Big Billion Startup: The Untold Flipkart Story

by Mihir Dalal

  For my grandparents

  CONTENTS

  1 Breeding Ground

  2 The Bansals Go to IIT

  3 Exodus from Amazon

  4 The Desertion

  5 Up, Down, Hello, Goodbye

  6 The Kart Gets Rolling

  7 The Eye of the Tiger

  8 'Binny Ke Batch Se Ho?’

  9 Boom

  10 The King of Shaktipeeth

  11 Setback

  12 The Tiger Cub

  13 Hello, Moto

  14 Another Bansal Joins the Family

  15 A Billion Dreams

  16 The Comeback

  17 Reinventing the Kart

  18 Chaos and Confusion

  19 After Bansal, Bansal

  20 The Tiger Cub Returns

  21 Kalyan Raj

  22 The Son

  23 A Journey to Bentonville

  24 Breeding Ground

  Epilogue

  Author’s Note and Acknowledgements

  Notes

  Index

  1

  BREEDING GROUND

  One morning in August 2004, a few days ahead of his twenty-first birthday, Ajay Bhutani was woken up by a persistent knock on the door. It was 7 a.m. and Ajay was lying exhausted in his small hostel room at the Indian Institute of Technology in Delhi.

  Ajay had dropped into bed only two hours ago, after a gruelling night at the computer laboratory on campus. He was in the penultimate semester of his four-year programme in computer science. Campus recruitment – the reason IIT students had put carefree college life on hold – was just days away. Ajay, a Punjabi boy from Faridabad, had been preparing for recruitment season for the last three years. He needed to sleep to be awake for it.

  But the knocking wouldn’t stop. Outside, one of his hostelmates called out, ‘Abey, uth ja, ek company aayi hai.’ Hey, wake up, a company’s here.

  Ajay rubbed his eyes. ‘Kaun si?’ Which one?

  ‘Amazon.’

  ‘Amazon?’

  ‘Kitaabe bechti hai online.’ They sell books online.

  ‘Usse kya hota hai?’ What’s the use of that?

  ‘Paise bahut de rahi hai.’ They’re offering high salaries.

  ‘Achha? Chalo.’ Really? I’m coming.

  AMAZON, THE AMERICAN online retail pioneer, had opened its India offices in the southern city of Bangalore the previous month. In the early 2000s, dozens of dotcoms – as internet companies were then known – had gone bankrupt. Amazon, which had been one of the prominent faces of the technology boom and bust, had managed to emerge from this gloom, albeit with a diminished reputation and stock price.

  In August 2004, the young search engine Google listed its shares, fetching a valuation that was far higher than that of Amazon.1 EBay, an online marketplace and auctions site and Amazon’s rival, earned higher profits and was considered a better-run company.

  This may not have bothered Amazon’s founder Jeff Bezos, who coincidentally was an early investor in Google. Bezos was known to mainly be obsessed with keeping Amazon’s customers happy rather than worry about rivals or stock-market valuations. But there was one other goal that kept him occupied – he wanted to transform Amazon, a hawker of books, toys and electronics, into an all-purpose technology company. Yet, all Amazon seemed to be doing was selling books, toys and electronics. It was time the company started experimenting and venturing onto new avenues. One of these initial experiments happened to be a search engine called A9. Introduced in September 2004, A9 set out to be a more advanced version of Google.

  Bezos put Udi Manber, an accomplished Israeli technologist he had lured away from Yahoo, in charge of A9. In turn, Udi persuaded Bharat Vijay, one of Yahoo’s early employees and a brilliant engineer, to join the A9 team in 2004. After working at Yahoo’s headquarters in San Francisco for nearly five years, Bharat had moved back to his country in 2000 to set up Yahoo’s India office in his home city of Bangalore. Four years on, Bharat’s mandate now was to launch Amazon’s India office. He had to assemble and lead a team that could make image searches on the internet easier, an area in which Google wasn’t exactly breaking new ground.

