"Online retailers Amazon, eBay making India a battleground for their contrasting business models"

MUMBAI: The world's largest online retailers, Amazonand eBay, are steadily putting together the building blocks of their operations in India, potentially making this country a battleground for their contrasting business models.

While worldwide market leader Amazon, with 2011 sales of $48 billion, is building out an expansive logistics and supply chain that will support its operations once launched, eBay is signing on new merchants for its site, in line with its strategy of being a facilitator of transactions.

While it awaits a policy change that will allow foreign investment in multi-brand retail, Amazon has opened a front through price comparison site Junglee.com, which it acquired more than a decade ago. It has already secured permissions to set up large warehouses across the country for stocking thirdparty merchandise, as well as to start a logistics arm to ship products, more or less like its US model.

eBay, whose revenues last year were $11.6 billion, is aiming to score with its marketplace model, where it does not
stock products but provides an online platform for third-party merchants to sell to registered users. eBay, which entered India in 2004, has 23,000 sellers and about 3 million registered users in the country. "Investing in fulfillment centres and holding inventory negatively impact gross margins, prevent fast scaling and pose significant challenges to business sustainability," said B Muralikrishnan, head of eBay in India.

"We would rather partner with couriers and allied service providers who are domain experts," he added.

At stake is an e-retailing market estimated to be worth $12 billion by 2015, where homegrown retailers are also choosing between the centralised and distributed models. Flipkart, for example, is following the path of Amazon while Snapdeal, like eBay, believes that logistics is not part of its core business. In the past few weeks, eBay has signed up Fabindia, Bata, Catwalk and Hidesign to its lifestyle offerings.

Trust may be the Key 

It is also working with merchants to offer customised inventory of bundled merchandise, such as belly dancing gear or horse riding accessories, as a means of differentiating itself from other online retailers. While the marketplace model might be easy to scale, Amazon's model gives it more control over product quality and hence helps it earn user trust, a critical aspect in online retailing, especially in India where e-retailing is just evolving.

When it comes to trust, eBay may be at a disadvantage, says B G Mahesh, an internet entrepreneur and one of the first Indians to taste success in the space with his Indiainfo. com

"I will buy from a marketplace only if it is a trusted brand," Mahesh said. There are others, too, who think trust can be a dealbreaker for eBay. "More success is possible in focused cataloguing rather than marketplace because the Indian community needs trust in terms of merchandise and a stronger sense of cataloguing," said Akhilesh Tuteja, an executive director at accounting and advisory, KPMG.

Retailer Fabindia, is not ruling out any one model, and is willing to give both its fair chance. "We are present on both eBay and Amazon. We are waiting and watching to see where the e-commerce space goes as it is a new frontier for India," said Prableen Sabhaney, who heads e-commerce at Fabindia. Unlike in the US, experts believe that Amazon might have an advantage in India because costs are lower. "Setting up warehouses in India is not so expensive," said Mahesh Murty, managing partner at Seedfund, an early stage investment firm and a close observer of Indian e-commerce space. "eBay is going to have to prepare itself for that."