Competition Heats Up in This Massive E-Commerce Market

By Motley Fool

In this segment from Market Foolery, Chris Hill,Jason Moser, andTaylor Muckermanconsider the rise of e-commerce in the world's second most populous nation and the huge opportunity it presents to early movers in that market. The two biggest players include Flipkart, backed back some major American and Chinese companies, and the leader in online retail,Amazon(NASDAQ: AMZN).

Who will come out on top?

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A full transcript follows the video.

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This video was recorded on April 10, 2017.

Chris Hill:The e-commerce battle in India is starting to heat up. Flipkart, which is an e-commerce start-up in India, has raised $1.4 billion from Microsoft,eBay,and Tencent. This puts Flipkart's valuation at about $11.5 billion. Part of thefundraisingin this roundinvolves Flipkart acquiring eBay'soperations in India. Let me go back a little bit to give some context here. Last June, one of the stories we talked about onMarket FoolerywasAmazoninvesting $3 billion to their operations in India. A few of the dozens live in India, so at that point,I asked any of our listeners who lived in India toshare their experience with e-commerce and got somephenomenal information back from folks. Flipkart is one of those brandsI was completely unfamiliar with, and it was actually started by some guys who used to work forAmazonin the United States. Jason, even if you take into account the valuation of Flipkart coming down a little bit, these are serious backers in the likes of Microsoft and Tencent and eBay.

Jason Moser:Yeah,serious backers in a very serious market. This isn't something that'sgoing to materialize over the next two years. I think, really, you have to look at this from theperspective of the next decade. And certainly, it seems like Flipkart hasestablished itself as a pretty crediblepresence there, based on the feedback we got from our listeners last year. So I think the one thing that would give me pause when it comes to Flipkart is,essentially, I think the clock is ticking. And I think it'smoving a little bit faster for Flipkart than it is for Amazon. Flipkart is a little bit moreunder the gun and needing to raise capital and really building out this business. I think they have, obviously, the founders have a good idea of what Amazon is all about, and how Jeff Bezos has built that business, why he built it the way he has. So,I would like to believe thatthey are focused on some of the very things that he's beenfocused on,primarily, awesome customer service, thenlow prices as well. The thing is, Amazon is already sosuccessful and so big,and has really already done it heredomestically -- I mean,that's what they're doing, they're taking what they've done domestically and doing it elsewhere. So, we're seeing theEuropean operation, for example, coming online. And we see thatoperating profit starting to strengthen there as theycontinue to realize more return on those investments. We're watching them try to do the same thing in markets like China and India and the Middle Eastacquisition that they just made there. So,I think that is just where the biggest challenge for Flipkart lies. Amazon hasa little bit more luxury herein the form of capital and time and, obviously, the know-how. They've learneda lot from their successes and their failures. But it does seem like Flipkart is onto something here. When you're raising that kind of money, and your company is valued anywhere between $10 to $15 billion, you're doing something right.


Taylor Muckerman:With your competitive advantage,if you're just trying to beat Amazon, against Amazon, I think you're running up against a wall there. Amazon is already No. 2 in e-commerce in India, and they've only been there since 2013. $5 billion from them versus a few billion from these other companies, a little smaller bet for Microsoft, because it's only chipping in, whereas Amazon is putting their own moneyinto this and they're doing it on their own. I think it's a great market to get into because you saw inNovember of last year whenPrime Minister Narendra Modi removed the 500 and 1,000 rupee notes out of circulation, which was, I read, about 86% of cash in circulation. So,the country is not yet set up for a cashless society, but they'recertainly trying to move in that direction -- 1.5 billion people, and you have only about 40million that have used online e-commerce. Huge market, but like you said, it's not going to be a couple years where you really start to tap into it.

Moser:Yeah. Andyou're going to see, like we saw withMercadoLibre,which is basically like in the Amazon of Latin America. MercadoLibre, the founders and leaders there had thewherewithal to really invest in this early on, which is why they've been so successful, and I think they're discovering the tailwinds of not only the growth in e-commerce but also in emerging middle class. I think that'ssomething we should expect with India over the course of the next decade and beyond, is this emergence of a more powerful consumer, as time goes on, withsuch a massive population there. The financialimplications could be huge. I don't think it's winner-take-all thing. I think Amazon isprobably going to succeed, because they tend to succeed inwhatever they do. And I think Flipkart is wise to be making as big and bold a bet as they are right now in that market. They seem like they're long-term thinkers likeJeff Bezos is,which is why I'm sure they're not looking at this as, No. 1, they'renot looking at this as a winner-take-all scenario, and No. 2,I'm sure they're looking at this and thinking, "Howdo we build this business to succeed over the course of the next decade and beyond?" Because that's reallywhat this is all about -- consumer behavior over the course of the next 50 years. I think e-commerce is proving itself to be where it's at.

Hill:Two moreinteresting notes that we got from our listeners that I think probably point to areas thatthese two companies are working on. One was thatFlipkart is better at apparel. We know, even here in the U.S., Amazon is trying to do more with apparel. So,that's clearly something they're going to be working on. Amazon in India appears to be doing better with third-party sellers. If you think about the vast network ofthird-party sellers that they have on the platform here in North America,that's already paving the way for some success in India, as well. So,presumably, Flipkart is working on that as well,trying to get better at third-party sellers.

Moser:Absolutely. That is a greatopportunity that exists. You have to look at these businesses beyond just the consumers like us. These are greatplatforms for other sellers to be able to, basically, take their small businesses and focus on growing the businesswithout having to worry about investing in all of thatinfrastructure and inventory management, internet platform, mobile, whatever it may be. Amazon has proven to be an excellent third-party provider. So, that'scertainly a big opportunity as well.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chris Hill owns shares of Amazon and eBay. Jason Moser has no position in any stocks mentioned. Taylor Muckerman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, eBay, and MercadoLibre. The Motley Fool has a disclosure policy.