  Bangalore seemed like a good place to hire engineers for A9. Some of the smartest employees at technology companies in the US were Indians, many of whom were graduates of the Indian Institutes of Technology, a chain of government-subsidized engineering colleges that Jawaharlal Nehru had established in the 1950s. Amazon had arrived armed with the knowledge that IIT-educated engineers could become real assets to a company. After all, it was a group of IIT engineers who had started Junglee – a website that allowed people to compare product prices across shopping sites – which Amazon had acquired in the late 1990s. Determined to recruit the exceptionally talented, Amazon was keen to open its doors to more such inventive engineers.

  The company had another reason to set up shop in India: it was an unrealized market. Since the early nineties, when India opened its economy to foreign investment, brands and retailers had swarmed the country from overseas, buying into the notion that hundreds of millions of Indians had money to spend and were raring to devour all kinds of consumer goods after decades of forced socialist deprivation. Consultant firms and research agencies happily fed the naivete of foreign companies with wild estimates of the potential of India’s retail market. The local media even labelled Kishore Biyani – the founder of Pantaloons and Big Bazaar – India’s Sam Walton.2 In 2004, Amazon’s arch-rival eBay would buy Bazee, an Indian clone of eBay, for $50 million.3 Gradually, after the dawn of liberalization, the forbidding, socialist India of the last forty years had transformed into a virgin consumerist paradise for American and European brands.

  Indians, of course, had their own view about this representation of their reality. In 2004, the Indian people ousted a coalition led by the Hindu nationalist Bhartiya Janata Party. The BJP had campaigned on the premise that until the party’s most recent tenure in the central government, Indians had never had it so good, an idea encapsulated in its election slogan ‘India Shining’.4 Shockingly, in a country where nearly forty per cent of the population was poor and most of the rest just got by, Indians didn’t think their hunger to consume was a cause for celebration. It wasn’t that life under the BJP hadn’t improved for many; the improvement had just been incremental rather than the miracle claimed by the party. Politicians, like astrologers, are usually better off promising a happier tomorrow rather than glorifying a barely tolerable present.

  But in fact, just as Amazon opened its office in the IT city of Bangalore in July 2004, India entered a period of unprecedented economic expansion, building on the foundation laid by the reforms of 1991 and then further solidified by the BJP. Thirteen years after he had helped implement the liberalization policies as Finance Minister, Manmohan Singh, now Prime Minister of the Congress-led coalition government, began a five-year term during which India came as close to ‘shining’ as it ever has.

  In this period, from 2004 to 2009, many Indians bought basic commodities like soaps and biscuits for the first time. They bought mobile phones and television sets, installed telecom connections. From country liquor, they switched to whisky, even if it was a local variety. In fewer numbers, Indians acquired scooters and cars. A few million lavished cash on computers and internet connections. For a time, it seemed not impossible that Kishore-ji could actually become a ‘poor man’s’ Sam Walton, as not only consumer goods makers, but many kinds of businesses blossomed in this period. IT services lost their glamour – the call centre myth, like the actual experience of working at one, was unsuited for longevity – but sales and profits at IT companies soared to record levels. From just two bi
llionaires in the mid-nineties, India boasted as many as forty-nine billionaires by 2010, as was pointed out in Forbes magazine.5 Capitalism replaced socialism as India’s guiding economic philosophy, as consumerism went mainstream, enthusiastically taken up as a way of life by a growing middle class.

  They weren’t aware at the time, but this was the new India that Ajay and his IIT-mates – among whom were Sachin Bansal and Binny Bansal – would witness in the first phase of their careers. And in their impressionable years, Ajay, Sachin and Binny, along with a hundred other unformed engineers, were indoctrinated in the practice of perpetuating consumerism by Amazon, a company that existed solely to convert every living person to this faith and keep them entranced through its unending cycle of product accumulation and delivery.

