Seattle based Amazon, known for investing in the future has reported a 77% plunge in the profits to $197 million from $857 million a year ago. This sharp fall in the profit has been attributed to the investments the company is making in economies like India and across the video content. It could lose up to $400 million in operating profit in the current quarter. Amazon’s market potential is huge and it views the Indian market as having a huge potential. Amazon mentions that it will continue to invest in India and has a strong valuation of $500 billion. In China, Amazon’s site has less than 1% of the market share in the $378 billion e-commerce business. India is the only big market that could match China in size and Amazon is keen to have a solid presence here. India has a potential to beat China in terms of population and government friendly policies. Also, India has no linguistic and cultural biases like China. Hence, Amazon cannot afford to lose the market in India.
E-commerce is in the developing stage in India with many parts of the country not being fully penetrated. With consolidation happening in the Indian e-commerce sector, this is the time for Amazon to invest more heavily in the country. The competition is only going to get intense now because the earlier confusion caused by having too many players has been brought down due to the consolidations. Amazon India recently invested Rs.1, 680 crores in India as a part of its commitment to invest $5 billion in order to expand its local business. It will continue to invest in expanding the infrastructure and bringing solutions in order to enhance seller and customer experience across the country. Amazon is a veteran in the e-commerce game as it had head start years ago in the US.
Amazon has an advantage over Flipkart, it has deep pockets unlike the latter which has to get investors’ approval to scale up. Analysts say that Amazon can make profit if it wants to but the business model is such that it believes in investing in the future especially in developing markets. Had it stopped doing that, it would have become profitable long ago. Investors believe in the business model and believe that it can turn around the e-commerce game in India. India will not be really easy for Amazon though; it could be leading in Cloud but faces competition from Google, IBM and Microsoft who are getting more competitive in the country. The entire model of e-commerce in India has changed with discounting being no longer the name of the game. The focus is now on margin realizations and the customers are willing to pay for services like delivery charges as they find value in it. With the dynamics of the e-commerce market changing, it could make the competition fiercer.
Amazon has the patience to wait it out in the market unless it decides to drastically alter its India plans. Who emerges as the winner in the long run depends on who has the funds to invest in the e-commerce space in India.