Amazon plans to deploy $5 billion to win the Indian e-commerce sector. That is a lot of money and it will help it incur losses while taking market shares from competitors. With this strategy, it becomes increasingly obvious that Amazon may not really care about acquisition. It could have used that money to buy itself pieces of companies to get its market share number up. But it does not want to do that. With just 41 warehouses in India, Amazon is running a startup operation, at growth phase, in India.
Within miles of the new Hyderabad storage hub, is one of Amazon’s largest global customer service centers as well as one of its biggest software development facilities in the world. All of these are hidden from public view – except on rare occasions like this warehouse visit. They are all testimony to Chief Executive Officer Jeff Bezos’s aggressive Indian expansion that is backed by a $5 billion budgetary allocation.
Amazon’s 41 warehouses in India are vital in a country where the largest online retailers are marketplaces without any inventory of their own in accordance with foreign investment rules for e-commerce. Their locations are crucial because the nation’s logistics networks can be unreliable. They have to be close to sellers and with easy access to a density of buyers.
But Amazon has no choice. It needs to deploy this capital to compete as its competitors are well funded. The money Amazon has budgeted for India may not buy a sizable market share, through acquisition, since Flipkart, an industry leader in India, has a valuation of $11.6 billion after a recent funding round, where it raised $1.4 billion from Microsoft, eBay and Tencent. So, it has to go the infantry way, instead of dropping competitive ammunition from the air: Amazon has to compete and earn market share organically in India.
Following months of rumors, Indian e-commerce giant Flipkart has confirmed that it has raised $1.4 billion in new funding at a post-money valuation of $11.6 billion to battle Amazon and Alibaba. The deal includes some big-name strategic investors: China’s Tencent, eBay and Microsoft, which join existing Flipkart backers that include Tiger Global, Naspers, Accel and DST Global.
I have noted the Indian issue to illustrate how Amazon is thinking. Its strategy goes beyond India. It recently bought Souq, a Middle East ecommerce company. Where it has not done a big ecommerce deal is in Africa. We know nothing of its budget for the continent. But that does not mean that Amazon is not coming on board. I do think Amazon is just studying the continent at the moment. And it is doing so by working to get better insights through technology and business communities. It just signed a partnership to make it easier for Zambian startups to use Amazon Web Services. It is already running a light ecommerce operation in South Africa, possibly for other reasons and not necessarily to make money through shopping boxes.
Zambia’s technology and digital startups will now receive free hosting services courtesy of a partnership between BongoHive and Amazon Web Services (AWS). The offer is available to startups that have completed the BongoHive Launch Accelerator programme.
Startups from BongoHive’s Launch Accelerator programme will get free hosting services on the AWS platform.
I expect the type of partnership Amazon has with BonjoHive to mushroom. Microsoft has a similar thing through its 4Afrika Initiatives on Azure and Google has always been local. Amazon is just getting here. This implies that everyone wants to come. But for Amazon, it needs to come with its best product, which is the ecommerce business. Until it does that, not many people will know that Amazon is in Africa.
What I expect to happen in the next few months will be for Amazon to have four locations to serve East, West, North and Central Africa. It already operates in South Africa and that takes care of the Southern Africa. With these strategically located offices, it will map its strategy to move into Africa and bring ecommerce. Amazon will not make any acquisition. What it is doing in Africa has convinced me that Amazon will just come and compete for market share. With local players still at infancy in places like Nigeria, Kenya and Ghana, there is no need to acquire. The spending on ecommerce in Africa is less than 5% of total consumer spending. So, nothing has really happened to warrant acquisition.
Besides, Amazon’s name recognition and operational experience can generate enough buzz to get it on top. Sure, that did not happen in South Africa, but I have noted that Amazon operates in South Africa not necessarily to win ecommerce market share. It will have its moments for that.
Amazon needs Africa, and Africa will be similar to the feeling when it pioneered ecommerce in U.S. You cannot become one of the largest digital technology companies on earth without an African blueprint. It is irrelevant whether you are making money or not; the key is that you are there to defend the turf against competition. Just being in the continent will give it a favorable response from Wall Street, exactly the type it received when it bought Souq.
Amazon supports many U.S. merchants who now run businesses exclusively on its platform. African makers will surely benefit because Amazon can provide logistical support to local merchants to sell and ship continent-wide. Through this, it will unlock opportunities for many African entrepreneurs. Enticing Amazon to invest in Africa could be a wise decision for any African government.
---Visit our Store for my books, cases, frameworks and more. Now, enjoy our consolidated subscription for all contents (past, present and future).
-- We offer Advisory Services (tech, strategy & Africa).