How Alibaba is planning to counter Amazon and Walmart in India

Sunny Sen May 29, 2018 8 min

It was around three months ago that Vijay Shekhar Sharma made a passionate pitch for India with his key backer Alibaba at its headquarters in Hangzhou, China. The setting was a board meeting of payments-to-ecommerce company Paytm*, which Sharma helms. (Three of Paytm’s board meetings are held in China every year, one in India).

Sharma, according to a senior Alibaba executive, stressed how India’s ecommerce market is hyper competitive. Not that Alibaba needed much convincing.

Global retail giant Walmart was in talks with investors in Flipkart, India’s No. 1 ecommerce player, for a buyout and US ecommerce leader Amazon was counter-bidding. Walmart finally walked away with control of Flipkart paying $16 billion for 77%.

The competition, Sharma said, was at least a year ahead of Paytm Mall in terms of execution, strategy, and money of Paytm Mall. “Sharma wants to concentrate on payments, where (Paytm) has a significant lead in the India market… He wants to consolidate that position,” said the Alibaba executive, who asked to stay anonymous because he is not authorised to brief the media.

Now that the Flipkart deal is sealed and Walmart has said it will pump in another $2 billion into the company (FactorDaily has reported an initial public offer is planned within three years), change is afoot at Paytm and Alibaba in India.

Paytm Mall will soon be taken over and run mostly by Alibaba. Paytm will continue to be a shareholder in the entity, the executive said. The timeline is sometime in July or August, but before that some results need to be shown. “Sooner Alibaba takes over the product commerce business part, it is better,” he added.

FactorDaily had reported earlier that Alibaba plans to buy out Paytm Mall.

The focus will be on month-on-month growth in gross merchandise value or GMV sales, onboarding more sellers, growing inventory, and an improvement in logistics. (GMV is gross sales excluding discounts and promotions.) FactorDaily was not able to get details of the targets.

India’s ecommerce market is booming. Already at $30 billion, Citi Research estimates it to reach $202 billion in the next one decade. A lot can change by then. At present, around 70% of the Indian ecommerce market is divided between Amazon and Flipkart.

Alibaba intends to change that and its strategy is good news for Indian ecommerce buyers.

Paytm has come under fire after a sting operation last week by media company Cobrapost showed a senior company executive claiming that it has shared data with law enforcement agencies based on a call from the Prime Minister’s Office. The executive, Ajay Shekhar Sharma, also said he had close ties with Indian right-wing organisations. Paytm has denied the allegations stating that user data is safe and is shared with law enforcement only when the request is legally compliant.

A new price warrior

In this battle against Amazon and Flipkart, Alibaba has SoftBank on its side. “After SoftBank’s exit from Flipkart, it can put any amount of money in Paytm Mall… Masa believes in Alibaba’s strategy,” said a second source, also an Alibaba executive. Masa is short for Masayoshi Son, founder of SoftBank.

Alibaba has earmarked $2 billion for Paytm Mall. SoftBank will put in additional money. Paytm Mall will suddenly be flush with cash like its larger rivals. Flipkart has got a $6 billion war chest, and Amazon has $2.5 billion left from Jeff Bezos’ announced commitment to the India market.

With all the money Paytm Mall has, Alibaba plans to make it a price warrior. “Product prices will be about 20-25% cheaper than what Amazon and Flipkart sell them for,” said the first executive. “With deep pockets we will win… In China, too, we offered the products at 25% cheaper than what competitors’ prices. That was the reason for our success.”

Alibaba plans to build the supply chain that will help with the discounts. “We will squeeze out close to 30% through better supply chain and bulk orders,” said the first executive.

“Alibaba had to take some quick steps,” said K Vaitheeswaran, e-commerce veteran and author of Failing to Succeed, a book on his journey as the founder of India’s first e-commerce company Indiaplaza. “Whether this will get Paytm Mall success, that’s not certain.”

Vaitheeswaran’s scepticism is for a reason. Paytm Mall has been competing with Flipkart, Amazon and Snapdeal for the last few years but without much success. Until Snapdeal’s fall, it always ranked fourth. “There are only three reasons why any ecommerce company will succeed: pricing, selection and convenience. You need to build operational efficiencies for that. Paytm hasn’t shown any significant execution in any of the areas.”