  TECHNOLOGY ENTREPRENEURSHIP HAD taken off accidentally in the US and China. In the 1950s, the US government funded research in California aimed at improving America’s defence and aviation technology. These research projects, and the lure of prestigious institutes such as Stanford University, drew some of the smartest minds in science and technology to California. As these innovators – the most prominent of whom was William Shockley, winner of the Nobel Prize in 1956 for his role as one of the inventors of the transistor – collaborated, they birthed inventions that would eventually lead to the introduction of personal computers and pave the way for mass adoption of the internet. In the 1960s, the counterculture movement supplied the ethos that induced people to believe that personal computing would transform the world for the better even as they enriched themselves beyond belief. In a nutshell, an unlikely combination of government-funded research, the madness of flawed geniuses like Shockley,6 a small number of adventurous financiers, along with the hippie movement, created and nurtured entrepreneurship in Silicon Valley. Companies like Fairchild Semiconductor, Intel, Apple, Netscape and Paypal were born, which in turn spawned hundreds of entrepreneurs.

  The evolution of India’s internet ecosystem was slightly more straightforward. Its epicentre was Bangalore, which was once described by Nehru as ‘the city of the future’.7 Modern Bangalore traces its origin to 1537 when Kempe Gowda, a ruler of the Vijayanagara Empire, built a fort and established a settlement in the region. In 1799, the British won the state of Mysore. A decade later, a cantonment area was established for British officers in Bangalore, in close proximity to Kempe Gowda’s old town.

  After India’s independence in 1947, Bangalore became the country’s tech centre. The city was home to the Indian Institute of Science, many engineering colleges and government-owned companies such as Hindustan Aeronautics which were engaged in technology work. Many of these institutions had been established before independence through the efforts of the great technocrat M. Visvesvaraya with help from industrialists such as Walchand Hirachand and Jamsetji Tata and the progressive ruler of Mysore state, Krishna Raja Wadiyar IV.8

  In 1985, Texas Instruments, an American hardware firm, opened an office in Bangalore and rapidly attracted some of the country’s best engineers. Around the same time, Infosys, an unknown startup in those days, moved offices to Bangalore from Pune. The success Infosys achieved soon after proved something important: it was possible for entrepreneurs from India’s middle class to establish hugely successful businesses by dint of sheer innovation and hard work, without having to curry favour with bureaucrats and ministers to get ahead. Infosys’ success also firmly anchored Bangalore as the tech hub of India for the private sector. The city’s pleasant weather, cheap rents and cosmopolitan ethos made it all the more attractive to prospective migrants. In the mid-2000s, the term ‘Bangalored’ entered the political and economic lexicon.9

  Soon, India’s booming economy caught the attention of American venture capitalists hunting for promising new markets in software, internet and consumer businesses. The venture capital scene that had lapsed into a moribund state after the American tech bust was quickly rebuilt around 2006. Indian-American tech executives, such as Ashish Gupta (one of Junglee’s founders), Vani Kola and Vinod Dham, moved to India to set up venture funds. Entrepreneurs like Avnish Bajaj, Suvir Sujan and Alok Mittal entered the venture capital arena after making a few millions selling off their internet businesses in India. Other early venture capitalists like Sudhir Sethi, and the Subrata Mitra–Prashanth Prakash duo – whose fund Accel Partners would become the first institutional investor in Flipkart – had spent their careers in India’s IT sector but now wanted to be at the frontier of the country’s next technology boom.

  While all these factors created a hospitable environment, a crucial formative influence on internet entrepreneurship in India was that of Amazon.

  By helping establish Bangalore as India’s tech city, IT companies led by Infosys and Wipro had provided a foundation for new internet startups. But in the aesthetic sense, Infosys and Wipro weren’t purely technology companies. Students at top engineering colleges such as the IITs had little regard for IT companies – they didn’t fancy work associated with terms such as ‘body shopping’, ‘BPO’, ‘call centre’ and ‘labour arbitrage’. And the narrative of these companies’ founders who had built staid, stable businesses through many years of toil held little appeal in an India that was thirsting for instant success and wealth. This immediacy was still linked to getting a job at an international organization. A different and fresher corporate environment was needed to change this mindset, to attract the youth to participate in entrepreneurship in the new India.

