by Mihir Dalal
It was common knowledge that Amazon would kickstart with books. Flipkart executives came to know that Amazon had planned a big surprise to announce its arrival in style. The company had persuaded a few well-known authors to deliver books to customers in person. Nipun Mehra, Flipkart’s books head, was worried. If Amazon marked its entry with a big bang, it would spell trouble for Flipkart – and for Nipun. He called up his contacts at publishing houses and told them, ‘I can’t tell you to not do something for someone else. But if you’re doing it for them, then you have to do it for me as well.’ Reluctantly, they agreed. Flipkart even managed to get some authors to do book deliveries before Amazon’s plans got underway.
Amazon launched its India website in the first week of June. On 4 June 2013, the pricing team at Flipkart worked through the night. It was worth the effort. Amazon launched at midnight, and by 4 a.m. Flipkart was matching its prices. The next day, Flipkart executives noted with satisfaction the tweets from users pointing to the pricing parity between the two sites.
Flipkart had ensured Amazon’s launch was rather subdued. But this was just the start. Amazon was here to stay. It was going to be a long war.
IN 2013, INDIA’S economy was struggling. After overseeing the country’s most prosperous period in its first five-year term beginning in 2004, the Congress-led government under Manmohan Singh was mired in corruption scandals. In the final phase of its second term, it had run out of ideas; its end couldn’t come fast enough. The rupee had slumped, inflation was high and economic growth had slowed down. The expansion of the economy in the previous decade seemed like a fleeting surge out of a morass, only for it to be dragged back in when its limited energy was exhausted. The government’s combative taxation moves had put off businesses, which had also been complaining about a ‘policy paralysis’ for years.2 Investments by companies, many of which were also plagued with internal problems, dropped. Big business was recovering from the excesses of the 2000s. IT and telecom companies, the standout performers of the previous decade, showed lacklustre performance. Narayana Murthy had returned to Infosys, but he couldn’t seem to halt the company’s slide into mediocrity.3
E-commerce was no different. Out of the fifty-three e-commerce firms that had received venture capital since 2010, less than a dozen managed to raise more money.4 Soon, many would vanish, either forced shut or sold at fire-sale prices.
Out of this gloom, a new corporate star was emerging: Flipkart. By the middle of 2013, its sales had nearly doubled in just six months. Its finances were improving rapidly. Its service had recovered its earlier excellence. Customers seemed to love the brand again; lakhs of new users were signing up every month. Flipkart was now an established retail brand. It was no longer just a seller of books that happened to peddle other goods. In fact, books now contributed to less than a fifth of the company’s sales by value. The diversity in the business greatly enhanced the company’s standing with investors, as did its improving finances.
In July 2013, Flipkart raised a new round of capital, pulling in as much as $200 million. Its existing investors Tiger Global, Naspers, Accel Partners and Iconiq Capital, all chipped in. There was a party at Shaktipeeth. Senior leaders, including Kalyan, danced. In an emphatic statement, Sachin declared, ‘It’s a big validation of Flipkart and Indian e-commerce. There have recently been a lot of sceptics in the media and in business circles who have questioned – rightly so – whether e-commerce is healthy and whether Flipkart is running the way it should be, whether it has the right strategy. This event should put those questions to rest.’5
Three months later, the number of sceptics would reduce further. In October, Flipkart announced another injection of cash – this time it had raised $160 million from four new investors, Dragoneer Investment, Morgan Stanley Investment Management, Sofina and Vulcan Capital Management.6 By the close of financial year 2012–13, Flipkart’s losses had soared to ₹644.37 crore. But investors were taken by the growth in revenues, which now stood at ₹1,163.1 crore.7
Finally, Flipkart’s valuation jumped to more than $1 billion. It was a monster in India’s tiny startup ecosystem. Earlier that year, Redbus, a startup that sold bus tickets, had been bought by Naspers. Redbus was one of the biggest and most successful startups in India. Its sale price was $135 million, only about a tenth of Flipkart’s valuation.8 Flipkart was in a league of its own. Its two recent funding rounds had been orchestrated by Lee Fixel – purveyor of legendary investment stories – and Sachin. Although, by this point, the Flipkart story was writing itself.
