The founder of India’s first mainstream e-commerce startup isn’t bullish on Flipkart’s chances of doing well against Amazon.
“Both are burning cash to acquire customers during their respective sale festivals, but I would worry more about Flipkart,” says K Vaitheeswaran, who’d founded Indiaplaza all the way back in 1999. “Amazon runs a profitable business worldwide and has a steady flow of cash to take on newer markets. They can afford to lose money – not Flipkart.”
Vaitheeswaran knows a thing or two about e-commerce companies that failed that test of time. In June 1999, he’d founded Fabmart, which was India’s first online store. Vaitheeswaran had the first-mover advantage — he was in e-commerce nearly a decade before Flipkart was founded, and nearly 15 years before Amazon entered India. Over the next decade, Fabmart rebranded to Indiaplaza, raised VC funding, but eventually ran out of money. They shut operations in 2012.
And Vaitheeswaran doesn’t see a bright future ahead for the Indian company that’s stepped into Indiaplaza’s shoes. “It is Flipkart which continues to go into a bottomless pit,” he says. “Although they raised $2 billion recently, their spending structure puts them in a difficult position from a financial point of view.”
Vaitheeswaran says it’s chiefly because Amazon runs several other profitable business that help pay its e-commerce bills — Flipkart has no such counterpart. Amazon earns a bulk of its profits through its lucrative AWS business, while its e-commerce arm barely breaks even. Even in India, Infibeam makes profits, but it’s chiefly because of its Build A Bazaar platform. Flipkart, on the other hand, had made a loss of Rs. 5,223 crore last year.
And Vaitheeswaran isn’t impressed with the sales that Flipkart touts during festive seasons — Flipkart had claimed to conclusively beat Amazon in the recently-concluded Diwali sales. “..most of them are temporary customers who will move away from the platform when deep discounts disappear,” he says. “Say, a company spends a lot to acquire ‘x’ number of customers. When discounts stop, at least half will go away from the platform. When that happens, the cost of acquiring those customers doubles. Even without that, it is very difficult for a company like Flipkart to ever make profits.”
And ultimately, Vaitheeswaran feels Flipkart isn’t innovative enough to enter new businesses which could make it money. “Flipkart essentially has been reproducing and in a sense copying what Amazon has done in other parts of the world,” he says. “And even if it were to branch out to non-ecommerce businesses, I cannot see Flipkart creating a business that is so innovative which the Amazons or Googles or Microsofts of the world have not thought of already. It may be possible theoretically, but practically impossible,” he says.