Just before Christmas last year, in Seattle in the US, Jeff Bezos sat with Diego Piacentini to discuss India, where Amazon was nearly seven months young. It was a quarterly review for Bezos, Amazon's CEO, who keeps a close vigil on his fledgling business in India. The message to Piacentini, who runs Amazon's international business, was succinct and direct: continue to invest big and build the most customer-centric company in India.



In Bangalore, meanwhile, a customer's experience on Amazon.in , the India unit of the world's largest online retailer, was something that would have sent Bezos into a furious tizzy. A young father in India's tech capital had ordered a toy for his son for Christmas but the present did not ship on time. Missing a delivery promise is near-criminal at Amazon, given Bezos's obsession with customer satisfaction. The miffed customer, in this instance, escalated his complaint to Amit Agarwal, who heads Amazon's India business and reports to Piacentini. It didn't take a detailed audit for Agarwal to find out what went wrong: the toy was an imported one, the seller on Amazon.in did not have it in its inventory, and it took time to procure it, resulting in the late shipment.





Jeff Bezos has a simple mandate for his India team: invest big

Amazon, like Flipkart, wants to scale up business in India. Period.

Amazon's goal in India is to constantly expand its catalogue

Over 19 years, Bezos has built a USD 180-bn company

Agarwal, a "shadow" or technical adviser to Bezos between 2007 and 2009, had to fix it, once and forever. He put in a new service-level agreement with sellers on procurement time, worked backward so that sellers could accurately predict the time it took for procurement and shipping, and promise customers deadlines that could be met. Sounds simple, but when you deal with hundreds of retailers and thousands of customers, it can get complex. The process has been standardised since then, says Agarwal. "When you get to the root cause, you fix it, and then that defect doesn't happen again."In 19 years, Bezos built Amazon from an online book seller to the world's largest online store, valued at over $180 billion today - as much as Ireland's gross national income. It sells everything, from diapers to sex toys and from electronics to grocery. The growth was driven by three fundamentals of the business: choice, price and delivery. A vast stock selection, low prices, and fast and reliable delivery rolled together into value and convenience for customers - over 215 million at last count.In the US, Amazon is a retailer who sells directly to customers, and also a marketplace where other retailers can list and sell their products. In India, where laws don't allow international online retailers to sell multiple brands, Amazon only has a marketplace - its tenth such venture.Even at half strength (marketplace accounts for 40 per cent of Amazon's global sales), India is Bezos's biggest new bet for simple and obvious reasons - it has the world's third largest Internet user base, and online retail promises immense scale.In a retail business of about half a trillion dollars, online retail (not including ticketing) is close to a billion dollars. Retail consultancy Technopak expects it to grow 61 times in the next 10 years. That is almost deja vu for Bezos and Amazon. When the Internet was coming into the mainstream in the early 1990s, Bezos, then a Wall Street banker, read a report which said that e-commerce would grow 2,300 per cent in a few years. "I want a part of it," he told himself. He quit his job, drove from New York to Seattle and started Amazon in 1994 (the original name of the start-up was Cadabra) from his garage.There is a small but critical difference in the Indian situation, though. The country's online retail industry already has a growing gorilla: Flipkart, the largest domestic e-commerce company, which replicated Amazon's model and is often called the Amazon of India. Started in 2007 by former Amazon employees Sachin Bansal and Binny Bansal (they are not related), Flipkart has cornered more than 20 per cent of the online retail market. It has raised over $550 million from a clutch of venture capital funds including Vulcan Capital, which in the past has backed another Amazon rival, Alibaba.com in China.Amazon is unfazed. Much of Bezos's and Piacentini's ambitions ride on Agarwal, 39 years old and a graduate of IIT Kanpur. Bezos has faith in the Mumbai native. "After all he was Bezos's most technology-savvy technical advisor," says Piacentini.In a setting other than his Bangalore office, Agarwal could easily be mistaken for a bouncer. In one of his four interactions with Business Today for this story, he lets on that he cross-trains and can dead-lift 200 pounds. But what lights up his face even more is talking about his experience as Bezos's technical advisor from 2007 to 2009 - the best workout of his career. Technical advisors are often referred to as Bezos's shadows, and the Amazon CEO has had just eight of them to date. Something like a chief of staff, the shadow spends most of the work day with Bezos - travelling with him, attending meetings with him and, at the end of the day, discuss the day with him and preparing for the next one.It was during one such chat in early 2008 that Agarwal brought up India. The timing was prescient. Amazon was struggling in China and had to look for an alternative country. "We didn't want to just dabble with India. We wanted to make sure we were absolutely ready with our game plan and investments," says Piacentini. It took Amazon four years to get ready. During that time, Agarwal headed Amazon's international market expansion, which included India.Amazon.in was launched in June 2013, and Agarwal's conviction is borne out so far by the website's 6.77 million unique visitors monthly, as per December data by online tracker comScore. Flipkart gets about double that traffic at 13.22 million, and Snapdeal, another e-tailing site, gets 9.35 million.Amazon has launched 15 categories in seven months, and already has the largest catalogue of books, e-books, watches, toys and games, and fashion jewellery. In the US, Amazon has more than 