Amazon goes one up on Flipkart, to invest $2 bn

Fresh investments to be more than Indian firm's total funding since 2007

It took Jeff Bezos, Amazon Inc’s 50-year-old founder & chief executive, only one day to respond to Flipkart’s $1-billion fundraising announcement. A day after its Indian e-commerce rival disclosed it had raised $1 billion to further its business, Amazon issued a statement on Wednesday to say it would invest an additional $2 billion in the country.

Amazon’s India investment will not only be double the amount Flipkart has raised in the latest round but is more than the $1.76 billion total funding it has got since its launch in 2007. Besides, this is going to be the largest investment so far by an e-commerce company in India. It is the first time since it entered India in June last year that the Seattle-headquartered internet major has gone public to disclose its financial numbers specifically for this market.

“We see a huge potential in the Indian economy and for the growth of e-commerce in the country. With this additional investment of $2 billion, our team can continue to think big, innovate, and raise the bar for customers in India,” Bezos said in the statement. “At the current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales.” The company has not given any timeline for touching the $1-billion gross sales mark in India, a target Flipkart achieved earlier this year. (SET FOR  A SHOWDOWN?)

Soon after announcing his company’s $1-billion fundraising, Sachin Bansal, the 33-year-old chief executive and co-founder of Flipkart, had on Tuesday spoken about the next big goal — of taking the company to the $100-billion valuation league. At present, Flipkart is valued at $7 billion, way below Amazon’s current market capitalisation of $148 billion. The gap between the two is wide — while Amazon’s annual revenue is about $75 billion, Flipkart notched up a gross merchandise value (GMV) of $1 billion earlier this year. Flipkart, founded by two former Amazon employees — Sachin Bansal and Binny Bansal — is a seven-year-old company, while Amazon has been around for 20 years now.

Yet, the American e-commerce company thought it fit to make its mega investment known, without losing any time.

Amazon, however, denies its announcement is in reaction to Flipkart’s. Amazon’s India head & country manager Amit Agarwal said decisions on such large investments were not made in a single day and Amazon was not worried about competition. “You should ask others about the timing of their announcements. We have always remained focused on the Indian market,” Agarwal said.

Amazon did not divulge its total investment in the country but information available with the Registrar of Companies suggests it had pumped in around Rs 1,500 crore ($250 million) as of December last year. On the timeframe for the additional $2 billion investment, Agarwal only said: “This will be a continuous flow, allowing us to aggressively invest in growing our business and enhancing customer and seller experience.” The fresh investment comes despite the fact that Amazon reported losses to the tune of $126 million in the April-June quarter in its global operations.

Analysts said Amazon has earlier invested large amounts in international markets. “Amazon has spent more than a couple of billion dollars in other markets like the UK and others. The move is more about managing the customer perception about who is the leader in e-commerce,” said Technopak India Chairman Arvind Singhal. Amazon is present in 10 countries, including India, with separate retail websites for each.

On using this money, Agarwal pointed out the company would continue to add more categories, invest in developing technology for the sellers, payments and mobile commerce. Besides the investment, expansion and competition the two share, Flipkart and Amazon are alike in their stand on profitability. While Flipkart’s Bansals have maintained profitability is a long-term target, Amazon says the same: “We have a long-term outlook for India and are not looking at immediate profitability,” said Agarwal.

Two days ago, Amazon had announced an expansion of its fulfilment centres. From the present two, in Mumbai and Bangalore, the e-commerce giant would take these stores to Delhi, Chennai, Jaipur, Ahmedabad and Tauru (on the outskirts of Gurgaon). The move will double Amazon’s storage capacity to more than half a million square feet. Fulfilment centres are large warehouses where the company ships products to customers. Before coming to India with its own brand name last year, Amazon had entered the country with price-comparison website Junglee in 2012. It has been on an expansion spree recently. The company works on a marketplace model in the country, as foreign direct investment is barred in e-commerce (inventory-based format that Amazon specialises in).

Amazon currently has over 17 million products across several categories. Of these, 300,000 are available for next-day delivery. In what indicates its aggressive growth plans, Amazon is launching a new category every 13 days, but remains gung-ho about books and music, its mainstay globally.