Big Billion Startup: The Untold Flipkart Story

by Mihir Dalal

  Another instance of Flipkart’s disjointed approach was its sudden decision to prioritize sales volumes. Flipkart had earlier set out to achieve ₹3,000 crore in monthly sales by the end of 2015, which meant growing by more than two and a half times in one year. But sometime in the middle of 2015, the Bansals suddenly decided to focus on growing the number of orders instead of sales value. They reasoned that volume, not value, was a truer indicator of demand, and this would grow over time in any case if the demand was strong. Sachin told his team, ‘Forget about revenues. Focus on units. We’re not a commerce company. We’re a data–technology company. Data depends on transactions and volumes.’

  The technology team implemented this instruction literally, making immediate changes on the app to provide prominent positioning to low-priced, high-volume products. On the app’s opening screen, products such as cheap footwear and slippers were promoted. These goods, offered by inexperienced third-party sellers, sold in high volumes initially, but their quality was poor, leading to higher rates of product returns. Still, sales leaders fell over themselves to stock up on cheaper items. Instead of jeans and shirts, socks, underwear and belts were hawked to customers. These abrupt changes confused and disoriented customers. As with any other retailer, Flipkart offered a mix of low-value, mid-value and high-value products. A customer might have wanted to purchase from all three sections. According to a Flipkart sales executive, the product team needed to understand the importance of striking a balance. This balance could only have been attained by a thoughtful approach, which proved to be elusive because of the broken relationship between the tech and sales divisions.

  The company’s top leaders had a weak grip over day-to-day matters. Sachin was busy with the advertising business, Binny had restricted his involvement to Ekart. As the head of the marketplace and commerce business, it was eventually up to Mukesh and his seniormost executive, Ankit Nagori, to ensure that the sales function ran smoothly. But Mukesh would rarely be seen at sales meetings and displayed little interest in discerning how Flipkart’s business actually functioned on the ground. Mukesh believed that, as the leader of the commerce platform, he wasn’t required to immerse himself in implementing decisions; that was his team’s responsibility, and he had accordingly given free rein to executives such as Punit. Meanwhile, Ankit stayed absorbed in expanding the marketplace business – in its bid to move away from the inventory model, the company was adding tens of thousands of third-party sellers on its platform.

  In 2015, few people at Flipkart seemed to bother with the seemingly mundane matter of running the company. Engineers were busy launching new innovative features on the app to fulfil Sachin’s wish of revamping Flipkart into a technology company. It was often a self-indulgent pursuit. Two new features were launched in quick succession to much fanfare: Ping, a messaging service, and Image Search, which let customers search for products based on pictures. Flipkart’s leaders believed that the continuous introduction of such features would lead to a superior shopping experience on the company’s app, better than walking into a mall or a high-end store, certainly better than shopping on the jaded old desktop site. Such ‘moonshots’7 were prioritized even though Flipkart was yet to fix fundamental flaws on its app. Its basic search feature was far worse than that of Amazon. This was symptomatic of the heady environment at the company – it was ‘solving First-World problems when it had Third-World issues,’ many of which hadn’t been addressed. In its early years, Flipkart had been characterized by a ‘let’s do it’ spirit. Now, success was considered inevitable – it was Flipkart’s entitlement. The management said, ‘Think big – for the long term.’ ‘And everyone started thinking big,’ says a mid-level sales executive. ‘Everyone was building for the future. No one was focusing on the present. It was assumed that the moonshots we were pursuing will automatically translate into growth. But how would sales actually increase – no one was going into [these] details. Bas hawey mein baat ho rahi thi – everyone was building castles in the sky.’

