.
Amit rushed out of his home and there, next to the tubewell was a brown paper packet addressed to him. It was a delivery from Amazon – a book of the latest set of sample questions and their solutions that would help Amit crack NEET the next year.
The youngest of five children of a small landholding farmer, Amit had always been the studious type. He is the only one in the family to complete school, and now has his eyes set on becoming a doctor.
For millions like Amit across India, Amazon and Flipkart deliver dreams, aspiration and joy, neatly packaged everyday. The confluence of two things has made this wondrous possibility a common reality – the smartphone boom and the e-commerce revolution. The two, in a remarkable synergy, also feed into each other- e-commerce drives mobile phone sales with
online sales accounting for more than offline sales.
The e-commerce story in India is often thought to have started with the Bansals – Sachin and Binny who are not related, but who met while studying at IIT and later went on to work at Amazon. However, the first mover on the e-commerce landscape in India was K. Vaitheeswaran, the founder of Fabmart in 1999, when Sachin and Binny were school students aspiring to go into an IIT. Arguably, rediff.com and SifyMall came before him, but those were not
pure-play e-commerce platforms.
In 2007, Sachin and Binny Bansal left their jobs at Amazon and founded Flipkart from a two bedroom apartment in Koramangala, Bangalore. Like Amazon before them, they too started by selling books. Further, books were a sensible choice because they were a standardised product that could be delivered easily and because customers did not really need to get a feel of it
before buying, books were thought to be an ideal product to build trust.
In October 2007, the Flipkart website was launched. While the website didn’t pose much of a technical challenge to the two pedigree engineers, they took great care to make sure the user experience was excellent, and much better than the cluttered websites of the time such as Indiaplaza which was what Fabmall.com had changed into.
The first few orders that Filpkart received were from the friends and families of the founders. Towards the end of October 2007, they noticed an order from one VVK Chandra who had ordered the book- Leaving Microsoft to Change the World, by John Wood.
At that time their business operations consisted of sourcing the ordered book from a local bookshop and shipping it. Chandra’s order was, however, nowhere to be found. Binny e-mailed Chandra to inform him about the delay. The book was eventually found, but the copy was old.
Chandra was given the choice to either accept the old copy or wait for a new one. He chose to take the old copy, this bringing his search for the book to an end. He had looked for the book all over Hyderabad, but with no luck. And here was an unknown e-commerce website that had to manage to procure the book for him. Neither the Bansals, nor the Chandra himself know that
this would be the thread that would go on to be a major driver of e-commerce uptake in India.
Meanwhile, there were two other things that made India the chosen one, a country that lay on the cusp of explosive growth of e-commerce, hiccups and doubts notwithstanding. First, the relatively young population meant that a large part of it was working age. India entered the demographic dividend phase in 2010 with the share of the working age population being around
51% of the total population. Second, the remarkable growth of the middle class in India since the liberalisation of the 1990s.
In 2007, when the Bansals were planning Flipkart, McKinsey in a report stated that 291 million former poor people were forecast to move into a class called “aspirers” over the next two decades. The report also mentioned that the Indian middle class that numbered around 50 million at the time, was expected to jump to 583 million by 2025.
Though incomes grew, and with that grew aspirations, in many ways, India remained a tough market for online retailers to crack due to certain characteristics. The primary impediment in the early days was around online payments. When Flipkart took wings, credit card penetration was
at an abysmal 0.5%. With such numbers, e-commerce could never be expected to boom even in the cities, let alone in the hinterland.
The solution to this was cracked by Flipkart in 2010 – Cash on Delivery. Once again, Flipkart was not the first to do it, Indiaplaza briefly offered it almost decade before them (and so did Sify Mall and rediff.com), but Flipkart made it a standard payment method for online retail in India. Cash has always been the king in this country and Cash on Delivery, or COD, quickly grew to be the most popular payment option.
With the success enjoyed by the home-grown online retailers, the market was keenly watched by giants such as Amazon who were attracted by the sheer opportunity that this vast market offered. However, due to various regulatory hurdles, they preferred to wait and prepare.
