How smartphone sales changed Flipkart fortunes

By Mihir Dalal, 2017-09-19 04:39:34

Bengaluru: The ‘Like’ feature introduced by social networking platform Facebook in 2009 transformed the company. For Apple, it was the launch of the iPhone in 2007. At Flipkart, India’s start-up darling, that moment came in February 2014 with the sale of Motorola’s Moto G phones.

Sometime in the second half of 2013, Sandeep Karwa, who headed Flipkart’s smartphone business, reached out to two smartphone brands Motorola and Xiaomi to explore talks of launching their products in India. A former college mate of Karwa’s was heading Motorola’s business in India and Karwa had heard from him that Motorola, which was trying to recapture its glory days as a mobile phone icon, was planning to re-enter the Indian market in early 2014.

After discussions that lasted more than six months, Motorola struck a deal to launch the Moto G phones exclusively on the online retailer. It was an experiment. At that time, e-commerce in India was not mainstream. No major smartphone brand or brand of any sort had tried selling online on an exclusive basis, much less through just one e-commerce firm. What helped convince Motorola was that Karwa and his colleagues had given the company a guarantee that Flipkart would sell as many as 125,000 units of Moto G phones in six months.

At midnight on 6 February, Flipkart launched the sale. Within five minutes, the company had sold 10,000 units. In the next 20 minutes, Flipkart’s site had crashed just as it sold another 15,000 units.

“My first call to Amitesh (Jha, Karwa’s boss), that there’s been an attack on the site. This cannot happen. Within 15 minutes there was someone in my team who had created a banner saying ‘Thank you for the response. We are out of stock.’ We were breaking so many rules. You can’t just put up a banner on the site. It has to go through so many approvals. (But) we had planned a pan-India advertising campaign for the next day,” Karwa said.

By the end of the day, Flipkart had sold 100,000 phones, nearly as many as it had promised to sell in six months.

The Moto G extravaganza helped Flipkart reach the historic landmark of generating annualized sales of $1 billion that February, achieving its target one year ahead of plan. Flipkart became the first e-commerce firm to hit the $1 billion mark in gross merchandise value (GMV, or value of goods sold on the site). And thus began India’s e-commerce boom in earnest.

“We learnt then (with the Moto G sale) that e-commerce is on a hockey-stick curve,” said Jha, who was then senior director, mobiles and electronics, at Flipkart. “That is when we knew that e-commerce had arrived and scale would come by itself. And that is what happened for the next two years. So our ambition became really big. That was the biggest learning. All the other e-commerce also learned that. Till then we didn’t know the reach was there. That changed the fundamentals of how we worked. That also allowed us to take bets in other categories.”

In July, Flipkart’s site again crashed when it held a flash sale of Xiaomi phones. Xiaomi was then a little-known Chinese start-up that was starting to make a name for itself by coming up with low-priced smartphones packed with powerful hardware running Google Inc.’s Android software. Despite spending little on marketing, Flipkart sold out the Xiaomi phones in seconds.

Between the sale of the Moto G phones and the first Xiaomi sale in July 2014, give or take a few days, Flipkart had raised more than $1.2 billion, becoming one of the most valuable Internet start-ups in the world. Flipkart’s fundraising, which was inconceivable before the Moto G sale, in turn helped kick-start the start-up funding boom of 2014 and 2015 that would make India one of the most prominent and promising Internet markets in the world. Those two sale events also gave Flipkart confidence to launch its annual sales event, Big Billion Days. Inspired by shopping festivals such as the Black Friday in the US and Singles Day in China, Flipkart launched the one-day event in October 2014.

That day again Flipkart’s site crashed even as it generated $100 million in GMV in less than 10 hours. That was nearly a month’s worth of sales.

For the company and its founders Sachin Bansal and Binny Bansal, while 2014 had proven to be a successful year beyond their dreams, it also showed them that they had consistently underestimated the potential of e-commerce in India. There were tens and possibly hundreds of millions of Indians who were itching to get their hands on quality products denied to them by the failure of organized retail to expand in the country. Macroeconomic factors had never been so favourable.

One of the most important data points for the Internet bulls was that smartphone sales were exploding. In 2014, some 80 million smartphones were sold in India, up from 44 million in the previous year, according to International Data Corporation (IDC). People who had feature phones were shifting en masse to smartphones, lured by the value-for-money products offered by the likes of Motorola, Xiaomi and others. And after the success of Moto and Xiaomi, it was clear that e-commerce firms, and Flipkart, in particular, were poised to be the biggest beneficiaries of that expansion. Online market share in smartphones jumped from less than 10% to more than 15% in the last quarter of 2014—such a leap typically requires decades.

Flipkart chased and secured exclusive smartphone deals that would bring a slew of brands such as Lenovo, Honor, LeEco, Huawei and others to India. The company also helped local brands such as Micromax and Lava reach new audiences and offered an alternative channel for premium brands such as Samsung and Apple.

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