FLIPKART 2.0: REINVENTING THE ONLINE RETAILER (A 2012 post revisited)

FKAlmost to the date two years ago I had written this article on Flipkart on some strategic choices it had ahead of itself. Startupcentral, a digital platform run by a friend, had carried the article. Unfortunately the platform has now shut down. I thought of reposting the piece just so it does not lose its digital presence (besides, any back-dated forward looking article is always fun to read). As you read this, let me reiterate – this was written in July, 2012

FLIPKART 2.0: REINVENTING THE ONLINE RETAILER

My first brush with this company was in 2010. I had bought a couple of books just a week back from this online retailer I was recommended by a friend, so the name Flipkart was easy to identify on a nondescript white building on Mysore Road, Bangalore. Since then I have purchased few scores of items from India’s answer to Amazon and at the same time seen Flipkart’s business grow leaps and bounds. They added categories at frenzied pace, launched a digital music store (2014 edit: They closed down the store. Speculations abound but my take is that music’s future is streaming, not owning and perhaps Flipkart saw that), improved their customer engagement and embarked on a refreshingly different advertisement campaign. It goes without saying that valuations also continued the gravity defying move, touching a hair’s width distance to the magical $1 billion milestone. The Flipkart Man – one with a navy blue rucksack full of goodies – is quite easy to spot on the streets too

 Every Silver Lining has a Dark Cloud

Dark clouds are never too far away even in the sunniest of skies. Forbes India kicked up bit of a dust with its cover story on Flipkart – first time a mainstream journal focused on the company’s woes – exacerbated in part by Sachin Bansal, CEO, Flipkart writing to the editor to explain his stance (and mild displeasure) and the editor replying to that. Washing dirty linen in public never fails to get a healthy audience and the social media lapped up this brawl. As is true of the myopic social media, everything was forgotten as something more engrossing took over the twiterrati the following day. That however does not trash the question – what will Flipkart’s strategy be to win in this market, which is increasingly becoming crowded with me-too competitors? Retailing, both retail and electronic, has always been a low margin business and nothing suggests that the current batch of incumbent internet vendors enjoy anything but sub 5% margins (over the past five years Walmart has on average had 3.5% margin. Over the same period Amazon has had 2.48%).

Noah built his ark when it hadn’t started to rain – thus this might be as good a time as any to put on a strategy hat and think aloud what could Flipkart do to with its business to pivot into a new phase of differentiated growth (full disclosure: I have nothing to do with Flipkart or its investors. The market situation in the industry was interesting enough for me to take up this exercise)

Tighten Operations, and Everyone Else Too Shall

There is the low hanging fruit of improving operational effectiveness (OE, which often gets mistaken for strategy). Operational effectiveness initiatives hold out benefits so long as competitors do not imitate them. In a nascent industry where disruptive innovation is rare and transparency high, incremental OE benefits wear out even faster. OE pushes efficiency frontiers away and away first for an individual firm and then collectively for the industry (as imitation takes effect) in the process diluting the value one single firm in the industry could eke out from internal tightening. Short term benefits to a firm are surrendered back to the consumers who are the final beneficiary in an OE war – just like what the state is today (everyone does cash-on-delivery, price pressures are forcing higher discounting, customer satisfaction is largely the same – all benefitting the consumer). An OE war results in a company having to run fast and keep running that way just to stay at the same place. On the other hand, strategy distinguishes participants in an industry and bestows on them unfair advantages consequent to doing things that others in the same industry eschewed. So what could potentially be Flipkart’s strategy for the future?

Overnight successes usually last just that one night. Strategy has got to lay out a more forward looking roadmap for a company that spans multiple years (how long into time often depends on internal and external variables). To make things simple, we lay the future out into three phases – Build, Pull Away and Transform. These do not need to – and indeed should not be – distinct phases but rather overlap each other to benefit from positive momentum that each phase builds and hands over to the next

Build: A Solid Foundation is Half the Good Work

In its first phase of transformation Flipkart must build deeper engagement with its customers. It needs to both build a deeper relationship with its buyers and provide those touchpoints that are more omnipresent than the web-based internet

 Loyalty: It is strange that for a service that is not vividly distinguished from me-toos, Flipkart chose not be build loyalty programs. Loyalty need not have just the old school implementation of co-branded shopping appliances like credit cards. Loyalty programs need to be deeper, where someone who has greater wallet spends at Flipkart feels rewarded both monetarily and – more importantly – otherwise. Flipkart Coupons is another loyalty device conspicuous by its absence. As gifting increasingly strives to put last-mile choices back in the hand of the recipient, a loyalty program based on redeemable coupons will deepen association with the customer. Corporations spend a lot of money in fine tuning their Rewards & Recognition programs to make them suitable for the young demography – a space that Flipkart can immediately capture (and since corporations buy coupons in bulk, a part of working capital management can also be taken care of in the process)