  The marketplace business wasn’t faring too well either. Sachin had been insistent that the company immediately shiftto the marketplace model. Accordingly, Flipkart tried to move sales of most products – smartphones, its biggest category, was the exception – to third-party sellers. On Sachin’s orders, the marketplace team led by Ankit dedicated most of their time towards bringing thousands of new sellers on to Flipkart. Sure enough, every month, the seller count kept going up. Periodically, Flipkart released press statements, celebrating its ever-increasing seller numbers, as if it was breaking records. But no one, apart from Flipkart, was interested, no one was keeping score. Certainly not Flipkart’s customers. The headlong shiftto the marketplace model, in fact, caused considerable damage to Flipkart’s brand. Inexperienced sellers failed to deliver the high standard of service customers expected from Flipkart. Some sellers would ship black T-shirts when customers had ordered grey, or red shirts instead of maroon. Some of them shipped inferior or second-hand goods; many lacked the rigour to meet delivery timelines; fraudulent activities weren’t uncommon. Flipkart had been built to be a retailer; its technology tools, processes and logistics systems were designed to serve a retail business. It didn’t have the means to run an efficient online marketplace, which is an altogether different business. The company could only have built it over time, but it wasn’t ready to wait.

  In one especially egregious case, third-party sellers defrauded Flipkart of several crores of rupees. The company had set up a fund to indemnify sellers for ‘bad behaviour’ by customers. As per Flipkart’s policy, if customers returned products despite the sellers not being at fault, they would be compensated by the company. Exploiting this policy, some sellers set up an army in a small city that would place orders only to cancel them. It was a few months before Flipkart caught on to this fraudulent business. It wasn’t just Flipkart that had to deal with such problems; all online marketplaces, including Amazon and Snapdeal, struggled with a variety of seller and customer frauds that year. It is a common feature in a nascent market that has suddenly exploded; e-commerce firms eventually catch on and are known to then devise mechanisms to weed out such activities.

  In the advertising business, too, Sachin effected radical changes. After taking over the fledgling business in early 2015, one of Sachin’s first acts was to shut it down, giving up revenues of ₹10–15 crore every month. ‘That is peanuts for a company of Flipkart’s size and ambition,’ he told his team. By Sachin’s logic, since the website would soon be shut down, it made little sense to continue posting ads there. Instead, he urged the advertising team to create new software for Flipkart’s mobile app. This would be used to display ads by the growing number of third-party sellers. The company also bought an advertising startup, AdIquity, to serve ads by popular brands.8 Even before the new advertising software had been created, Sachin promised the company’s board of directors that Flipkart would generate $100 million in advertising revenues within one year. If Flipkart achieved this target, it would surpass Facebook’s India business – a miraculous feat, as Flipkart enjoyed less than a tenth of Facebook’s users. Yet, Sachin was convinced Flipkart would outsmart Facebook the way the American company had outlived old rivals and bested new startups in the US when it had expanded its business to the mobile app a few years ago. Sachin named Flipkart’s ads technology FAN – the Flipkart Ads Network. It was inspired by Facebook’s FAN – the Facebook Audience Network.

  Flipkart was undoubtedly operating in a make-believe technology utopia. In the advertising business, executives spent many weeks working on complex mathematical equations, not to solve business problems but just to distil the performance of the unit into two or three metrics that could be presented to Sachin, on the basis of which he would determine the health of the business and make decisions. It seemed that the Flipkart CEO considered the traditional ways of running a business too backward and unbecoming of himself.

  In 2015, Flipkart was both the zeitgeist and a product of its times. It wa
sn’t just Flipkart, engineers at all internet startups had entered their own, self-contained tech utopias. The eighteen months starting from early 2014 was truly an epoch for Indian startups. More capital went into startups in that period than what all Indian internet startups combined had received in the preceding decade.9 Earlier, if things went well, an investment would be completed within a few months. But in this period, deals were struck in a matter of days. One venture capitalist, Niren Shah, recalls how he was informed, as he was on his way to a scheduled meeting with an entrepreneur, that he would no longer be needed – the entrepreneur had already signed an investment deal minutes before, and within minutes. At a startup conference in 2015, a budding entrepreneur told a journalist that his startup would launch a product that would ‘kill’ Uber and Ola. Not satisfied with demolishing these transportation companies, he said, ‘in confidence’, that he was also working on a new search engine that would vanquish Google within two years.10

