It’s been a long time coming, but India’s e-commerce market may be finally taking off – so much so that Amazon.com looks poised to enter the country.

If it does, it will find itself up against a formidable homegrown operation that has found a way around India’s poor infrastructure to deliver books and electronics everywhere, from remote Himalayan villages to the flashy neighbourhoods of Mumbai.

At the forefront of the revolution is Flipkart.com, co-founded by Sachin Bansal, who has turned an initial $8,000 investment into a multimillion-dollar business in just four years. The website, often referred to as ‘India’s Amazon’, has a million registered users and logs four million visitors a month. After starting as a bookseller, last year it expanded into electronic goods such as mobile phones and laptops.

“No one expected it to grow so fast because everyone was underestimating the market,” says the 29-year-old. “People had the wrong approach [to e-commerce] and no one had been able to tap into the market potential for a long time.”

The right approach started in 2007 when he and Binny Bansal (no relation), two friends in their mid-20s from the northwestern state of Punjab, teamed up to go into business. The computer-science graduates from New Delhi’s prestigious Indian Institute of Technology quit their jobs at Amazon India’s web-development office in Bangalore, pooled their savings and looked for an opportunity.

In an astonishingly short time, they have created a company that according to Indian media reports could soon be the country’s first billion-dollar internet start-up, as a recent round of financing is close to raising $150m (€103m). Sales for the last financial year totalled $10.1m and they are expected to grow tenfold in the next financial year. 

Sachin Bansal remains tight-lipped about the billion-dollar tag but agrees the journey has been a stellar one so far. “Our idea was to start a comparative shopping site like Shopping.com in the US, but then we realised that there were no good e-commerce companies out there with happy customers,” he says.

For the online seller, India’s potential is huge. It has a booming economy, a growing middle class and a population of 1.2 billion – and most Indians live in areas where local family-run shops have a limited range of products. But delivering goods on time is hard: a 200km journey on rural roads can take the best part of a day.

Paying for goods online presents another headache. Fewer than 2% of Indians own credit cards and other payment options, such as PayPal, are hardly used.

Over the past decade, there’s been doubt about the internet market's maturity. Only 10% of the population are internet users, according to Internet World Stats, and only one in 10 of these shop online.

In the US and Europe, buying over the internet was a natural progression from mail order and catalogue shopping, but in India these services did not exist. Most Indians shop in local stores with shopkeepers they have known for years.

“There was a lot of apprehension from friends and later business partners who thought such a start-up was a risky proposition, but we were able to convince them,” says Bansal. He and Binny felt the market had reached a critical mass where their idea was finally viable.“A hundred million internet users is not much in terms of India’s population but it’s still more than many countries. We said, ‘Give us a year and we will build a successful business.’”

In the end, they didn’t need a year to win over the doubters. After just six months, Flipkart broke even and the company moved into a proper office.

In 2009, Flipkart received $1m from venture capitalists Accel India. This enabled the business to hire more staff and expand its range of products. It now has four warehouses in Bangalore, Delhi, Kolkata and Mumbai, and 2,500 staff, with plans to double that number in a few years.

While books still account for more than half of its business – it has sold 1.2 million to date – the company aims to become a significant retailer of general goods too. It already sells two non-book items a minute, with electronics a hot favourite.

The secret to Flipkart’s success has been to create a specifically Indian model for online retail. It overcame logistical hurdles by developing its own courier service, which now delivers 80% of all orders. The remainder are outsourced to other couriers or sent by India Post’s express service.

The system ensures that when a customer orders a book online it will arrive on their doorstep the next day if they live in a big city, or within three days anywhere else. “We deliver books anywhere, to every small village and town, and we’ve even delivered to places in the Himalayas where people are 50km from the nearest post office,” says Bansal. As an added incentive to customers, Flipkart offers free shipping on all orders over 100 rupees (€1.50).

With the delivery problems cracked, the pair still needed to find a way for people to pay without a credit card. Their solution was a cash-on-delivery system, now used by more than half of all customers.

Amit Agarwal – editor of India’s biggest tech blog, Digital Inspiration – says the cash-on-delivery option is a decisive factor in Flipkart's success. “It’s important because not only are there not many credit cards, but the few people who do have cards are not very keen to share information online. The habit is not there,” he adds.

They also needed to get the website interface right, making it simple for everyone, particularly those who are not regular internet users. “When my mother managed to place an order online, I really knew we’d made it,” Bansal laughs.

This inside knowledge of India will be a valuable asset if Flipkart has to face the world’s biggest online store in its own backyard. Indeed, Amazon is expected to start operations in India next year. The US-based multinational already ships books and CDs to India, but it is keen to be on the ground to take advantage of the country’s expanding middle class. Media reports suggest it plans to hire 200 staff and has poached a top executive from Landmark, another online bookstore.

