Amazon could be in for a bumpy ride in India

In recent weeks, Sally White has been looking at Amazon's move into travel in India and wonders if the acquisition of Expedia could be a smart move

A wider audience than just the travel industry is watching Amazon’s latest move in India – a dive into travel  - the vote-sensitive Indian government for one, let alone countless astute, nationalistic competitors. All may not go smoothly!

Investment by foreign companies of hundreds of millions of dollars “do not insulate them from surprises,” warns the Wall Street Journal, adding that “closely fought elections, rising nationalism and canny local rivals add to the uncertainty”.

Amazon, as was first reported last month, wants to build a superapp, or a one-stop app from which it can sell a range of services and has started to offer airline ticket booking. This, it is widely recognised, is commercially attractive in its own right and an excellent trial run for other markets. But it is also a smart move to maximise its access not only to India $2-billion present spend in online travel, but to the $2.3-trillion economy. The numbers include a doubling of the internet economy to $250 billion by 2020, as consumers spend more online.   

Champions of the homefront

In such a politically sensitive country, any rumbling of discontent from India’s hundreds of thousands of little businesses and many major ones (all quick to cry foul on ‘predatory pricing’) forces the government into action. An excellent example came in January this year.

The government placed hurdles in the way of foreign e-commerce companies’ moves to attract customers with heavy discounts by tightening laws that had originally been designed to entice foreign investment. Only Indian-led platforms, selling goods 100% made in India, are now allowed to use the marketplace model that the foreign companies had been using, hitting their discount power. Or from wooing customers with exclusive deals with popular brands, as the Wall Street Journal pointed out! As they came after heavy lobbying from local retailers, these changes in the law were seen as aimed at Amazon and Walmart!

Only Indian-led platforms, selling goods 100% made in India, are now allowed to use the marketplace model that the foreign companies had been using

Amazon obviously believes it has hedged some of the perceived risks. It has partnered with the Indian online travel aggregator Cleartrip for the service that it is selling through its payment arm, Amazon Pay. However, what it is doing is offering flight tickets booking on its platform loaded with cashbacks for both - Prime and non-Prime customers. “This addition should also increase the attraction of Amazon Pay in a crowded digital wallet industry,” commented India’s Financial Express.

When it comes to travel, the Indian government is extremely keen on encouraging foreign tourists. However, it is likely to be faced with rumbles of discontent in this fiercely competitive local market, too. It has a world-beating local in MakeMyTrip and several smaller companies, as well as the expanding and politically well-connected giants such as Reliance Industries (which has been expanding fast into new sectors). And India likes the idea of “national champions”.

US news agency Bloomberg noted the rapid growth of Mukesh Ambiani’s Reliance, a Fortune Global 500 company and India’s largest by market value, earlier this year. “$2.5 billion spending spree involving more than two dozen deals provides some insight into how Mukesh Ambani is piecing together a strategy to take on in India. Asia’s richest man is sharpening his focus on e-commerce with a string of tiny acquisitions and stake purchases to face the world’s largest online retailer, after shaking up India’s telecommunications industry with cheap data and free calls.”

Highly attractive

India is a highly attractive online travel market. It was last year crowned champion for the second year in a row as the country with the most digitally advanced travellers, according to Travelport in its 2018 Global Digital Traveller Survey.  At the same time, the World Travel & Tourism Council says India will become the world’s third largest travel economy by 2028, following the US and China.

Amazon, which has been in India since 2013, has a good base. It has invested heavily to expand Amazon Pay there and has kept its Prime membership price quite low ($15 a year), SeekingAlpha investment site points out. It is following “the same strategy used by Alibaba and Tencent in China” to convert its platform to a single stop shop. Flight booking, being attractive to higher income customers, would be a big positive it says.

In order to compete with mega OTAs, Amazon needs to invest heavily in the geo markets it wants to enter

Amazon has everything going for it in this trial run in India – a reputation for low prices and reliable service, Morgan Stanley says, with a proven ability to drive repeat traffic on its platform. India is an important market for Amazon and it has already spent $5 billion there.

However, the bankers add for its global strategy, “in order to compete with mega OTAs, Amazon needs to invest heavily in the geo markets it wants to enter”, on advertising for a start.  Their top suggestion for a speedy route to success in world travel is that Amazon should buy an existing OTA player – “Expedia could be one such acquisition target.”

Join us at one of our upcoming events: EyeforTravel Amsterdam (Nov 26-27) or EyeforTravel North America (Oct 28-29)

Related Reads

comments powered by Disqus