  IN AUGUST 2015, the Economic Times published an interview with Snapdeal CEO Kunal Bahl. Snapdeal was on a high at the time. It had just received $500 million in capital from Alibaba, Foxconn and SoftBank, in addition to the $850 million it had raised from SoftBank and other investment firms in the previous year. Kunal made a startling claim in the interview: Snapdeal would overtake Flipkart by March 2016. He added that Myntra’s app-only move had helped Snapdeal expand its fashion business. He mocked Sachin, calling his move ‘the most consumer-unfriendly idea’ he had ever heard.11

  Flipkart executives were furious. They had always considered Snapdeal a pest, not to be taken too seriously, but an irritant nevertheless. But this was too much. A few days later, Mukesh Bansal responded. Flipkart would sell goods worth $10 billion in 2015–16, and ‘nobody will be even half of that’.12

  The hyperbole was indicative of how intense the rivalry between Flipkart and Snapdeal had become after their mega funding rounds of 2014. The two companies were desperate to be seen as the top dog in e-commerce. But they weren’t just battling each other. Amazon had made quiet inroads into the minds that mattered most – of shoppers.

  Amazon India had set up shop in June 2013, but its expansion had been slow. When Flipkart decided to cut its books budget, Kalyan Krishnamurthy and Binny had been of the opinion that Amazon would not gain much even if they got monopoly of books sales online. It would not be able to cause Flipkart serious damage. The books market was small, less than half a per cent of the overall retail market. It was of no significance, they had concluded. Soon, it became clear that they had made a strategic blunder.

  Until late 2014, Amazon had failed to topple Flipkart in any major category. But after being handed the books market on a platter, Amazon had replaced Flipkart as the largest seller of books in the country by the middle of the year. The triumph in books, along with the concurrent victories in laptops and electronic accessories, strengthened Amazon’s belief in its India strategy, energized its executives and spurred the company to move faster. It provided Amazon the ideal launchpad from where it could eventually stake its claim to market leadership. By the end of 2015, Amazon had come a long way towards becoming a full-fledged retailer, offering – apart from books – fashion, smartphones, tablets and other products. While Flipkart had wasted many months splitting hairs about whether it was a technology company or a retailer, Amazon had been consumed with attracting and retaining customers, learning the nuances of the Indian retail market and introducing innovations to adapt to it.

  Amazon’s India head Amit Agarwal was earning his nickname of Jeff Bot. Every week, Amit and his leadership team would gather in a room at the company’s headquarters in Bengaluru to discuss the previous week’s performance. The meeting would start off with a customer call. It usually got ugly. People could be seen ‘bristling, recoiling in their chairs because the customer [was] going on and on’ about how Amazon had disappointed them. The call would set the tone for the meeting. Amit himself received many customer emails directly. The worst were those forwarded by Bezos himself (Amazon encouraged customers to write to its leaders directly whenever they faced problems with its service). Amit had read so many such emails that by now he could, like an algorithm, predict an issue after reading a few lines.13

  The famous Amazonian pursuit of pleasing customers was working out well, especially in the urban areas, where much of online retail was concentrated. In the metros, Amazon’s low prices and fast delivery times were winning over an increasing number of shoppers. It was outspending Flipkart and Snapdeal in every area of e-commerce and assembling a product assortment so vast that customers could spend their lives shopping on the platform. Amazon was also occupying massive warehouses every other month, relentlessly expanding its logistics network.