14
HELLO, MOTO
When temporarily stepping back from his role, Sachin Bansal had imagined he would return to the driver’s seat in the near future. But that wasn’t to be. He ended up spending much of 2013 outside Flipkart. The Enforcement Directorate’s inquiry proved to be demanding. It required him, as Flipkart’s representative, and Tapas Rudrapatna, as WS Retail’s delegate, to make several visits to Delhi. There, government officials grilled the two about the relationship between Flipkart and WS Retail. But by the end of the year, the inquiry was losing its intensity. Sachin gradually became convinced that the company would be let off. The structure Flipkart had created for itself and for WS Retail was a classic example of abiding by the ‘letter of the law rather than the spirit’.1
Apart from the ED’s inquiry, Sachin had also been preoccupied with the fundraising exercise that not only secured Flipkart’s immediate future but had also elevated it to the status of India’s most outstanding young company. The fund raise had also resulted in a tremendous increase in Sachin and Binny’s wealth. Back in Chandigarh, Sachin built a large house for his family and bought another Mercedes. The house was a statement of his prosperity, an indisputable mark of high status and power in his family circles.
Sachin was also crowned Entrepreneur of the Year at the 2013 ET Awards, an event organized by the Economic Times.2 He accepted the award in the presence of India’s biggest business tycoons. It announced his arrival as a promising new player in the corporate world. The award was proffered to him by none other than P. Chidambaram, India’s finance minister at the time. The irony was impossible to miss – the award came at the end of a year in which Sachin had been interrogated by the financial police of the government.
Sachin had, in fact, begun to grow restless within his company. Dealing with the regulatory inquiry and fronting the fundraising discussions were essential tasks, but they were removed from the company’s business operations. On the periphery of daily affairs at Flipkart, he had to watch the company thrive from a distance. It was unsettling. Sachin had loved being in charge, directing the company, taking it onto new, unexplored avenues. He enjoyed the power, the successes – the thrill of entrepreneurship was beckoning him back.
But in what way could Sachin go back? What would he do now at Flipkart? The company’s growth in 2013 owed much to its strong foundation created largely through Sachin’s vision and key insights about cash payments and a flexible returns policy. But it was now one year since Sachin had stepped back; the dynamism of the internet space is such that even a short spell on the sidelines can lead to a loss of understanding, and disorientation.
Still, Sachin was determined to find a way back. When he was in charge, the engineers had been the masters of the company, at least in his view. Every month he would ask his team, ‘What new features have we built for our customers?’
Now, under Binny and Kalyan, the sales team had become ascendant, and the technology team only played a supporting role. This was unacceptable to Sachin. Towards the end of 2013, he began to complain to colleagues that Flipkart had stopped ‘innovating’ and was being run in a ‘blindly tactical’ manner. According to a former Flipkart executive, Sachin was especially peeved with the company’s product function. He wasn’t happy that Flipkart had failed to produce exciting new features on its website. Sachin noticed that engineers had become subservient to their sales counterparts, and weren’t ‘creating new experiences for customers�
�. While this was true, according to the executive, it had its benefits. ‘It wasn’t like the sales team was asking the engineers to make random features.’
Sachin had watched Kalyan’s growing stature with alarm. Their relationship wasn’t great. Kalyan was a straight-up dhanda guy. He had little time for technological tinkering that didn’t provide a direct, immediate boost to sales. He thought of Flipkart as a retail business whose sole purpose was to grow its sales as fast as it could, through the most economic means, and thereby increase its valuation. Sachin, on the other hand, thought of himself as a technologist and inventor, and of Flipkart as a company that was using the power of software to offer a high-quality commerce service. Their personalities, too, were mismatched. Kalyan sometimes travelled with Sachin for meetings with investors, recounting later to his friends that these were awkward trips, filled with long silences and conversations that ended as abruptly as they would begin. Kalyan was an extroverted leader who liked shooting the breeze with his trusted colleagues; Sachin was an inward-looking engineer, inherently awkward around people, whom he found less interesting than his video games.