Touchpoints: Ecommerce is shifting from the browser to applications that sit on devices. Flipkart can regain its first mover advantage by introducing iOS and Andriod apps that make shopping much easier than on native browsers

Ring fencing customers and pampering those who return for more is crucial in the build out phase. For years, Flipkart has focused on internal effectiveness and not so much on the customer and it is about time to change that. There is also an important mindset change that needs to happen at this phase – increasing value for not only buyers but also sellers who would benefit the most in having access to the Flipkart platform. Outcome of such thinking will play an important part in the late-second and third stage of this transformation

Pull Away: Inorganic Growth and Building the Ecosystem

Exploit Adjacencies: Having built a solid foundation where the customer has been placed at the focus of future planning (in addition to internal effectiveness, which Flipkart has always excelled in), opportunities in adjacencies need to exploited. Category expansion, which Flipkart has been at, is one way to provide buyers all their needs on a single platform and leverage scale. There are adjacent categories however that have already matured into full fledged businesses with similar – not exact – contours.  Take travel for example. Basic fabric of the business is similar – acquire inventories from suppliers, build a technology platform for delivery, squeeze out a bit of margin and deliver the product by careful customer segmentation. Minus the added headache of physical deliveries. Standing where we are, categories such as these are too difficult to build grounds up for Flipkart hence an acquisition is the best route to increase momentum on the ecommerce flywheel Flipkart has already built and set in motion

Build the ecosystem: When a business model has successful equivalents in developed markets, the role of a local strategist becomes easy – import ideas. That is fallacious thinking. How successful will a Flipkart handheld device or Flipkart Web Services become? I have my doubts. What is interesting however is building supply ecosystem where original creators are encouraged to participate on the platform without losing value to intermediaries. Authors are a very obvious target audience in this category, which itself has a very wide range encompassing text books, animated books, restored (and retold) classics, fiction, non-fiction, graphic novels – the list can go on. Besides the content, form has diversified significantly, thanks to bloggers and journalists. Developing relationship with producers directly (building the relationship is not entirely easy) and co-creating products increases the value of the Flipkart platform for those who were perhaps disintermediated or losing too much to make authoring a successful profession (“authors” have been used metaphorically somewhat. This strategy holds good for any original producer of content/merchandise. For example, this can work as well for art and handicrafts as it will for books)

Inorganic expansion and building ecosystems should herald a different thinking process for Flipkart – a line of thinking that transforms the business from being a service providing ecommerce venture to becoming an electronic marketplace and platform. Platform companies (Eric Schmidt named Facebook, Amazon, Apple and Google as the “Gang of Four” Platform Companies) are ones that come with a core and then combine complements from a variety of other providers to add disproportionate value to the service. Platform companies are difficult to build but once done (and there are important technology and business considerations) are long term more successful than pure-play product or service players are

 This phase of pulling away is the most important phase in Flipkart’s strategy, in both design and execution

Transformation: Onwards to Flipkart 2.0

My vision for a transformed Flipkart is where Flipkart is a platform inviting multiple entities to participate not only as part of supply chain, catalogs and consumption but most importantly in innovation. Think of it this way where in a fast-forwarded world Flipkart is a platform for providing online education content to a vast majority of institutions in India. Creators of content will always strive to innovate and Flipkart being a platform will reap the benefits of that innovation without having to explicitly participate in it. On the same platform innovators will bring newer ways to present the content and perhaps another participant will make learning more social

Leveraging scale becomes easier for a platform company. Continuing with the earlier example, investment in building incremental ecosystems can present disproportionate rewards to business outcomes for Flipkart. The same (or very closely related) content for education could be as applicable in Southern Africa as is it is India, opening up immediately vast business potential. The true unlocking of scale can easily happen in a world where Flipkart is a platform rather than an ecommerce service

A large scale program that takes a product or service company and transforms it into a platform play is not simple. For some it could be a life’s dream. But it certainly is a dream worth living. For a company like Flipkart that has already transformed the ecommerce market in India, this could be the second calling for a chance of inclusion in history’s wall of fame

A Final 2014 edit

Flipkart, having just raised a jaw dropping $1Bn should consider two frontiers that will not just transform the business but also extend its core strategy

With its technology backbone and supply chain efficiencies, Flipkart should look seriously at the B2B materials procurement space. AmazonSupply has already a play and the company is breathing down the neck of Flipkart in India. Flipkart may choose to start small – perhaps in the office supply and consumables space for businesses – see how it goes and then make the grand push 

