Sold out

A new model for electronics, and online retail

The online retailer Flipkart has always been greedy for headlines. This is an occupational hazard in the online space, where eyeballs and name recognition are too easily substituted for a solid balance sheet and a sensible business plan. But, even by its sector's standards for publicity, Tuesday was a red-letter day for Flipkart - its website crashed while selling the new Xiaomi Mi3 phone shortly after sales opened at noon. Naturally, this only raised interest in the new Chinese-made phone. Also, it revealed the potential for explosive growth in online sales - something that is likely to have very different effects for the two companies involved, Flipkart and Xiaomi, and their respective sectors.

The Mi3 phone was priced by Flipkart at Rs 13,999, Rs 1,000 less than Xiaomi's earlier price. Even the non-Flipkart price is at a significant discount from its competitors. This is because Xiaomi has pioneered a novel marketing strategy: one that does not require the elaborate brand-building exercise that, for example, Samsung would conduct. Xiaomi spends next to nothing on advertising or marketing. That's all passed on to the consumer, which allows it - so it claims - to price its phones over Rs 10,000 cheaper than models with equivalent specifications from other manufacturers. Of course, the problem with such businesses is usually that quality control can suffer. Xiaomi's consumers, however, take heart from the million-strong user base that the company has built up. It builds credibility not through advertising, but through word-of-mouth recommendations, first on internet forums in its early years, and now increasingly through social media. Clearly, it has worked so far: it is one of the fastest-growing electronics companies. On Tuesday, in a non-native market, it sold all its available phones in 38 minutes and 50 seconds. To a certain extent, this is a clear publicity stunt for the company: it allows it to claim overwhelming demand, although it is far from clear exactly how many units were moved.

The benefits for Flipkart are less clear. After all, it does not reflect well on its infrastructure if the site crashed. The claim that the company's myriad defenders will make, however, is that its dominance of the Indian e-commerce market has once again been demonstrated. In the last five months alone, for example, Motorola Mobility - till recently a Google-owned company - sold a million of its phones from Flipkart exclusively. The Taiwanese company Asus has also sold a new model exclusively through Flipkart in the past. However, its competitor Snapdeal, has managed to wrangle a similar deal with Micromax. Certainly, it is worth noting that exclusive single points of sale for new electronic items, which minimise transaction and marketing costs, may well become the norm. But why should dominant firms such as Flipkart necessarily benefit? After all, in jurisdictions where it is legal, Google sells its branded tablets exclusively from its own Play Store. What is Flipkart's value-added, therefore? At some point, market dominance must cease to be an argument. Flipkart is reported to have not made a profit yet and to survive from year to year on the largesse of private equity investors - with another mammoth infusion of funds possibly being on the way.