Executives at Alibaba hope that will change. To begin with, Alibaba’s quietly growing b2b business has four million merchants. Though not strictly comparable, Flipkart has about one lakh sellers transacting with local purchasers and Amazon India some 3.5 lakh. Most of these merchants sell internationally on Alibaba but now can become sellers on Paytm Mall – providing a huge inventory. “Procurement, listing and transporting the inventory will come at a much lower cost because those processes are already in place,” said a third source aware of Alibaba’s plans.

This source pointed to Alibaba’s investment in Xpressbees Logistics and said it will help in better management of logistics.

The All-in-One store

Then, there is Paytm Mall’s push helping offline merchants being able to sell online. The idea is to give brick-and-mortar stores an online storefront and make them digitally savvy for ecommerce. Here is a detailed story on how offline is the new online strategy for Paytm Mall.

But that will not be enough, said the third source. “Vertical integration is important. The categories have to be in place,” he said. To this end, Alibaba has plans to acquire an apparel brand or to make a strategic investment – say in a company like Future Group, which counts 30% of its revenues from apparels. “Only integration of garments has not happened. We need to buy out a particular label. That supply chain is missing right now,” said the first source.

For almost everything else, it has an investment in place. In grocery – widely considered the next big battleground in Indian ecommerce – Alibaba led a $286 million round in online grocer BigBasket.

“The backend has to be integrated,” the second source said. “Those things will start happening soon.” In other words, Paytm’s grocery business will be fulfilled by BigBasket.

Alibaba has invested nearly $2 billion in Indian companies ranging from Paytm to Zomato.
Alibaba has invested nearly $2 billion in Indian companies ranging from Paytm to Zomato.

For tickets, Paytm and TicketNew will play a pivotal role.

In food, there is Zomato. “The investments in these gives you a direction of Alibaba’s play in India… These will become our supply chain when we take over Paytm,” the first source said.

Food and grocery will become tabs on Paytm Mall, where people can order food and buy grocery. That is something that Amazon and Flipkart are yet to build.

Add to that: the 180 million users of Paytm’s digital payments business. “We will find out ways to get those people to shop online – through special offers, discounts, and loyalty programs,” said the third source. “Since our prices will be less than others, they will return to us.”

There is more. Alibaba has plans to launch video. FactorDaily has reported earlier that Alibaba is already in talks with multiple production houses to create original content. “Once the content is in place, we will get them integrated on the Mall. Videos will feature as a separate tab, eventually, on the shopping platform,” said the first source.

Growth will come with Alibaba moving to markets beyond the traditional ecommerce buyers.

The next 100 million customers

“The tier-I market is saturated,” the third source said. “The moment you can lower the prices, it will work very well in tier-II, III and rural markets.”

One way to go into non-urban areas is using the UC Browser, an Alibaba-owned browser that already has 130 million monthly active users in India, largely in the SEC B and C category towns. According to estimates, UC Browser has over 40% market share in India, just behind Google’s Chrome.

“We will put the (Paytm) Mall inside the browser,” the first source said. Which means, Paytm Mall will be a tab on the browser and every time someone clicks it, the mobile website of the ecommerce platform will open.

People are already watching news, short Bollywood clips, sports, regional content, and reading on UC Browser. With shopping added to it, the browser will have a lot more to offer, the first source explained.

Alibaba plans to optimise the website to make it lighter and user friendly for these users, who do often do not have access to high-bandwidth connections.

Cash-on-delivery will remain the preferred option for first-time buyers but for those who want to pre-pay, Paytm’s payment gateway will be available. “We already have a robust payment gateway,” said the first source.

To be sure, this battle will be a long one with the likes of Flipkart and Amazon targeting first-time buyers in hinterland India, too.

India has become a critical market with its 1.3 billion people, some 40% of who are under the age of 18 years and a prime market for internet and ecommerce consumers. “After the US and China, it’s the largest market for online commerce. Everyone wants a pie of this market and everyone has a strategy in place,” said Raghu Viswanath, founder and managing director for Vertebrand, a Bengaluru management consultancy.

Whose strategy will triumph is something that will be clear in time.

*See disclosure.


Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.