Fast forward to today, and things have changed radically, Forget downloading songs, people stream entire cricket matches on their smartphones without a hiccup. Buying online has become a habit for many of us – from not trusting online shopping experiences, people have gone to buying gold online. So much has changed and yet the companies that actually spurred many of these changes are slowly but surely becoming marginalized every passing day.
Phones do not HAVE to cost a bomb, and you can buy online!
Even though it was Android that made smartphones accessible to the masses, without the likes of Micromax, Lava, and Karbonn, the smartphone revolution would have never started in India. While companies like Samsung and HTC did dabble in the Android smartphone market before the Indian smartphone manufacturers did, their low-end offerings were hardly usable and highly limited in functionality. Those providing a rich smartphone experience would be priced very high. Indian smartphone manufacturers, on the other hand, started re-branding Chinese smartphones and sold them for Rs 6,000-12,000 in India. The smartphones started selling like hotcakes and in no time at all, Indian brands had significant market share. This put pressure on the likes of Samsung and HTC to provide a better value for money proposition in the lower end of the smartphone market. The competition between these companies meant that smartphones kept becoming more affordable and better every passing month. With decent quality smartphones available for relatively low prices, a number of people migrated from feature phones to smartphones. And this led to the smartphone market growing in size and becoming more and more lucrative.
While Indian smartphone makers helped kick-start the smartphone revolution in India, it was also an Indian company that kick-started the e-commerce revolution – Flipkart. While technically Flipkart is not an Indian company as it’s registered in Singapore, the background of its founders and the country in which it operated makes it Indian for all practical purposes. By bringing out initiatives like cash on delivery, easy returns, and good customer care, Flipkart initiated the e-commerce revolution in India and even gave start-ups a boost. Just like the smartphone market, the booming e-commerce market in India also attracted a number of other players such as Snapdeal and ShopClues.
The smartphone e-commerce marriage
It was not long before the smartphone market and the e-commerce market entered into a symbiotically beneficial relationship. The smartphone market in India kept booming thanks to the competition between Indian smartphone manufacturers. International smartphone manufacturers such as Motorola and Xiaomi wanted a piece of the Indian smartphone market but did not have the required physical distribution in place in order to compete with the Indian smartphone manufacturers. This distribution problem was solved by e-commerce. As millions of people kept visiting Flipkart’s website and app every day and given its vast delivery arm, listing on Flipkart alone could help smartphone manufacturers reach a large audience, enabling them to bypass the need to set up physical distribution completely.
This is exactly what took place when Motorola entered India with the launch of Moto G in partnership with Flipkart. The Moto G was a big hit and was followed by the Moto E, which was another blockbuster. Motorola’s success prompted Xiaomi to enter India through the same online-only route, and several other manufacturers followed. All these smartphone sales helped e-commerce companies boost their gross merchandise value (GMV). It was estimated that at one point of time, smartphones made almost 30-40 percent of Flipkart’s GMV. The phenomenal growth of the smartphone market and smartphones comprising a large part of Flipkart’s GMV meant that Flipkart’s GMV kept rising as well on the back of smartphone sales. This resulted in a mutually beneficial relationship where smartphone manufacturers got to bypass physical distribution, and e-commerce companies in India got to increase the GMV on the back of smartphone sales.
With great growth comes great competition
The fall of the Indian brands
The situation in the smartphone market is even worse for Indian players than the e-commerce market. Chinese smartphone manufacturers now collectively account for close to 50 per cent of the smartphone shipments in India. No Indian smartphone manufacturer has been able to make it to the top 5 ranking for the past two quarters in terms of shipments. Companies like Micromax which were once poised to overtake Samsung and dreamed of becoming Numero Uno eventually are having to reset expectations. Meanwhile the Chinese are doing all it takes for total domination. Oppo and Vivo are spending vast amounts of money on marketing, and Xiaomi has been producing the best value for money smartphones through its Redmi and Redmi Note line, thereby grabbing the second spot in India’s smartphone market.
The perils of the lack of originality
In the case of Chinese smartphone manufacturers, Xiaomi’s services and software strategy has started to bear some fruits in the Chinese market. This, in turn, creates a self-reinforcing cycle. Xiaomi started out selling smartphones for virtually no margins in China hoping to make money off software and services. Now that the company is making money off software and services in China, it is going to pitch investors the same strategy for India, i.e., to sell smartphones at cost price and make money off of software and services. Apart from Xiaomi, Oppo and Vivo’s parent company B.B.K should have a very profitable operation in China and other South East Asian markets if their ASP is anything to go by. So their seemingly crazy marketing spends in India, even if they create losses in the short term are unlikely to be a concern for the company as long as they bear long-term fruit in the form of brand recall. Indian e-commerce and smartphone manufacturers have no strong diverse businesses. Flipkart does not have a lucrative cloud business and even though Micromax has ventured into TVs and ACs, its market share in these segments is not enough to offset any potential loss in the smartphone segment. They might have spurred the smartphone and e-commerce revolutions, but Indian brands stand in danger of being sidelined now unless they come up with an effective follow-up strategy. Well begun is half done. But it is to be remembered that it is “only” half done. Indian brands need to focus on following through on their good starts. Can they?
