Sachin Bansal and Binny Bansal have just re-organised their roles as heads of the Indian e-commerce giant Flipkart. The duo revealed their new roles in an official statement which said”Sachin Bansal, CEO and co-founder of Flipkart, will be the Executive Chairman of the company and Binny Bansal, COO and co-founder of Flipkart, will be the Chief Executive Officer,”. The new move has been made in an effort to expand Flipkart, much to investors’ delight. To mark the event, here’s a throwback to a December,2011 story, which traced the origin of India’s most successful e-commerce portal.
If you were an aspiring entrepreneur in the autumn of 2007, Bangalore was the place to be. The country’s self-titled garage start-up capital buzzed with bar camps, business plan contests and open coffee clubs where entrepreneurs of every hue brain-stormed on ideas that they hoped would become the next big thing. Working out of a two-bedroom apartment in the city’s upscale Koramangala suburb, Sachin Bansal and Binny Bansal were just another couple of geeks nurturing their own big idea. The plan was to create an online bookstore tailored to the unique needs of the Indian consumer and the inspiration had struck them while the two IIT Delhi computer science graduates were coding at the Seattle-headquartered -commerce giant Amazon.com’s software development centre in Bangalore. Amazon didn’t — and still doesn’t — have a local ecommerce site. So, in September 2007, the two Chandigarh natives quit their jobs, pooled together Rs 4 lakh from their savings and launched Flipkart.
“In the beginning it was a two-man show. We did everything ourselves,” says Sachin Bansal, who now runs the company as its CEO. Binny and he spent the second half of 2007 writing code for the site, picking up books from local book shops, responding to customer queries and making deliveries. Four years on, the two-man show has turned into a blockbuster.Flipkart is now arguably the country’s largest and most exciting e-commerce company. It employs 4,500 people and will grow to 33,000 staffers by March next year. The website offers 11.5 million book titles, apart from products across 11 other categories such as mobile phones, computers, cameras, music and home appliances. It claims to ship more than 30,000 items per day across categories. The company is not yet profitable, but reported revenues at Rs 50 crore for the last financial year. It projects a spectacular jump to Rs 600 crore in revenues by March next.
Numbers aside, Sachin and Binny, who just happen to share a surname, have accomplished something much more significant. They’ve put India on the global ecommerce map. Till recently e-commerce had been a non-starter in India. When the first ecommerce adventurers tried their luck during the infamous dotcom era of 1999-2000, their ambitions collided with harsh realities. The number of Internet users in the country was at a measly two to three million. Most Indians didn’t own a credit card and even if they did, they were not culturally inclined towards swiping them online for a product they could not touch and feel. By the time Sachin and Binny started charting the course for ecommerce’s second coming in India, most of those early entrants had shut shop.
By the middle of 2007, the Bansals were confident that the market was finally ready for a high-quality e-commerce company. Several things had changed between 2000 and 2007. Broadband networks were rapidly penetrating into small town India. Several years of a booming economy had created a new class of consumers with significantly higher disposable incomes. The number of Internet users had swelled to close to 40 million. Indian consumers, both in the metros and Tier I and Tier II cities, were buying airline and railways tickets online and had started to warm up to items such as electronics, music, shoes and apparel. A bunch of new Internet startups, mostly in areas such as online classifieds and personalised gifting, had risen from the ashes of the dotcom crash. But there wasn’t yet a serious ecommerce player on the horizon. Flipkart stepped in to plug that gap. And in doing so it has redefined the ecommerce business in India.
The biggest validation that Flipkart’s founders have done something right comes from their previous employer Amazon.com. In recent months there has been rising speculation that the $34 billion, Nasdaq-listed ecommerce giant is bracing for an India entry. It already runs four software development centers here and a local site would be the next logical step. It would also be entirely natural for Amazon to ease its entry here by acquiring Flipkart. The strategy would not be a novel one. The San Jose, California-headquartered online auctions giant eBay staged its India entry in 2004 with the acquisition of local auctions site Baazee.com in a $50 million deal. As in the eBay-Baazee instance, Amazon has a ready template for a successful Indian ecommerce business in Flipkart should it choose to take the acquisition route.