Economics analyst Vivek Dehejia says Amazon's interest is not surprising. “The success of companies like Flipkart is clearly a signal to Amazon they’re late coming to market,” he says. The Internet and Mobile Association of India says the e-commerce market is worth $5bn and will double this year. Meanwhile, a report by Boston Consulting Group last year on global internet usage forecast that the number of internet users in India will triple by 2015.

Analysts says the uptake of e-commerce mirrors the spread of the internet out of rich urban households into smaller towns and villages. But poverty, the widespread lack of IT education and low connectivity remain major hurdles.

“Internet penetration is growing by 8%- 9% each month,” says Techtree.com editor Ameya Dalvi, who stresses that this is from a small base. “It is the right time to enter the online retail market and we’re seeing sites like Dealsandyou.com that are really inculcating the habit of shopping online, especially with 25 to 35-year-olds”.

A number of start-ups have entered the scene in the past few years and are already major players. Snapdeal.com, India’s answer to US giant Groupon, was founded in 2010 by entrepreneur Kunal Bahl. It offers money-off coupons and had an estimated turnover last year of $20m.

Discounters Dealsandyou.com, Myala. com and Fashionandyou.com have already proved popular, as has Babyoye.com, which focuses on baby and toddler products. Though less than a year old, Babyoye has already raised $2.5m from Accel Partners and private-equity fund Tiger Global.

“E-commerce is a very exciting market to be in because Indians are really starting to shop online,” says Babyoye co-founder Arunima Singhdeo. “Before there only used to be eBay, but now there are all sorts of sites doing well, like [clothing retailer] Myntra.com and Flipkart.”

Given the entrenched competition, there has been a flurry of speculation that Amazon could consider a tie-up with Flipkart, something Bansal won't discuss. He is upbeat, though, about the prospect of battling such a high-profile competitor on his home turf.

“It’s very good for the market because e-commerce in India is still very small. Multiple companies will help it grow faster,” he says. “We are in expansion mode and want to add to each e-commerce category of the site by 2012. Our customers now want all sorts of products, from shoes to baby clothes and toys.”

All well and good, but tech blogger Agarwal warns that Amazon’s arrival will up the stakes. “They are going to be a big threat as they have such a large inventory and can negotiate better deals with publishers. Their brand is very popular across every area,” he says.

However, according to Dehejia it’s not always easy for foreign companies to establish themselves in India when a local company has been offering the same service for a while. “It can be very tough to penetrate the market. It’s what happens when a domestic version of any business is entrenched before the foreign competitors arrive,” he says.

“It happened with Indian cafes like Coffee Day, which are now so popular it would be hard for a US chain like Starbucks to come in. These businesses know how to cater to the Indian market.”

Bansal remains unfazed. “We’re ready for any competition,” he says.

INDIA'S INTERNET INNOVATORS

Snapdeal.com
Launched 2010
India's answer to Chicago- based Groupon, Snapdeal off ers internet shoppers in 30 cities discounts on services (including dentistry, beauty and fitness) and products such as mobile phones and handbags.

In the year since it launched, it has become India’s number- one ‘coupon’ site, with more than 1.5 million unique users. The company’s annual turnover this year is more than $20m and it has raised $40m from global investors, including America’s oldest venture capital practice, Bessemer Venture Partners. Founder Kunal Bahl says the funding will be funnelled into product expansion with a focus on electronic goods.

Babyoye.com
Launched 2010
As young parents, Sanjay Nadkarni and Arunima Singhdeo struggled to find the baby and toddler products they wanted in their local shops – so they launched Babyoye. The site, targeted at an “online generation of modern Indian parents”, has 11,000 registered users and more than 4,000 products. Venture- capital firm Accel Partners and global private-equity manager Tiger Global recently invested $2.5m in the company.

Fashionandyou.com
Launched 2010
Fashion and You is an invitation-only website offering discounts on luxury and designer fashion. It hosts a daily live online sale that lasts three days; the first customers to log in clinch the best deals. The site has more than 1.5 million members, processes at least 2,500 orders a day and delivers to more than 500 cities in India. It received $8m in funding from Sequoia Capital India last year, which it is using to bolster its supply chain and adding new products. CEO Pearl Uppal, a former Yahoo! India executive, says Fashion and You is targeting a turnover of $100m in the next three years.

Mydala.com
Launched 2009
Mydala.com was one of India’s first group-buying portals. Subscribers can buy cut-price goods and services if enough of them sign up for a deal. Its offers are in categories such as travel, beauty, dining and recreation. The site receives 250,000 visitors a day and has sold 350,000 discount vouchers. It has raised just over $2m from investor Info Edge India.

Myntra.com
Launched 2007
Myntra is the brainchild of a group of graduates from the Indian Institute of Technology and offers customers the chance to personalise products such as T-shirts, mugs and notepads with text or pictures. Myntra has since branched out into casual clothing and sportswear brands such as Puma, Nike and Adidas.

The website uses social networks to attract visitors and its Facebook page has more than 500,000 fans. The company recently received $14m from investors including Tiger Global. CEO Mukesh Bansal says his target is to turn Myntra into a $100m company in three years.