30 categories, and that is what Agarwal is aiming for. "You basically need to find a way to sell everything," he says, echoing the 'Everything Store' moniker for Amazon, in the news recently for a book by the same title.Amazon.in started with books, because globally, Amazon is known as the biggest bookseller. People searched for media players online, so it started selling portable media players, followed by other consumer electronics, baby products, toys and games, watches, jewellery, personal care appliances, health-care devices, home and kitchen products, and beauty products. It has more than 440,000 products, in addition to 12 million books and two million e-books. It has 2,300 sellers, as compared with 100 sellers seven months ago. Flipkart has 1,000 sellers. "The goal is to constantly expand the depth of the selection in existing categories and add new categories," says Agarwal.Agarwal knew that if Amazon had to deliver fast to customers, it needed control over logistics, and it needed warehouses. By the time it launched, it had already built a 150,000 square-foot (roughly 3.5-acre) 'fulfilment centre' on the outskirts of Mumbai, in Bhiwandi. The idea was to let sellers stock goods in the warehouse, and manage packaging and delivery for them for a fee. Such delivery, called 'Fulfilment by Amazon', and accounts for three out of every four deliveries by Amazon in India. A second 150,000 sq ft warehouse will be operational from February in Bangalore, for buyers in southern India.The bulk of Amazon's investments in India will go into logistics and payments. The US and Europe, when Amazon started, already had an efficient payment infrastructure. India has multiple systems - cash on delivery (COD), credit cards, debit cards and net banking.Mobile technology is next. "We are looking forward to facilitating mobile internet shopping, as it is an important factor for technology investments for us," says Piacentini. He says that lessons about mobile learned in India could be applied in other countries.Ambareesh Murthy, founder of online retailer Pepperfry, says: "The marketplace model scales very fast, because it is a platform where many retailers come to sell and put in a lot of variety." At the same time, he points out that the model fetches lower margins, as they are split between the seller and the platform owner. But who cares about profits? Certainly not Amazon, which took eight years to turn in its first profitable quarter and which to date has had losses in more quarters than profits. Agarwal, like the ultra-competitive Flipkart, wants to scale up business in India. Period."They are building the capability... If they have the infrastructure and product portfolio in place, customers will flow in," says Technopak Chairman Arvind Singhal. To lure customers, Amazon also started offering next-day delivery for an additional charge of Rs 99. Within a week, Flipkart copied the idea, calling it In-a-day Delivery and charging nine rupees less (See story on Flipkart, page 68). And then eBay.in launched nine-hour delivery for some products.It was the second time Flipkart adopted Amazon's idea. It launched its marketplace in April 2013, just two months before Amazon launched in India. Copying the one-day delivery service confirmed that the battle had begun. How could Flipkart let go of its turf? From Rs 5 crore in 2008/09, its revenues grew to over Rs 1,180 crore in 2012/13, according to the Registrar of Companies. Like Amazon, the Bansals built their own logistics, copied the cash-on-delivery model from China and pioneered it in India (See COD: Necessary Evil, page 62). Flipkart's business is growing at breakneck speed - the company is running at annualised revenues of over Rs 3,600 crore, and is targeting over Rs 6,000 crore by 2015. After enjoying a free run for five years, Flipkart launched its health-care and fashion jewellery categories soon after Amazon did.The battle has only begun. What Flipkart did in six years, Amazon did in seven months. It has already reached one-third of Flipkart's size in terms of the number of transactions, says Mahesh Murthy, Chairman of digital marketing company Pinstorm and co-founder of SeedFund. "They have done that with one-tenth of the money that Flipkart has spent."Flipkart sells about 100,000 products daily. When that number reaches a million, the company will have to do things differently, says Bansal. This will require a lot of money. Flipkart recently raised $360 million, but that will last only a couple of years, says Murthy. He notes that Flipkart is built with venture capital money, and may not able to keep investing as it has done. Amazon, however, is under no such pressure, he says, and it can keep pouring in money without worrying about profits.To sustain its business, Flipkart will need an initial public offer. Though Flipkart's cash burn is smaller than Amazon's when it listed its shares in 1997, its losses are not small for an Indian company: on revenues of Rs 1,180 crore, Flipkart made losses of Rs 192 crore.On the other hand, Amazon generated $2.25 billion in cash in 2012 (Rs 13,770 crore then) and invested $3.6 billion back in the business. If Amazon invested even 10 per cent of its global investment in India, that would be $360 million. Amazon executives decline to give investment details. "We are literally investing hundreds of millions of dollars," says Piacentini. That was a lesson well learned in Amazon's nine years so far in China.In 2004, Amazon entered China, then the world's second largest Internet market, by acquiring Joyo.com, the country's largest online retailer of books, music and videos. But eventually it lost the market to Alibaba.com, China's home-grown e-commerce giant.China has home-grown leaders in search, social networking and e-commerce. In India, on the other hand, US companies dominate: Facebook is the largest social networking site, and Google is the leader in search. Amazon could well lead in e-commerce.Agarwal and Piacentini did not want to make the same mistakes in India as it had in China. It decided to invest big from day one, instead of deferred investment. It also started from scratch, rather than by acquiring a