Jul 12, 2016 ยท 9 minutes

FactorDaily has an excellent inside look at Flipkart’s struggle to earn its decacorn valuation.

It’s interesting well beyond just the story of Flipkart. It’s a potential cautionary tale for unicorns broadly, for one. As one insider said: “We were busy acting like a $15 billion company instead of earning our right to be a $15 billion company.” Sounds familiar.

It’s yet another reminder of how employing an “Amazon-like” strategy has worked pretty much only for Amazon. In Flipkart’s decision to go mobile only, despite the largest transactions being done on the desktop, there are echoes of other ecommerce flameouts like Fab.com. Fab’s CEO Jason Goldberg has also written about erroneously thinking he’d found certain product-market fits when he hadn’t, and his mistakes to go international too heavily too soon.

But more than anything, this quote jumped out at me:

If Flipkart loses to Amazon and Ola loses to Uber, [global] limited partners will stop investing in India and go back to their familiar territory of investing in Silicon Valley companies. 

This is exactly right. Cycle after cycle global capital has invested in Indian consumer startups and while there have been some good returns here or there and a few billion dollar IPOs, it’s striking that a country the size of India has nothing on the scale of an Yandex, let alone, a Baidu, Tencent, or Alibaba. No country has been as successful at building multiple huge consumer Internet companies as China and America have. But cycle after cycle investors keep hoping it’s India’s turn.

This time around the bet has centered on these two players: Flipkart and Ola. But here’s what’s different this time: It isn’t a battle of just US v. India. It’s a battle of the US v. India with a strong assist from China. In earlier cycles it’s been about investing in China or India, with the two countries effectively competing for international cash. Now China has done so well, it’s investing its own billions in Indian startups.

Flipkart has had off and on flirtations with Alibaba, as part of the ecommerce giant’s global battle with Amazon, and Ola is backed by Didi, which is backed by Alibaba and Tencent and hopes to weaken Uber the world wide.

For the first time cash has been absolutely no object when it comes to these two Indian startups. No valuation too high. Burn away.

Sure, there are a ton of questions around execution. It’s been years since I’ve done on the ground reporting in India, so I won’t pretend to know which service is better or what the local vibe is. The FactorDaily story clearly outlines major strategic missteps Flipkart made, and you just can’t do that when you are competing with Amazon.

Still, at some level these companies’ success will come down to whether or not everyday Indians give a shit about that quote above:

If Flipkart loses to Amazon and Ola loses to Uber, [global] limited partners will stop investing in India and go back to their familiar territory of investing in Silicon Valley companies. 

VCs back local companies not only because they supposedly understand what consumers want, but because they should have some sentimental and marketing advantage, right?

On Twitter yesterday, I asked whether Indians felt an obligation to support the local homegrown company, assuming the services were roughly equivalent and prices roughly the same. Were I the founders of either, I could make a strong argument for doing so. While Amazon and Uber certainly will create jobs in India, nothing creates high-paying, senior jobs like a massive company worth tens of billions of dollars totally based there. Way more jobs will be created if the local companies continue to grow, than Amazon and Uber taking over market share in the country. As the FactorDaily article made clear the biggest worry on the minds of Flipkart employees right now is layoffs.

There are ancillary benefits to these companies succeeding too. Should these companies go public or be acquired for a huge amount, it will potentially create hundreds of angel investors who invest back in the ecosystem. And an entire generation of Indians are learning how to be middle managers and senior managers at companies growing at this scale with this level of international competition.

This is to say nothing of cash. If either company has a massive exit, more international money will believe India finally has the potential to do what China has already done, entrepreneurially speaking. Entrepreneurs will get chances they wouldn’t get otherwise.

If they fail, it will be a setback for Indian VC broadly speaking, although certainly some money won’t leave and many great companies will get funded.

And this is before you get to the local pride element. Remember, Indians roundly rejected Facebook’s plans to give it free Internet with strings attached as digital “colonization.”

Om Malik, a Valley insider who you could see being sympathetic to Facebook’s point of view, wrote this:

Much of the opposition to Facebook’s Internet.org/Free Basics has been framed around the net neutrality debate. But to me the problem is rooted in the idea of Data Darwinism, where data owners shape the narrative and make decisions that leave millions out of control of their own destiny…

...In our post-internet age, labor and commodities have been replaced by attention and connectivity. By controlling these, Facebook in many ways has its algorithm decide what is important in the future. I am positive that its role as a gatekeeper of information will cause much deeper problems in the long term.

In a more draconian scenario, it isn’t hard to imagine Facebook helping sway the outcome of elections. 

You could see an argument that people who feel as Om does would also want to support Flipkart and Ola over Amazon and Uber. Controlling the data on India’s urban transportation grids, for instance, is every bit as powerful as Facebook controlling what news it shows you. And Uber-- which employs the former head of the CIA-- has already proven it will use its drivers to politically organize to further its interests. It’s interesting that there’s concern about “free” Internet from Facebook, but not a subsidy war that puts local players out of business when it comes to Amazon or Uber. Especially since, in the case of these two markets, there are strong local options.

My Twitter poll was in no way scientific. And bear in mind: The results should be heavily skewed towards people working in tech in India, and hence more inherently sympathetic to a local startup’s plight.

But almost all of the people I engaged with told me none of this swayed their decision making as consumers.

Some said they use all four services, even though the service is roughly the same, and felt it was more “supportive” to force Indian companies to earn customer loyalty by outcompeting the Americans. Said one: “What would give me pride is a local player matching a beating anyone else on merit,” adding later in the conversation “is the best way to help local startups to support them even if they drop standards or push them to compete?”

Another told me that it would matter in the future, but not now. I asked what would be different in the future and she replied for now the consumer was “too busy enjoying heavy discounts.”

Points for honesty, Shireen.

The two sentiments were echoed in other conversations I had:

Then there’s the people who simply feel the Indian tech scene is invincible, despite data showing investment is already declining:

I think many of these points, and others expressed by Indians on Twitter, are incredibly valid. These two companies won’t survive if they aren’t competing on their own merits.

But I’m surprised if the two services are comparable-- which many people said they were-- that more Indians wouldn’t prioritize supporting locally grown companies, particularly those working in the tech or startup worlds. If my small Twitter sample is representative, that’s bad news for Flipkart certainly. Amazon is one of the toughest competitors in the history of tech and it has near-boundless resources to discount Flipkart out of business. It may be a different story for Ola, given the many battles Uber is facing around the world.

Still, it seems there’s a huge opportunity here for Indian startups at least to encourage each other to support Indian startups. I remember when Facebook was the up and comer against MySpace. People in the Valley were ecstatic when the local company pulled ahead. And the Valley is hardly competing from a position of weakness.

Like a lot of people, I go to independent local bookstores but also Amazon for convenience. I go to local coffee shops in San Francisco, but also Starbucks when I travel. However, I always use FedEx over UPS, because I’m from Memphis. FedEx is typically pricier, but it’s comparable enough and easy enough to vote for Memphis with my wallet.

In part this depends on how inconvenient it is to use the local company. Ridesharing and ecommerce are different in this respect-- at least in the US. It was easy for me to switch from Uber to Lyft for other non-geographical reasons, because in most US cities they are commodity products with the same drivers in most cases. But if Amazon threatened my family, getting off all Amazon products would be extraordinarily difficult. I use Amazon Prime to order loads of stuff for my house, my kids watch PAW Patrol via Amazon prime, and Pando uses AWS. If Facebook or Google threatened my family, it’d be all but impossible.

I’d love to hear from more consumers and companies in India, China, or even in other cities in the US about whether being a local player gained them more consumer loyalty.