Does Flipkart need to move step in step with Amazon?

Flipkart, the leading Indian eCommerce company recently launched its own brand of Android Tablet devices, starting with a Digiflip Pro XT712. Flipkart claims that this step will take it closer to building an eCommerce eco-system. But, with the low price positioning of this device in an already crowded tablet & smartphone market – does this me-too strategy have a strong case?

(Near) Clones from different times, in different places

Flipkart is often referred to as being the Amazon of India. Flipkart, like Amazon started by selling books online and then expanded into other product categories. There was then a step towards selling eBooks via the eCommerce website. It then altered the business model to an eCommerce Marketplace model. Despite these similarities, does the move into tablets space seem right?

Indian Smartphone & Tablet Industry?

Questions come up immediately – Is this industry attractive enough? Is there enough incentive to compete here and try to achieve positive network effects? The Smartphone and tablet industry in India is an extremely crowded industry with over 60+ players in the space. A cluttered marketplace

Strong price competition and product commoditization are strong characteristics of this ma
rket
. The leading brands in India Samsung, Micromax & Karbonn take up 60% of the Smartphone space while the rest is extremely fragmented. Add to this the recent announcements at Google I/O 2014. The AndroidOne initiative will give further impetus to low-cost device makers making it hard for consumer to differentiate one tablet/smartphone from the other. And amidst all these dynamics, ENTER FLIPKART at the lower end of the price range.

A look from Amazon’s perspective

Amazon has a strong  experience with consumer electronics devices. The Kindle, when launched was the first of its kind. It was a new category of device a.k.a the e-reader with the much talked about e-Ink. It was a niche device that could render the Amazon eBook format and could leverage cloud delivery infrastructure downloading books via WiFi and WhisperNet.

The new Smartphone,  Fire Phone is positioned as a high-end niche device, competing not with the zillion other Android phone makers, but rather a few premium Smartphone makers in the US market – which is a completely different ballgame compared to the emerging markets.

The value proposition of Amazon’s Fire Phone is also well-defined and centered around Amazon services. Amazon Prime has substantial uptake in the US market. Bundling this subscription allows Amazon to further expand its user base. Trying to bump up transactions through the use of Amazon-specific apps & features is a clear intent. How well that strategy pans out or how drastic that step could be is a debate out of this scope.

For Flipkart, its not the same arena?

In fact it is not even the same game anymore. While this appears as a me-too response to the Amazon Fire Phone launch, I believe that achieving competitive parity can be useful but need not always be meaningful.

Digiflip, Flipkart’s inhouse brand, primarily appears to be an ‘electronic accessories’ brand. A Tablet to augment this line up of accessories is like driving in the opposite direction in a one-way to get into the business. In terms of positioning as well, the Digiflip Pro when compared to the Fire Phone is at a relatively different position on the pricing spectrum.

Over 2000 free eBooks are being offered as a goodie with this device, Flipkart also offers the Flipkart First subscription service, but I do not have enough to compare the popularity of this with that of Amazon Prime – I doubt though that similarities exist.

Will this boost online transactions?

It is widely said that e-Commerce & m-Commerce are the next big purchase channels for consumers. Flipkart is now a leading destination for device makers to sell Smartphones. Motorola sold over 1 million handsets through this exclusive-online retail partner in 5 months. Xiaomi is also planning to partner will Flipkart in its entry into the Indian market. Yet another Smartphone partner is in place – Karbonn, with whom Flipkart made exclusivity deals deal for cheap smartphone.

While these partnerships will boost the main line of business, the entry into ‘cheap tablet’ space could send the wrong-signal to these partners. These partners need to trust Flipkart to sell their devices on the website, than to feel threatened by Flipkart’s cheap competitive offerings.

That being said, would it not be more interesting to partner with these Android device makers like Samsung, Motorola, Micromax, Xiaomi, Karbonn and others to preload a Flipkart App on the device? Flipkart might want to extract more value at a lower cost by preloading the App an fulfil its eco-system intent than to start the line-of-business which is outside is core-business.

Leverage firm capabilities to find growth beyond the core

Flipkart has already started experimenting with its core business model by spinning off its logistics arm – eKart. While I see good merit in leveraging core-competencies to grow beyond its core, investing in this new line of business to gain competitive parity raises more questions than it answers.

Advertisements

Smartphone Industry in India – Spoilt for choices

Before I left for France in Jan 2012, the Indian Smartphone market was dominated by Nokia, Samsung, RIM & Sony. As per data (from a report) back in 2011 Nokia was a market leader in the Smartphone industry with ~45% market share, Samsung & RIM (now Blackberry) together at 36%. Apart from this five Indian Smartphone makers including a (then) obscure handset maker – Micromax made up 19% of the shipments.

Fast forward to 2014 – I am in India for a short span and am looking at buying a new Smartphone. While the Samsung Galaxy is pervasive here, the realization dawned that I was spoilt for choices in brands (see stats also for early 2013late 2013) – even those that I never knew existed.

Are their signs that the industry “matured”? Is there no more room for product innovation?

