Amazon's $2Bn Investment Heats Up E-Commerce Race

by Sohini Bagchi    Jul 30, 2014

jeff becoz

Amazon has said that it will invest an additional $2 billion in India, just when the industry was still rejoicing Flipkart’s announcement of fresh funding of a billion dollars - one of the largest investments raised in a single round globally. The Indian e-commerce market is turning out to be a battlefield – with two clear contenders, Amazon and Flipkart. 

Since its launch just over a year ago, Amazon’s marketplace has grown to be India’s largest store with over 17 million products from a continually growing base of thousands of small and medium-sized businesses. It has launched two new capabilities to allow domestic traders self-register on the marketplace. According to a senior company executive, Amazon is relentlessly focusing on expanding brands on its platform apart from innovating on customer touch points.  He also said that the company’s hiring will continue to match the pace of its growth.

“After our first year in business, the response from customers and small and medium-sized businesses in India has far surpassed our expectations,” Jeff Bezos, founder and CEO of Amazon.com, said in a statement.

“With this additional investment of US $2 billion, our team can continue to think big, innovate, and raise the bar for customers in India. At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales,” he added.

While India holds a huge growth opportunity for the US-based e-commerce giant it continued facing challenges owing to lack of FDI in retail and local consolidation. Analysts had earlier said that the going may be tough for the stalwart unless it invests aggressively over the long term and are keep raising the bar for the online shopping experience in India. And just when the buzz was on, it was just the right time for Amazon to step up its India investment, according to many.

Read: Should Amazon Worry About India’s E-marketplace?

Meanwhile as smaller players do not fit much into this race, as they do not even come close to this level of growth, homegrown e-commerce company Flipkart is using all possible tactics to challenge Amazon - from raising funds, to strengthening backend operations to improving service delivery and riding on acquisitions. One would not deny that Flipkart has become a household name in the country today. As Sachin Bansal, Flipkart co-founder and CEO said that the company wishes to be the first $100 billion internet company from India.

However, while Flipkart’s innovation and enthusiasm is commendable in the heated e-commerce space, analysts believe Amazon has the muscle like no other - a global brand to reckon with - and with its whole new level of technology and customer experience, it may be difficult for others to sustain or rather think of leading the marketplace.

Despite being a relatively nascent market, India has strong potential for e-commerce growth. McKinsey predicts the country’s online retail market to grow rapidly in the coming years to reach $2 billion by 2015. There’s an increase in the hiring activities in this sector, which is expected to grow by over 30%. Consultant Randstad India predicts a creation of nearly 50,000 jobs in the next 2-3 years in the country.

Read: Why Everyone Wants An E-Commerce Pie?

In such a scenario, co-existing of e-commerce players need not be an issue. But as far as leadership is concerned, matching Amazon may be nearly impossible for other players in almost every front. While the e-commerce majors are aggressively to capture a large pie, an analyst with Forrester points out as Amazon scales up… much faster than expected, it will force everyone from retailers to investors in the e-commerce space to re-think, innovate. And in the long run, this will ensure a stronger growth in the country’s online retailing space.