I recently read the news on various portals about Amazon’s foray into Indian market. When I read about Amazon’s venture into India, I started thinking, will Amazon really make it big in India? In the rececnt past, some foreign companies really made it big in India (such as IBM) but many failed too (See the Vodafone story). Where would Amazon go?
I tried to find answer to this question by looking at three key points. What is Amazon’s business model? Does it fit in India? If not, what Amazon needs to do differently to succeed?
Let’s look at Amazon’s business model. It is no rocket science. Almost everyone who has heard Amazon knows how it works. i.e. Selling mainly through online web shop. They also sell through other channels such as telephone. But most of the revenue comes from online web shop.
It relies heavily on volumes and beaten down prices ( Amazon’s margins are very low). So it is a volume driven business and primarily powered by technology (website, order management system, recommendations, reviews, single page checkout etc).
In all this, the basic assumption is customer has access to internet almost 24*7. This assumption is not wrong if you are looking at the market of US and Western Europe where Amazon primarily operates.
Now, coming to the second question. Does this model fit in India? Well, as mentioned above the basic ingredient for Amazon’s success is internet connectivity. How many people in India have internet access? Well a lot. 100 million. That’s about 30 million more than total UK population. Wow Amazon is in for a jackpot. Well, there is one more parameter that needs to be met. How long on an average in a day people have internet access. It is not merely enough to touch the internet 5 minutes in a day. For a society to be a great ecommerce market the consumer base should have 24*7 connectivity.
Here lies the problem. If you read any report on internet connectivity in India it will inevitably mention that 100 million internet users are in India. But if you read the report carefully and see how may homes have broadband access ( i.e. how may have 24*7 internet connection) then you are in for a shock. The figure is a mere 10 million. Compare this with USA, which has 80 million broadband connections and China which has 126 million.
This low number of broadband connections in my view is a major hurdle in Amazon’s success in India.
So what can Amazon do differently or for that matter any other eCommerce company can do differently to overcome this problem of limited internet access?
Well, I am not a great thought leader who can provide great solutions to complex problem. I have thought some simple things which I am presenting here.
Let’s go back couple of decades when landline telephone connection in India was a major hurdle. Firstly landline telephone in those days was not affordable to everyone and suppose you were prosperous enough to have one, you had to wait for months after applying to get a working phone connection. So a solution was found and it came to be known as PCO or public call office. ( The credit of this concept is generally given to Sam Pitroda but I am not sure whether he should alone take the credit).
Public Call Office is a manned telephone facility located in public places. People can simply come in make a phone call, pay and leave. Kind of a retail shop for telephone needs. This addressed the needs of people for telephones. There used to be number of such PCOs even in small town ( the numbers have now declined due to increased telephonic connectivity) so you would have to go for a short walk to make a phone call.
Using a similar model, Amazon or any aspirant online retailer can open their own, small booths in small towns in India. Let’s call them Online Sales Shops ( OSS). These shops need to be franchised rather than owned by retailers. (The reason for franchising is simple. The franchisee will have better local knowledge).
These OS Shops, will have broadband connectivity and computer terminals on which the normal Storefront web site of the online retailer will run. Customer can come in, request the OSS franchisee operator to browse for the site ( just like in a brick and mortar shop in India where the salesman shows hundreds of varieties of item before you make a final purchase). If he is happy with a product, can place an order. Order need not necessarily be placed by the customer, the franchisee operator would place the order with his (franchisee’s ) credit card and take the cash payment from the customer when placing the order or after the order has been delivered. The shipping address may be the OS Shop itself.
- People without broadband connection can harness the power of online stores and benefit from low prices.
- Customers need not have credit card or any other payment instrument except cash.
- Retailers would reach remotest corners of the country where there is limited broadband connectivity.
- From online retailer point of view, no significant change to technical implementation needed.
- Fulfilment will be a challenge. In this model, though shipping is not required to be done to the end buyers house (could be a remote village) , still delivering to the franchisee location ( at their OSS) might pose a challenge.
- People in remote parts, generally prefer to travel to cities for shopping. In fact they are looking forward for a trip to city. In such situation it is not easy to get them to OSS to place their order.
In summary, if mighty Amazon has to flow in the land of Ganges, it has to change the way it reaches customers who are not in a position to enjoy broadband.
Author : Sanjeev Desai