  The first generation of internet companies in India had collapsed in the early 2000s and never recovered. There were exceptions: Infoedge, a conglomerate of digital businesses, and the online travel company MakeMyTrip. But the glamorous aspect of the startup myth – rookie engineers creating extraordinary products or websites from their garages and becoming rich and famous overnight – that inspires entrepreneurs, was perhaps missing from these companies. Their respective founders, Sanjeev Bikhchandani and Deep Kalra, were outstanding businessmen, but their old-fashioned outlooks and staid personalities were in the Infosys mould. They were also based in Delhi. In the internet business, location is paramount in an ecosystem’s early days – the desire to start one’s own company is a physical sensation that spreads like a fever from people who take the plunge to their colleagues, friends, acquaintances. Unlike Bangalore, Delhi did not yet have a large enough network of skilled engineers itching to quit their jobs to code up their own websites. (A few years later, however, Gurgaon would emerge in its own fashion as a rival startup centre to Bangalore.)

  So it was that the American internet companies, despite the big bust of year 2000, brought fresh inspiration to India’s would-be entrepreneurs. Synonymous with instant wealth, fame and the glamour of innovation, these companies wielded irresistible powers of seduction. They were at the frontiers of economic and social transformation, the new messiahs in the age of globalization. And they seemed to be saying that the rewards they had enjoyed were within one’s grasp; all one had to do was take the leap into entrepreneurship. Out of these companies, it was Amazon that became the breeding ground for the first consequential batch of internet voyagers, providing them not with the skills and knowledge necessary for entrepreneurship, but with something more fundamental and important: confidence, the belief that you could do it. Most of those who took the plunge from Amazon and ventured into entrepreneurship didn’t succeed in creating big companies. Instead, what mattered was that they went on to start something when few in India believed in such a thing as an internet business.

  In 2005, Infosys co-founder Nandan Nilekani found global fame after the New York Times writer Thomas Friedman published his bestselling book The World Is Flat. Friedman had derived the phrase from a similar statement – ‘... the playing field is being levelled’ – that Nilekani had expressed to him in an interview.10 By this time, however, Infosys had almost completely lost its appeal in the elite tech colleges – few engineers wished to join their ranks, the work seemed boring, the pay meagre. As if to prove Nilekani’s t
heory about the world supposedly flattened by globalization, it was Amazon, not Infosys, that came to inspire the next generation of tech and internet entrepreneurs in his home town of Bangalore. A reverse outsourcing, as it were.

  AMAZON GOT OFF to a slow start in India. Bharat Vijay, tasked with setting up Amazon’s India office, started at the company in July 2004. He asked a family friend, Anand Rao, to join him. Anand, an upcoming sales manager used to dealing with uber-formal corporates, turned up for his interview in a suit, only to bemuse his interviewer, who had spent the past eight years in the outlandishly casual setting of Yahoo, dressed in shorts, T-shirt and flip-flops. That day, Anand gave up formal attire for the rest of his life.

  Soon began the groundwork for the launch of Amazon’s retail business in India. Following its trajectory in the US, Amazon planned to launch itself here, too, as a retailer of books. Anand studied the market, met books suppliers, distributors, logistics companies and drew up a strategy to launch operations. A part of his mandate was to look for potential acquisitions – Amazon had just entered another Asian market, China, by buying the online retail company Joyo for $75 million.11

  But it was A9, Bharat’s search engine project, that formed the centrepiece of the India office. A team of Amazon leaders from the company’s headquarters in Seattle visited India towards the end of July to supervise the launch. They were in town also to institute Amazon’s singular corporate culture, particularly its recruitment process. That Amazon was serious about its India operations became evident from Rick Dalzell being part of the delegation – he was a deputy of Jeff Bezos and one of the most well-respected officials at the company.

  Amazon’s first office in Bangalore was located in Divyashree Chambers, a three-storied building in an area known as Langford Town, which forms part of Bangalore’s colonial district. Apart from hosting Amazon, the building, packed with engineers, also housed an IT services firm called e4e Labs.