Finally, in 2013, Amazon made its much-awaited entry with a tweaked business model to suit the regulatory environment. To get past the restrictions on Foreign Direct Investment (FDI) norms in the multi-brand business-to-consumer (B2C) segment, Amazon chose to start with a marketplace model instead of the traditional inventory-led model that the other players had. With
this model, Amazon was merely a platform or a market that brought together different sellers who displayed and sold their wares directly to the end consumers. This model also meant that Amazon’s focus shifted from inventory to logistics. By setting up a specialised logistics arm, Amazon could offer shipping speeds such as same day and next day delivery.
The entry of Amazon shook Flipkart, and Sachin Bansal earnestly began to prepare to take the Seattle-based giant head-on. In October 2014, a few weeks before Diwali that year, Flipkart had its biggest ever one-day sale – the Big Billion Day sale. Sachin himself coined the name – the man has always had a fascination for the word billion – whether in Flipkart’s valuation, it’s private
label, or in the name of its blockbuster sale. The target was Rs 600 crores in sales on one day. Interestingly, the date chosen for the Big Billion Day sale – 6-10-2014 – was and as a nostalgic homage to Flipkart’s roots – the company was founded out of apartment 610 at National Games Village in Koramangala, Bangalore.
The morning of the Big Billion Day sale saw newspapers with front page ads – Flipkart advertising their BBD Sale, and Snapdeal cheekily claiming “For us, today is no different.” The sale opened at 8am and in 10 minutes, the Flipkart website and app crashed. Though they had rigorously tested and ramped up the capacity of the servers, the traffic that actually hit was unprecedented, and the servers simply buckled under load. Overall, only about 10% of Flipkart’s
visitors that day were able to make a successful purchase with multiple systems crashing – first the website, followed their payment infrastructure, and the warehouse software. However, despite these embarrassments, by 6pm that evening, the target of Rs 600 crores had been achieved.
While Amazon had it’s own Diwali sale that year, they were yet to launch their own blockbuster act to rival the Big Billion Day sale. That came the next year, in the form of the Great India Sale.
The very first Great India Sale event in 2015 was over four times bigger than the Diwali sale the previous year. The five-day sale also marked the start of multi-day sale events – an online shopping festival.
Elsewhere, in the telecom sector, the next few years saw tremendous competition, and with that, the rates of mobile data access plummeted to become the lowest in the world. This led to a dramatic rise in the number of digital-first shoppers.
The digital payments space received an unexpected boose with the sudden withdrawal of high value currency notes in November, 2016. Soon e-commerce players began to see a shift towards digital payment options. Though in the immediate aftermath of the demonetisation exercise, online order volumes fell and the growth forecasts of e-commerce players were cut, the move to digital payments was bound to augur well for the industry in the long run.
In 2018, the Flipkart story reached its pinnacle of the entrepreneurial dream when the American retail behemoth – Walmart – plonked down $16 billion to buy a 77% stake in the company During early 2020, the COVID-19 pandemic forced the nation to be locked-in at home. As physical shopping channels were closed, or simply less preferable from a safety and hygiene perspective, scores of first time on;line shoppers flocked to e-commerce sites. Existing online shoppers too increased their purchase volumes and ventured to newer product categories purchased online. While electronics, books, and fashion were the predominant online shopping categories earlier, during the pandemic newer categories were added such as groceries including fast-moving consumer goods (FMCG), beauty and personal care, and health and
hygiene products.
Overall, according to estimates by the Boston Consulting Group (BCG), the pandemic advanced the growth of e-commerce in India by about 3-4 years, with the pre-COVID projection of total spending in 2030 being advanced to 2027 in the post-COVID projections. As e-commerce continues to grow in India, the new drivers of growth are the Next-Billion and the Over-45 segments. Like Amit from Mahuli village, there are many Next-Billion users in rural India who are going to drive e-commerce sales till 2030 and beyond.
