The 1998 movie in which Tom Hanks starred as the CEO of a large bookstore that moved into Meg Ryan's neighborhood and threatened to run her small bookstore out of business. Fast forward 15 years and we find that the Internet ran the big bookstore out of business and the small bookstore survived by specializing.
Amazon was built in a country where 80% of retail was organized and supply chains were set in place. Price is the number one driver for customers to try a new channel, so when Amazon decided to woo customers to the Internet with a price based proposition, they made a conscious decision to undercut physical retailers and build a customer relationship based on a phenomenal experience. This worked well for them, but they had to raise over $3 billion to make this work.
Replicating this approach in a market like India where the dominant retailers are kirana shops (mom-and-pop) shops that have none of the typical fixed costs that an organized channel has is a huge and very different challenge. Of course Amazon knows this and have entered as a marketplace and have taken a position to differentiate based on selection. As an aside, I wonder if their position will drive users online.
No organized operation can beat the cost structure of the kirana shop: they pay very little rent, have few overheads and no real marketing costs. What does this mean for the ecommerce opportunity in India?
One of three things:
If you can't beat them, join them.
if the deal goes through, it may be the biggest signal yet that the Indian technology ecosystem is evolving to its next phase. It will pave the way for the emergence of a future consolidator in India’s technology market.
A company’s product enables its business model and the business model defines the parameters of the product. Neither is permanent in nature; changes in one impact the other and in the best cases they play off each other.