My observation lately has been that not a day has passed when I do not come across a fresh article in the press about – increased Smartphone adoption, rising mobile-internet penetration and changing market dynamics in India. While I wondered about how purchase patterns have changed, I put some thought into the current state of the industry and the possible direction it may take.

The Smartphone Industry in India – Today

  • India has 68 (!) Brands of Smartphone vendors…

…Only 30% of which are global brands (Src: EconomicTimes). In addition to Samsung & Sony, there are a host of players here. Samsung overtook Nokia in overall phone shipments recently but had already gained a dominance in the smartphone space a while back. Now, the tables are turned and domestic Smartphone maker Micromax poses a serious threat to Samsung in India. Apple hasn’t gained much traction due to its premium price point. Others like Lava, Celkon, iBall, Intex (yes these are the Indian players) have been raising the ante. Panasonic, HP & Dell are (re)introducing a vast range of products at competitive prices to get a seat at this table.

  • Free OS platform & cheap chipsets cater to rising demand

Chipset makers Qualcomm, nVidia, Broadcomm are dominant suppliers to the bigger mobile players. Mediatek is a major supplier for budget Smartphone makers (or say tier-II mobile makers). Mobile display makers provide differing yet interesting options like (O)LED, IPS displays. Google’s Android has for now leveled the playing field by opening the OS platform for mobile makers (Any Smartphone maker can customize & use the software for free). A host of ISVs (Independent Software Vendors) also provide a variety of applications for these handsets.

  • Brand agnostic Indian consumer & commoditized Smartphone

The Indian customer looking out for a bargain deal is a tough one to please. Availability of innumerable options has created pricing pressures. Dealers have resorted to selling a Smartphone by the inbuilt specifications rather than by the brand name driven by an onslaught from Asian OEMs. This is quite like the PC-industry where we’d care more about the processor, RAM, hard-disk space et al. In a cluttered product space, the seller talks just about the phone specifications – display, RAM, CPU, Memory etc. (Albeit the WinTel owners enjoyed a large portion of the profit pool, the same isn’t true for the Smartphone industry).

  • eCommerce & social media improved distribution & reach

Distribution channel has seen rapid evolution in the recent years. Increased penetration of Smartphone is fueling the growth of mobile-internet in India and thereby increasing the overall internet-data usage across the spectrum of users. This has led to a flourishing e-Commerce industry which has been expanding (50% growth in 5 years – Src: E&Y) and is set for unprecedented growth (Reach 38M transactions in 2014 at a CAGR of 36% – Src: E&Y). Online retailers are in a race to offer deep discounts to make consumers get the best deal – in purchasing a Smartphone as well. If a phone maker worries about increasing its point-of-sales, online-retailers can compensate the lack of a large distribution network.

Online presence through social media & use of tools like targeted online advertising has improved the returns of advertising campaigns. The marketing team gets greater returns against its advertising spend generating greater brand awareness and increasing topline.

So, where are we headed?

Can the tier-II vendors win over market share?

The rapid pace of innovation in technology industry & ease of imitation has ensured falling prices for existing technologies. Tier-II vendors find it easy to match up (if not exceed) the product specifications to that of the big-boys. But developing consumer confidence will be crucial. Vendors will have to find innovative avenues to serve the customer – be it improved after-sales service network & quality, provide interesting financing offerings & exchange offers (a step already being acted upon by Samsung & Apple in India). Investment in developing a strong service network is essential. There is potential for innovation to achieve economies-of-scale in deploying an efficient & effective after-sales service network. Will multiple tier-II vendors partner to provide joint after-sales? Will a new entrant cater to this need independently?

This has to be complimented with a focus on simplicity in design and usability. Leveraging the open OS platform, tier II vendors have the ability to pre-install several features peculiar to the Indian Smartphone user – which emerge through investment in consumer research.

Other stakeholders in the value-chain, especially the telecom operators are also experimenting with other revenue sources and alternate business models. India presents immense opportunities in areas of education, healthcare & payments. Telcos are investing in these to find more profitable revenue sources. Partnering with these will help tier-II vendors get off the beaten track of price-competition and develop a sustainable brand recall in the broader in Indian consumer’s mindset.

Will big players like Samsung sustain their lead?

Product innovation is critical to maintain brand stickiness. Yet another differentiating factor is ‘Service Innovation’. A robust balance sheet helps the big names leverage geographic reach to deliver strong service. While the internet is a greater leveler in improving distribution, brick-and-mortar stores instill confidence among customers seeking after-sales service. While tier-II vendors focus on pricing for a commoditized product range, the biggies must strongly communicate their ability to ‘serve’!

In conclusion, while I would say the industry has reached that of a mature stage, I believe that service innovation is crucial to avoid receding into a decline phase. Someone will reinvent the Smartphone – again!

Touching once again on the aspect of being spoilt for choices – finally, with a desire to try a local vendor with cheap yet powerful (enough) offering. With some word-of-mouth and a basic research of specifications – I settled for a Xolo Q700i. How did it pan out for me? You’ll know soon. (Update: And here it is!)


Photo credit: Prepayasyougo via photopin cc