The market potential attracted many other players over the years – Infibeam, Snapdeal, Jabong, Letsbuy, Shopclues, and many others who either withered away or were snapped up buy others, leaving an Amazon-Flipkart duopoly in the country. However, that duopoly is now being challenged by new players such as Meesho. During the first two weeks of the festive sales in September 2022, Meesho was ahead of Amazon in terms of total number of orders. This is not surprising when we see where Meesho’s strength lies – it has a strong focus on tier 2 and 3 towns and beyond.
On the other end of the spectrum, competition has also been heating up from established, deep-pocketed players such as Reliance and Tata that are looking to make a splash in the e-commerce space. Armed with extraordinary amounts of cash, they have been able to make significant inroads in relatively quick time. While Reliance JioMart started as a grocery-led platform that later branched into other categories, Tata group started with luxury retail through
Tata Cliq and then expanded to other categories such as groceries via acquisitions. The Tata group juggernaut is now powering through the online retail landscape with their Tata Neu “superapp” that offers all Tata brands including Croma (electronics and home appliances), 1mg (healthcare), Air Asia and Vistara (airlines), etc. in one single app.
Despite a market that seems to have consolidated and coalesced into a few large players fighting on with no profits in sight, newbies continue to find the lure of e-commerce irresistible.
The government of India’s push towards Open Network for Digital Commerce (ONDC) brought a fresh wave of interest in online retail. A leading mobile payments platform, PhonePe (owned by Flipkart’s parent Walmart) jumped on the ONDC bandwagon with a separate app called Pincode for hyperlocal retail. The territory is dangerous, PhonePe’s rival in the payments space – PayTM had already tried and failed at e-commerce before. Despite that, PhonePe’s venture just goes to show just how attractive, though undoubtedly risky, the opportunity appears.
As the e-commerce engine rolled on, the government has had to step in on multiple occasions to ensure the foreign players did not hurt the massive local retail industry. In 2019, the government announced new measures to curb some practices that effectively circumvented FDI restrictions. Amazon indirectly owned equity through complex ownership structures in two
sellers that accounted for over a third of Amazon India’s sales revenues.
It was revealed that about 33 sellers out of over 400,000 sellers listed on Amazon India cornered another third of the total sales. Further, with the FDI regulations disallowing direct sales by the foreign retailers, on paper, they
were to not have any control over the final prices, including sale discounts. However, in practice, the retailers had significant say over discounts, and in many cases even financed the discounts by reimbursing the sellers through complex mechanisms.
In 2020, the Competition Commision of India launched a probe into the allegedly anticompetitive practices indulged in by Amazon and Flipkart, on the basis of a complaint by Delhi Vyapar Mahasangh, a traders’ body based in New Delhi. Days after the announcement of the probe, the Amazon boss, Jeff Bezos arrived on a visit to India.
While his visit sought to send all the right signals – including a kurta-pyjama clad Bezos paying homage to Mahatma Gandhi, and announcing another $1 billion of investment in India, the response from the government was decidedly cold. Bezos was denied a meeting with the Prime MInster, Shri Narendra Modi, and the Hindi magazine Panchajanya, published by the RSS, featured Bezos on the cover with the words “East India Company 2.0” emblazoned on the cover.
The government’s balancing role is a tough one. On one hand, the small traders are a large votebank that no government wants to alienate, and on the other hand, e-commerce is also a major driver of employment. India currently sees about 4.5 millions youths entering the workforce every year, and providing them gainful employment is a massive challenge that the government faces. E-commerce has created over 1.5 million jobs directly, and many more indirectly. Further, the vast majority of these jobs are in the last-mile logistics and require little to no formal qualifications. In a country like ours, this is a win-win situation.
In terms of indirect jobs, e-commerce has tremendously helped social development by empowering small sellers including women to take their products to a vast audience. As many as 70% of the online sellers today come from small towns, and many of them are young entrepreneurs.
The dust on the e-commerce battlefield is far from settling. Despite the hurdles, what the sector has managed to achieve in this country is nothing short of wondrous. The e-commerce story in India has been one of persistence, experimentation, adaptation, and the aspirations of a billion
people who cannot wait to dream bigger and achieve them.