Having launched its site in June 2013, Amazon India (Amazon Seller Services Pvt. Ltd) made rapid advances last year, racing ahead of Snapdeal and even beating Flipkart (minus Myntra and Jabong) in at least two months in terms of gross sales. Amazon’s expansion was fueled by an unprecedented spending spree–it has already pumped in more than $2 billion and has promised to invest $3 billion more. However, most or all of Amazon India’s gains in 2016 came at the expense of Flipkart and Snapdeal and not from an expanding market, raising questions about its massive capital commitment to India and whether it is generating enough bang for its buck.

E-commerce sales in India were just around $14-14.5 billion in 2016, little changed from 2015, Mint reported on 27 December, citing estimates by e-commerce executives, investors and research firms. Until now, investors and analysts in India have largely focused on how the sluggishness of the e-commerce market has exacerbated the troubles at Flipkart, Snadpeal and other local firms.

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But unless the online retail market bounces back, Amazon may take much longer to realize its stated objective of making India its second-biggest market in the world after the US over the next few years. Already, analysts’ estimates of a $60-100 billion e-commerce market in India by 2020 are looking fanciful.

“Companies often bet big when there’s a race for “winner takes it all" and there’s fear of missing out; there’s this sense that, if you don’t bet big, you’ll be doomed," said Rutvik Doshi, director at the India arm of Inventus Capital Partners, a venture capital firm. “It’ll take at least another 10-15 years for India to build the kind of depth with transacting users to come close to China and, provided, the GDP grows between 7-10% annually during that period. So in the short run, everyone has overestimated the potential of India’s Internet market. (But) for Amazon in the long run of a 20-year horizon, $10-15 billion of investment is nothing."

It was too early to say whether Amazon’s bet on India was misplaced, said Sharad Sharma, an angel investor and co-founder of iSPIRT, a software products think-tank. “Having said that, the top layer of 50 million transacting users is nearly saturated. And the next 100 million potential users are not yet part of the formal sector. The ‘middle India’ will eventually come to the fore—the question to be asked is how long that will take and whether Amazon has the patience to wait it out," Sharma added.

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The numbers are revealing. In calendar year 2015, Amazon, which operates in 11 countries, generated net revenue of roughly $100 billion from online retail. Its second-biggest market that year was Germany, which contributed $11.8 billion in revenue. In India, in the two months that Amazon was ahead of Flipkart in 2016, its monthly gross sales (before product returns and cancellations) were between Rs2,000 crore and Rs2,400 crore. On an annualized basis, this amounts to roughly $4 billion in gross sales, at current exchange rates.

To be sure, Jeff Bezos, Amazon’s founder and CEO, is well-known for his persistence in backing expensive-looking business initiatives and dismissing investor and analyst concerns of over-spending. And after losing out in China, the biggest e-commerce market in the world, to Alibaba Group Holding Ltd, Amazon has little choice but to invest in India, some analysts said.

“India is an important market for Amazon, not only because of the potential size of e-commerce in the country, but also due to Amazon’s failure in China to become a meaningful player," said Colin Sebastian, senior equity research analyst, Internet/ interactive entertainment, at Robert W. Baird and Co., a US-based financial services firm.

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“Success in India means that Amazon’s retail model can work outside of ‘traditional’ markets in North America and Europe, and helps provide better visibility in how Amazon can continue to grow for many years in the future. Given the company’s early success in the India market, we expect investments to continue for many years, as Amazon builds out capacity for growth and also becomes more experienced with local market customs. (But) we do not expect India to become a meaningful contributor to the overall business for at least 3-5 years," San Francisco-based Sebastian said in an email.

Amazon, of course, has a different view.

“We have managed to make Amazon the biggest store in India with over 95 million products, of which nearly 2 million are available for next-day delivery; we have an extensive reach and penetration to the far flung areas of the country and have enabled thousands of SMEs (small and medium enterprises) to get their business online," an Amazon India spokesperson said in an email reply to queries from Mint.

Amazon India’s business doubled last year and the 2016 festive season produced “triple digit growth over" the year-ago period, the spokesperson said. “We continue to look at India as a key growth market and continue to invest aggressively...It also remains the fastest growing country for Amazon, till date. We are invested in India for the long term."

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