Nevertheless, it was clear to Sachin and Binny that many people at Flipkart, especially executives in the sales and finance functions, enjoyed working with Kalyan. Sachin may not have been happy about it, but there was no denying that Kalyan with his single-mindedness had helped transform Flipkart from a promising startup into a highly efficient machine ruthlessly achieving its goals every week, every month, every quarter. Lee Fixel was insistent that the interim CFO prolong his stay at the company. Besides, even Binny held Kalyan in high esteem.
In December 2013, despite Sachin’s reservations, Kalyan was rewarded with the role of Head of Categories – Retail. The move legitimized Kalyan’s growing influence at the company. He had initially moved to Flipkart for a few quarters to help fix its finance function; it was now clear he would be here much longer.
Despite promoting Kalyan, Sachin continued to express disapproval at the way Flipkart was being run. One of his more persistent complaints had to do with the slow progress of the company’s mobile business. He pointed out that customers were increasingly using their phones to browse and shop. Soon, the launch of 4G connections and the introduction of cheaper smartphones would trigger a huge shiftin browsing from desktops to the mobile. Yet, Flipkart remained stuck in the ‘desktop era’. Its mobile app and mobile site were substandard, Sachin moaned. And they weren’t improving fast enough. He would often raise hell with the engineers working on the mobile technology team. In turn, they would vent to their bosses, ‘Humare haath dho ke peechhe padha hai Sachin. He is being relentlessly demanding. Can’t you tell him to go easy on us?’
IN EARLY 2013, a recruiter had reached out to Michael Adnani on behalf of Flipkart. The fifty-something Michael was a veteran of the American retail and technology sectors. He was employed at the Chicago offices of Sears, the retail pioneer that was struggling to survive, partly because of Amazon’s rise. The recruiter told Michael that an upcoming Indian e-commerce firm called Flipkart was looking for a senior sales executive. Michael was intrigued. Not only was he unaware of Flipkart, he had never even visited India. After a few conversations with the Bansals, Michael realized that they had reached out to him because his last name, Adnani, sounded Indian. Michael was, in reality, an Iranian-American who had lived in the US most of his life. But the conversations had gone well, so they continued to stay in touch.
Flipkart had reached out to him because the Bansals were keen to prepare a long-term strategy to keep Amazon at bay. While Amazon’s launch had been a meek affair, they knew that the American company would soon turn into a serious rival. Amazon was struggling in China, which meant India was the last big retail market that remained unconquered. It was obvious that Amazon would throw its might behind succeeding here. Its country manager in India, Amit Agarwal, was a highly regarded leader. Amit had also led Amazon India when the Bansals worked there as junior engineers. His appointment was proof that Amazon wanted to avoid the mistakes that had crippled its China venture, where its management team had felt unfamiliar, unable to grasp the nuances of its retail market. (Amit was the same Amazon leader who had laughed off Sachin’s asking price of $1 billion for Flipkart in 2011.) Michael, on the other hand, had worked at companies that had been through the trying experience of an Amazon onslaught. The Bansals believed that his experience would be useful in the coming years.
It wasn’t just Amazon; Flipkart had another rival to consider: Snapdeal. The company’s shiftto e-commerce was going well. Its CEO Kunal Bahl had made a bold announcement that Snapdeal would register gross sales of ₹2,000 crore in the financial year 2013–14. Taking a dig at Flipkart, he said that its inventory model was ‘dead’, and touted the superiority of Snapdeal’s bazaar.3 Actually, despite its fast growth, Snapdeal was a distant second to Flipkart. But Kunal was an articulate, persuasive young man, a consummate salesman. In early 2013, he persuaded eBay – the inspiration for Snapdeal’s new avatar – to invest in the company.4 The investment, which was announced just a day before Amazon’s entry into India, included a commercial partnership between Snapdeal and eBay.5 Snapdeal had snagged a highly credible name in the e-commerce world. It was unsettling for the Bansals to see a local rival being strengthened thus, even as a renowned international giant was entering the fray.