But are the Bansals ready to sell out yet?
From an acquisition target point of view, the business model does seem to hold up. They’ve done everything right so far. India is yet to produce a disruptive Internet start-up in the mould of a Facebook or a Google. But it has produced several startups that have taken existing business models from the West and successfully cloned them here. Flipkart is one of them and its success lies in its ability to understand ecommerce in the context of the Indian market. Ask any Flipkart user what they like most about the company and the answer is invariably one of two things or both — the discounts that the site offers and the convenience of paying cash on delivery.
Both these features have been integral to the company’s growth so far. They have influenced the way Sachin and Binny have gone about building the company. The site offers an average discount of 25 per cent on the cover price of books. Such hefty discounts would not have been sustainable if the company had not kept overall operating costs low. So, for instance, instead of spending on expensive advertising campaigns in its initial years, the founders used their resources to build a robust supply, logistics and customer support network. They understood early that while their storefront was online, they were in fact building a full-fledged brick-and-mortar retail business. Therefore, like any offline retail outfit, they would need to be supported by a strong back-end. Since the storefront was online — unlike offline retail outfits, which are usually crippled by high real estate rentals — the company could channel its resources into areas that mattered.
At present Flipkart has eight warehouses across the country, where books and other products are stored. It also runs its own delivery network in 27 cities. This helps in a couple of ways. The company can ensure that customers receive their purchases within the promised time. It also helps streamline payments. This is critical given that more than 60 per cent of the company’s payments are cash-on-delivery. While some might argue that cash-on-delivery is not really ecommerce, for now, it is the only way to conduct ecommerce successfully in India. Internet penetration is growing, but payment gateway infrastructure, which enables secure online transactions, still has a long way to go. Further, Indian consumers may be shopping more online, but the vast majority still prefers to touch and feel a product before paying for it.
Apart from working around these limitations, the cash-on-delivery option does something more important — it levels the playing field for consumers. A customer in Bilaspur, Chattisgarh, has access to the same books and products and at the same price as a customer in Mumbai or Bangalore. By emphasising the cash-on-delivery mechanism, Flipkart has taken ecommerce into the hinterland and thus broadened the market. If not for anything, Sachin and Binny will go into the history books for this alone.
But now, if rumours of Amazon’s imminent entry are true, the playing field is poised to get much more challenging for Flipkart. In recent months, the Bansals have been have been keeping a lower-than-usual profile. The reason is growing speculation about the firm being in line for a $150-200 million (approximately Rs 800 crore-Rs 1000 crore at current foreign exchange rates) round of funding from private equity investors. Unconfirmed media reports say that New York-headquartered General Atlantic Partners and Carlyle Group are in negotiations with the company to pick up minority stakes.
If this happens, it will be Flipkart’s fourth round of fund-raising in four years. It raised $1 million from venture capital investor Accel Partners India in 2009, followed by $30 million from private equity firm Tiger Global over two tranches. At the time of the Tiger Global investment, the company was reportedly valued at $250 million (over Rs 1,200 crore).
If the fresh round of funding does come through, Flipkart could be looking at a valuation of over $1 billion — the first ever for an Indian Internet startup. Talk about the deal has been around for nearly six months. Some quarters in the industry believe that the deal could just be part of an exercise to pump up Flipkart’s valuation ahead of an acquisition. That would mean a fat payoff for the founders and their venture capitalist backers. But it would also mean that the country’s first bonafide ecommerce startup would forfeit the opportunity to go public — which is the ultimate validation for a successful company.
Sachin says that, for now, the company is not thinking of anything beyond growth in the next couple of years. Both he and Binny say that getting to a $1 billion revenue target by 2015 is their immediate priority. Is that more window-dressing ahead of a potential acquisition? It’s hard to tell at this stage. For now though, a pat on the back for a job well done so far and here’s hoping Bansal&Bansal will hold out to temptation and go on to build India’s first real Internet powerhouse.