Tough battle: Can Amazon beat Flipkart, Snapdeal?

The strategy these online marketplace companies follow in the next few months will determine whether Amazon gets to be the leader in 2017.

In the next 12 to 18 months, American e-commerce major Amazon has the potential to be at the top in the India market, executives at three prominent international analyst agencies told Business Standard.

However, with a caveat. If Amazon focuses more on gross merchandise value (GMV) of the goods sold on its platform than it has so far, and if home-grown rivals Flipkart and Snapdeal move towards profitability, the current pecking order in market share has a good chance of changing, they add.

The strategy these online marketplace companies follow in the next few months will determine whether Amazon gets to be the leader in 2017 or not, according to an executive at one of these firms.

Kunal Bahl-led Snapdeal has already stated that GMV is not a metric it is chasing.

Retaining and adding high-quality users would be Snapdeal's goal, Bahl had said in a recent media interview.

A report published by Bank of America-Merrill Lynch in May 2015 had placed Flipkart on top of the table with 43 per cent market share, followed by Snapdeal at 30 per cent and Amazon at 18 per cent.

One year later, things have moved, say analysts but without giving specific figures.

Market share is typically based on GMV in the absence of timely revenue figures, posted to the registrar of companies with a significant time lag and so, making these almost irrelevant, explain sector trackers.

In 2015, goes the estimate, Flipkart's GMV was around $10 billion, Snapdeal's at $4 bn and Amazon's at $2 bn.

One of the analysts, Business Standard spoke to projected the 2017 GMV at $12 bn for Flipkart, $9 bn for Snapdeal and $6.3 bn for Amazon.

However, he added, the math could alter and Amazon could cross Snapdeal's GMV while moving closer to Flipkart or overtaking it, depending on how the three choose the GMV versus profitability play. 

GMV has been an important metric for e-commerce entities in getting a higher valuation and attracting a next round of funding from investors.

In the process, some companies have even inflated their GMV figures, says an analyst. However, a company such as Amazon does not need to do this, not needing to depend on investor money.

How a company moves in certain categories will also determine the next pecking order in market share. So, reducing emphasis on electronics as a category will help a company in attaining profitability faster, say experts.

Although electronics fetches a higher GMV than, say, clothes and accessories because of the higher price of the products, the margins and therefore revenues are much lower in that category.

Against one of two to three per cent in electronics, fashion apparel commands a margin of 10-15 per cent.

Also, repeat buying is very low in electronics. By shifting the focus from here, an e-commerce player will move quicker towards profitability, a demand increasingly made by investors pumping funds into the internet-led business. But, that could also imply a fall in the GMV pecking order that determines market share.

Apart from GMV market share, some other metrics are used by e-commerce companies to show leadership. For instance, a Comscore analysis had pegged Flipkart on top with 50 million to 100 million app downloads recently, followed by Snapdeal and Amazon at 10-50 mn.

Another latest monthly visitor data (without taking into account mobile transactions) shows Flipkart maintaining the lead, while Paytm has picked up traction, it is learnt.

In 2014, Amazon had committed $2 bn for the India market.

And, after its first quarter earnings numbers, the group said India was one of the most important markets for it and would invest what it took.

''It's an open cheque book,'' is how Amazon India head Amit Agarwal had described the investment plan of the group.

Flipkart has raised $2.6 bn since May 2014 and Snapdeal $2 bn since the start of 2014 from marquee international investors.

Both are learnt to be in talks with investors for raising more funds.

Earlier this year, Morgan Stanley, an investor in Flipkart, had marked down the value of its holding by 27 per cent in the Sachin Bansal-led company.

That brought down the valuation of Flipkart to $11 bn, from the earlier $15 bn.

Flipkart's valuation markdown is seen as a benchmark for the entire e-commerce sector.

But, according to reports, Flipkart continued to talk to investors while pegging its earlier valuation at $15 bn, while Snapdeal, too, stuck to a $6.5 bn valuation.

None of the e-commerce companies mentioned here would comment on market share issues.