After many months of talks, Michael joined Flipkart in late 2013 as the head of its electronics business. Sales of electronics products were increasing rapidly, but the heavier spending on discounts was also pushing up losses. Michael pointed out to his colleagues that their method wouldn’t endure. He explained that one could cut prices to boost sales, but ultimately, the P&L would suggest that it had all been in vain. This would be self-destructive, the surest way of losing to Amazon, which was brutally competitive. He warned, ‘There will be no Flipkart in 2015.’
Along with his teammates, Amitesh Jha and Sandeep Karwa, Michael devised a new plan: exclusivity. They would convince certain phone brands to sell their products only on Flipkart. It was a wildly ambitious idea. While e-commerce was expanding, an overwhelming majority of Indians still did all of their shopping in physical stores. And even though brands had grown more accepting of e-commerce, they hadn’t embraced it. They used online retailers primarily to clear out stocks of old phones. Some brands had reluctantly agreed to allow pre-orders on Flipkart – it was free of risk. But restricting the sale of their latest products to a shopping website was inconceivable to them. Even Flipkart executives were incredulous. When Michael presented the exclusivity idea, Sachin responded, ‘Are you kidding me?’
Michael met with the leaders of some of the biggest phone-makers – Samsung, Apple and Micromax. As Sachin had warned, Michael’s idea met with laughter and ridicule. One executive scoffed, ‘Flipkart is just another website. You sell a few thousand phones. We don’t even think this e-commerce is going to last.’
But Michael persisted, with a tweak to his plan: he would find brands that needed Flipkart as much as it needed them. One of the phone companies that Flipkart had been in talks with even before Michael came on board was Motorola. Once the world’s leading mobile phone brand, Motorola had lost its way. It was now trying to recapture its glory days. Sandeep Karwa, the team leader for Flipkart’s mobiles business, had been tipped off by a collegemate about Motorola’s India plans. Flipkart also reached out to Xiaomi, a Chinese startup that was winning praise for its cheap, high-quality smartphones. But Xiaomi was undecided about entering India. Motorola, on the other hand, had been working on its India launch for months. Flipkart’s talks with Motorola had gone well. In January 2014, Michael, Amitesh and Sandeep flew to Delhi to meet their team one last time. Before leaving, Michael – whose desk was next to the Flipkart founders’ – mentioned to Sachin where he was going, only to be dismissively laughed off.
All the key leaders of Motorola were present at the meeting. They said they were willing to work with Flipkart, but not exclusively. M
oto G, the phone with which it would launch in India, had been well received in other markets. The obvious strategy in India would be to sell it in stores nationwide, and Motorola was inclined to do just that. But the Flipkart executives deployed a mix of flattery, persuasion and admonition to convince the company to discard that plan. They warned the Motorola team that the phone was overpriced, that the overheads of sales demos, advertising, and so on, would add up. Very soon, Micromax and Samsung would undercut Motorola, weakening them yet again. They’d exited the market once before and were now just repeating old mistakes.
Instead, Michael and his colleagues implored Motorola to sell only through Flipkart, which would bear all logistics and marketing costs. Motorola could take the opportunity to lower the phone’s price and make it more enticing for customers. To be able to cut prices without losing margins was tempting for the company. What clinched the deal was Flipkart assuming obligation of selling 125,000 Moto G phones in six months. By now, Kalyan, the newly appointed sales head, had also grown confident about the proposed deal. He backed his team’s efforts to woo Motorola. The financial risk was now Flipkart’s. In the bargain, Motorola had reduced the price of the phone by more than fifteen per cent, a substantial swing in an ultra-competitive business.
In early February 2014, at a flashy event in Delhi, the companies jointly announced the launch of the Moto G phone. Flipkart had also prepared a national advertising campaign, which included featuring the phone on the front pages of newspapers. At midnight, several hours before readers would discover the ads, Flipkart launched the Moto G sale. Within five minutes, the company had sold 10,000 units, the quantity it had expected to sell in a month. The deluge of customers was so strong that, within twenty minutes of the sale opening, the site crashed. Another 15,000 units had been sold. At the Flipkart office, Sandeep Karwa was alarmed. He immediately called his boss Amitesh and said, ‘There’s been an attack on the site. Something’s wrong.’6