  AS THE MONTHS went by, Sachin’s impatience grew. Flipkart had still not moved decisively towards shutting the website, and its marketplace shiftwasn’t happening fast enough for his liking. In September 2015, Sachin issued instructions to remove discounts and other incentives from the desktop site – these would be offered only on its app. He went a step further in October, when Flipkart held its second Big Billion Days sale. It would be a five-day event this time. Sachin had laid down the law to his colleagues and customers: the sale would be held only on the app. Shoppers who went to the Flipkart website were prodded to turn to their apps or install it if they hadn’t already. Sachin wasn’t just preparing for the mobile-only era, he was trying to hasten its arrival by making a concerted effort to shiftshoppers onto the mobile.

  Unlike the first Big Billion Day sale, this time it went off without incident. It was held during the middle of October, a few weeks before Diwali. The preparations had been thorough. The technology infrastructure was overhauled. Demand was rationed by assigning one day each to key product categories such as smartphones, electrical appliances and fashion. As with the inaugural sale, Flipkart employees once again worked through nights in the week leading up to Big Billion Days. During the five-day event, Flipkart even stationed an ambulance14 outside its office, to ferry exhausted workers to nearby hospitals if required. Flipkart had some of the best-paid engineers in the country, working in luxurious, air-conditioned offices stocked with energy bars, food and Red Bulls. No effort would be spared to ensure their upkeep at this juncture; Flipkart was a company with a conscience.

  Despite the extensive preparations, Flipkart fell slightly short of its revenue target. It was clear that restricting the sale to the app had caused the deficiency. Still, the Flipkart team was in a celebratory mood: at least the sale had been carried out without major glitches. The company organized a party for all its employees at the end of October. Ayushmann Khurrana, actor and television host, was the host of the party. The singer Vishal Dadlani performed with his band. The headlining act was by film star Akshay Kumar, who entertained several thousand Flipkart employees with a dance routine. It was an extravagant affair – the company had spent more than $1 million on a party that celebrated a sale event just because it had gone off without blunders. It was a measure of how much Flipkart had changed.

  Though the decision to restrict the sale to the app had limited Flipkart’s reach, Sachin’s conviction about the app-only idea hadn’t wavered. For him, such fleeting pain was but a trifle. He had his eyes on the far more important objective of establishing absolute dominance in the next big thing – shopping on the mobile. He pointed out to his colleagues the surge in app usage in the past ten months. The number of app downloads had jumped to nearly fifty million from ten million since the end of 2014. Sachin insisted that Flipkart push ahead with its app-only drive. In the weeks after Big Billion Days, Flipkart continued to hold app-only sale events, posting higher prices on products on its website.

  But by the end of October 2015, Flipkart’s management team had begun rebelling against Sachin’s push to close the desktop site. Even Punit expressed opposition to it. After website discounts were halted in September, Flipkart had been deprived of hundreds of millions of dollars in sales. For the second mo
nth running, sales targets had been missed – the shortfall roughly amounted to the drop in demand on the desktop website. It wasn’t making sense. Flipkart leaders also told Sachin that the company should maintain its retail business and suspend the expansion of the marketplace until it had improved its technology tools and learnt how to run a marketplace platform efficiently. There was enough evidence that the company was suffering badly from the radical shifts it had effected.

  Towards the end of the year, Sachin’s obsession with going app-only met with its first real backlash from the outside world. Flipkart’s largest smartphone supplier, Xiaomi, informed the company that it would no longer work exclusively with Flipkart. It was keen on expanding its retail presence. In private, Xiaomi executives told their Flipkart associates that the exclusivity arrangement was no longer satisfactory. Flipkart had lost its status as the preponderant e-commerce brand. Its service had become unreliable and inconsistent, and its app-only rhetoric made little sense to brands or to shoppers. On the other hand, Amazon, the legendary international e-commerce champion, was the rising power in India. Its user numbers and sales were expanding much faster than Flipkart’s. It was clear to Xiaomi, the most sought-after brand in e-commerce, whose future was brighter. And to sweeten the deal, Amazon was offering more lucrative terms than Flipkart. It was a no-brainer: Xiaomi decided it would now supply its latest phone models to Amazon instead of Flipkart.