Payments, especially mobile payments, are an area of opportunity where Flipkart can offer a service to not only its own users but as a third party platform (again, an example exists in Ali Pay). This sits nicely with Flipkart’s big push on driving commerce from mobile devices

KYC Is Dead

Deepa Bachu of Intuit has a fabulous post on designing awesome products. (no, don’t skip. Click the link, read the article and come back here. I’ll wait)

I think time has come for product managers (and designers) to stop using the term Know Your Customer. Before you reach for your cudgels to beat me up – my intent is not to stop people from knowing their customers but to get a couple of layers deeper in the engagement. Let’s look at some specific problems with this “know your customer”phrase

  1. The phrase has been bastardized. It happened the moment KYC as a TLA emerged from the fertile crescent of product management and got dragged – kicking and screaming – into the muddy waters of banking. In its most sophisticated form in that industry, KYC is a bunch of entity identifiers and descriptive text about the entity. To be updated at intervals and filed away only to be brandished if a regulator came calling
  2. The word “customer” – I have a problem with. It is very common in my industry of enterprise information and I am sure it happens elsewhere too – the customer is not the user. The customer is the one who disintermediates vendors from the user (example, IT departments strike deals with capital market data vendors and often chooses the most cost effective vendor. The market data users are dealing room staff who do not participate in the choosing process). If it is the user that we care about then we must not confuse her with the customer
  3. The word “know” – I have a problem with that too. I know too many people on Facebook – I care for only a fraction of them. I know many more people on LinkedIn than I could really care for. The word “know” has diluted the sense of affinity in relationships. In its pristine form, Know Your Customer is not really “know” – it is living with him, sharing his daily joys, pains and frustrations. A closeness much deeper than just that cursory “know”

So what should the new phrase be? How about User Affinity (UA). Besides addressing some of the problems I mentioned above, this is a smaller acronym and easily segues into what should be a logical next step – User Experience (UX). UX should build out what UA discovers – that is the relationship

I’ll leave this post here just so you can let me know your thoughts about this new paradigm of User Affinity. In the next post of this series I will look at ways to develop affinity and insights. Till then keep the comments coming

Platforms & Openness

There is a rush currently underway in business to become a platform company – provider of an ecosystem. Platforms make intuitively good business sense. The openness of a platform attracts many more participants who either by their presence or their expertise (often both) enhance the base value of the platform. And the platform always gets paid for the facilitation. Consider the Kindle platform of Amazon for example – writers, publishers, readers using the platform pay Amazon for either end of the reading transaction (Kindle is not such an open platform really though writers can self publish on it – perhaps Salesforce is a better example. But you get the drift)

Primary and most significant cornerstone of a platform offering is its openness. That is what attracts participants and builds out the ecosystem at scale. Viewed differently, openness is also a culture. This unique intersection of culture and business model is what makes successful platform companies. If the internal culture of a company is that of opacity, parochialism and fights over turf it is very likely the company will bring the same behavior in the way they run the platform. This pisses off participants (like Facebook a few years back was alienating “partners” by building out on their core platform what the partners were bringing in to the ecosystem. This is – besides plagiarisation – a culture of turf build out, which leads to a culture where no one shares anything for the fear of the idea getting stolen). Once partners on a platform shy away, there is no way the firm can reap benefits of providing the platform at scale. The consequence is mostly a regression into becoming a product company earning one time license fees

Remember the saying – culture eats strategy for lunch? It is true. If you are aspire to becoming a platform company ensure the cultural revolution of being more open, collaborative and tolerant (even for disruptive ideas) starts happening closer home

 

Small and Medium Aspirations

Small and Medium Enterprises (SMEs) represent the vast middle earth in the Indian business ecosystem. And as I write this, a gruelling war is getting fought by a multitude of firms to win this middle earth. Win relationships, win mandates, win contracts, win engagements – all so that when these SMEs become adults, businesses who have won now have prominent seats at the table

In a way we think of SMEs as a different class of businesses altogether. During a requirement analysis phase – for building a product or a service – the trap is in hastening to believe that SMEs have very unique businesses issues and try solving them. Quite the contrary – SMEs most often have the same set of challenges that large established players have. So rather than focusing on the challenges of SMEs, a better approach is to focus on their aspirations. Every small and medium business wants to become like – and be treated like – the big guys. The last thing they want is a condescending salesperson turn up at their doorstep and explain how – almost out of pity – they put together a product or solution for them