company. It imported its transportation model from China, something which it had not done anywhere else, says Piacentini. It also put to use the COD lessons it learned in China.It also started educating sellers about Amazon - something it had not done in China. Unlike in other countries, seller registration is free in India for the first year as part of a promotion to attract sellers. "There is no risk or cost for them, and we are helping them get started," says Amit Deshpande, Director of Amazon Seller Services in India.The promotion is for a year, and to benefit from it, seller must sign a two-year contract. In the second year, Amazon charges Rs 499 a month as fees. Sellers get nationwide reach. They pay a minimum commission of four per cent on mobiles, laptops and computers, and up to eight per cent on jewellery and watches. A Rs 10 closing fee is also charged on each purchase. Globally, Amazon has two million sellers contributing 40 per cent to its sales.It also launched its "Mainstream-ing Sellers/SMEs" pilot project in three cities, where Amazon's staff helps small businesses become sellers, including those who have never made a transaction online. Amazon makes their catalogue and teaches them how to accept payment.If a seller fails to maintain standards, Amazon reaches out and tries to help. If logistics are a problem, the seller is offered Fulfilment by Amazon services. Sellers who can still not maintain standards are politely asked to discontinue and come back when they are ready. "Until then, you have to stop, because it's a bad customer experience," says Deshpande.To start any new venture, a press release is the first step, and Agarwal thinks that is the best way to connect with the consumer. In April 2011, he wrote a release to start Junglee.com, a website that helps buyers in India compare options from a mix of online and offline sellers, and provides analytics to registered sellers. Junglee started with 220 online sellers, and has expanded to 1,600 online and 50,000 offline stores, with a catalogue of 30 million products.It is not profitable, but Agarwal says it can be monetised with value-added services. "It is a thoughtful business decision to build something that would make a significant free cash flow in the long run," he says.Amazon is tight-lipped about the number of transactions, revenue, technology back-end, investment and budget for India, and even about how it compares itself with rivals. One exception comes after 38 questions over about an hour's chat with Piacentini, when Agarwal interrupts to say: "We... have a higher coverage than what Flipkart does". Amazon adds a new PIN code every day for service delivery. Amazon.in is reportedly negotiating with India Post, the world's largest postal service, for logistics. It reaches 21,000 PIN codes, compared to the 12,000 served by courier companies.Shreya Vora, director of Peora, a company that sells silver jewellery on Amazon.in, was surprised on December 31, when she got a Rs 3,000 order from the tiny town of Duttaphulia, West Bengal. "At the end of October, we started [selling on Amazon.in], and we are getting orders from tier-II and tier-III towns," she says. Fifteen per cent of her online sales come from Amazon, 12 per cent from Flipkart, and the rest from other online retailers.Vora also says Amazon.in has the best back-end set-up among all online retailers. Everything is automated, she says, and she does not need to contact anyone to upload new products or change prices, unlike other sites. "There is a large factor of trust, and they are bringing the best practices and service guarantees," says Parag Rao, who heads HDFC Bank's credit cards business.Kaushal Arora, Founder of Techeye Creations & Technologies, a seller of health-care devices, says: "Flipkart is very good as far as payment is concerned, but they haven't got the resources as far as marketplace is concerned." Amazon provides better analytics, he says, and adds that its control panel is much more advanced, as it gives details such as number of units sold and inventory remaining in the warehouse.Agarwal realised early on that India has address issues, so he added PIN code and landmark fields to the address form on the delivery page - something the US site does not have. "Fulfilment by Amazon" is prominently displayed when applicable, to gain the buyer's trust. Cash on delivery is an option only on Amazon-fulfilled orders, and not if the seller ships the product.Mobile is another area of focus in India. The country has 198 million Internet users, most of them users of mobile devices (of which 70 million are smartphones). "Forty per cent of e-commerce is over mobile, and that's where the industry is going to be," says Rachna Nath, Director at PricewaterhouseCoopers.So Amazon launched mobile apps for Android and iOS devices. "Amazon India is the fastest growing geography that we have seen in terms of mobile share of sessions and gross mobile sales," says Agarwal.Of course, Amazon.in still has gaps to fill. A significant one is apparel, the biggest component of the lifestyle category. Lifestyle accounts for 35 per cent of all Indian online retail, according to Technopak. Sellers such as Myntra and Jabong have a lead, and Flipkart has a growing presence. An Amazon executive says apparel will be launched in a couple of months. Some experts expect this to increase Amazon.in's traffic by about 20 per cent.There are signs that the ticket size of orders at Amazon.in has grown. According to an executive at a large private bank, the average credit card transaction at Amazon already equals Flipkart's at about Rs 2,700."You have to have the conviction that, over long periods of time, you can generate a large free cash flow for shareholders," says Agarwal. How long is long term? Ten years and more, says Piacentini. Amazon's international business head has something else in mind for the long term, too: "We want to build India operations so that, when we look back 20 years from now, it will be bigger than the US."The battle for supremacy in online retail in India, set to be the worlds second-largest Internet market by this summer, has barely begun, but it is already bitter.