If a business is serious about serving SMEs it needs to work to help the SME get rid of that very tag. Help the small business to become as competitive – if not more – than the big business. Help the medium sized business break through the growth ceiling. In short, do just two things – one, align to aspirations and, two, help the Davids beat the Goliath (yes, even if Goliath happens to be your client)

I am so used to

I am so used to

  • checking at 4:30pm if the postman left mail in my letter box

  • going up to the post office to drop off my mail

  • waiting for the operator to call back saying my trunk dial request has gotten through

  • taking a day off every month to do my bank work and pay utility bills

  • queuing up to buy travel tickets

Actually the list is endless when stretched over the sands of time. That is why I get very nervous and worried when I see this phrase in communications used as a means to not try something new

What’s your favorite “I am so used to” phrase? How often do you encounter this phrase? If you ask me I’d say “I am so used to seeing this phrase” (oh, irony!)

Approach the net

The Championships - Wimbledon 2013: Day ThreeLast evening my wife and I watched a bit of Wimbledon after putting our ten month old to bed. It was Roger Federer playing a rank unknown (later identified at ranked 116) Ukrainian Sergei Stakhovsky. It was the first set that went to a tiebreaker. My wife observed, a bit soulfully, that players these days do not approach the net as often as their counterparts a decade earlier did. Tennis on grass was about serve-and-volley. By the time the final would be played, the center court would sport two prominent bald patches on the otherwise brilliant carpet of green. One patch would span horizontally at the baseline and the other at almost perpendicular along the center service line. The second patch represented the path of risk. It was that line players took to approach the net. At the net they would expose the entire court behind them – a total blindspot. And positioned there, the braveheart would expect to intercept the ball much before a bounce or air friction took the sting out of a return. It forced players to accept a reduced reaction time and a possibility that they might have to dive to reach the ball without having recourse to rising again to play the point. But players went up to the net and accepted all these risks – all for the possibility of meeting the challenge head on and catching their adversaries unawares

Last evening we noticed that Stakhovsky was approaching the net far often than Roger Federer was. He was losing most of the net points but that did not deter him to run up. That’s perhaps what a 116 does when facing a number 3. As sleep deprived parents we went to sleep just after Federer pocketed the first set, half assured that we’ll catch a longer viewing of the next match he played. But then we clearly undermined the rewards of risk taking

In life if you have the opportunity to approach the net, won’t you take it?

Why did we not start this company?

Acquisitive companies are where innovations come to die. Innovation is hard work. It means getting out to the streets. It means talking to people (many people), making notes (lots of notes) and then making sense of all those (loads of thinking). It means stopping for a minute and try piercing the fog to understand the future. And most of all it means taking a leap of faith – a chance – that the thing that gets put out there after all this will work. On the other hand acquisitive companies have it easy. Someone’s doled out the money for the boys to go shopping so why on earth should someone bake a cake (messy) when there is money to just buy the pastry (classy)? Jim Collins in “Good to Great” hands out a fair amount of sarcasm for such companies who acquire out of habit. “When the going gets tough, the ‘tough’ goes shopping”, he says obliquely to the M&A boys in these companies

Assuming at some point the sarcasm will sink through the skin, it is likely such companies will wake up and want to kick start their innovation engine (it’s not easy though, but a start is required). There is one simple way for the top management to wake up managers to the reality that the mindless acquisition music has started to stutter and will finally stop. Ask this question. “Why did we not start this company?” 

Think of the power of this question. It hits at the very heart of a moribund system and behooves a diagnostic look inside rather than at the shopping list M&A catalog. This soul searching is what a lot of companies know they’ll not be subjected to and hence try to buy their way through the business. It doesn’t work in the long term. Spending multiples to makeup for structural inefficiencies cannot be a perpetual engine of growth or efficient deployment of capital. Acquisitions create cultural mismatches, raise integration problems and confusion in go-to-market tactics. And all it takes for the cultural needle to shift is the simple question – “why did we not start this company?”

Let this though not be a rhetoric question, a smart quip. The query must be answered (probably made a mandatory section in the investment proposal). The answer can very well be anything ranging from “didn’t have the guts to disrupt our own market” to “we didn’t have the talent to get this going”. Whatever be the reasons – and these reasons will buildup over time – a lot about the company’s bottleneck to innovation can be understood from these reasons. The ones that show up with greater ffrequency are the ones with fires burning below them and needs correction expeditiously. The intent here is not to put a complete stop to acquisitions, which when done judiciously is an important vehicle of adjacent and futuristic growth, but to put a healthy disincentive in how management gets lazy in executing the core

Perhaps the greatest benefit from this exercise is that it is a bit like yoga. It doesn’t promise quick visible results but over a period of time it cleanses up entire systems and returns a company to holistic health