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Building India’s Amazon: Flipkart CEO Sachin Bansal (Part 5)

Posted on Friday, Oct 8th 2010

Sramana: Internationally, the book industry is going through huge changes. Now that you have years of experience in the book industry, what are you hearing in terms of dealing with e-books and e-readers? Amazon expects that e-books will overtake paper books in the near future.

Sachin Bansal: I have been following that, but as I am focused on India I follow that news in terms of the Indian market. India is slower moving with e-books. It would take some time for India to use digital in the way the rest of the world does. The majority of Indians are not very tech savvy.

Sramana: The infrastructure does not exist. There is no ubiquitous pile of broadband like there is in the United States.

Sachin Bansal: That is one challenge that India faces. The cost of the devices are also too high for the Indian market. A book that is $30 in the United States will be distributed in India at $6 to $7 as a paperback.

Sramana: That is one of the reasons that I chose not do another deals with Hachette India, which published my first two books. I did not want to play that game. I produce high-quality content, and I want readers to pay for it. I am not willing to discount the price of the book that much. Hachette offered me a bad deal, so I turned it down. They were very angry about that.

Sachin Bansal: The per-capita income in India justifies the different book prices in India.

Sramana: The people who buy my books are making money. The software and technology industry employees in India make enough money to buy my book.

Sachin Bansal: It is a question of demographics, because those industries do get higher pay. If the target market is the entire populace, then it makes sense to price it lower. If the target market is one like yours, then there should be different considerations. There are other authors who are priced the same in India as they are in other parts of the world.

Sramana: I did not know the book business, so I played the game for the first two books. Once I learned the business, I changed the way I played the game.

Sachin Bansal: We are more than happy to sell your books in India!

Sramana: Let’s talk more about e-commerce in India. How has the ecosystem and market evolved in India when it comes to e-commerce adoption? How have the macroeconomics changed?

Sachin Bansal: When we first started we met with a lot of VCs. They all told us that India did not have enough buyers online to support e-commerce companies and that we should wait for buyers to come online. We just could not understand how VCs expected buyers to come online if there was nobody willing to sell to them. In my mind, the issue with Indian e-commerce is for the sellers to become better. If you try to copy a model from China, South America, or the U.S. you will find it does not work.

Sramana: What do you think is different about the Indian consumer as far as e-commerce is concerned?

Sachin Bansal: The main difference is trust. Indian consumers are more cautious buying online. They were burned a lot when the first companies came out seven years ago. Building a service which people can trust and enjoy is very important. It is not like opening a street shop. With e-commerce you are asking the consumer to trust you with their money before they even see the goods. That has not traditional in India.

Sramana: What you are describing happened in the U.S. in the mid-1990s when Amazon.com started. The notion of giving a credit card to a website was foreign to the consumer, but now it is normal.

Sachin Bansal: Yet the U.S. had an advantage because e-commerce is an extension of mail order. That was a huge industry. People were OK sending money knowing they would receive a product. The mail order industry does not exist in India and people do not have a lot of money to spend, so they buy very cautiously.

This segment is part 5 in the series : Building India's Amazon: Flipkart CEO Sachin Bansal
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Sramana,

The average pay in India in software and technology industries is still no comparable to what their peers earn in US, so I am not sure if its a right expectation for people in India to buy books at same price as in US. I will give my experience about buying your book. I hadn't heard about you but saw your book at the Hachette stall in a book fair. Bought because I liked it and because it was cheap. Had it cost Rs 1000 I wouldn't have bought it.

Also it would be interesting to know to sale of your later books in India compared to earlier books. Does it have an impact because the later books are priced higher?

Ruchir Friday, October 8, 2010 at 3:05 AM PT

Ruchir,

To be perfectly honest with you, the fact that you buy my books because they're cheap tells me that you do not value my work.

In that case, perhaps you are not the kind of reader I should be trying to reach right now.

For the moment, my focus is on entrepreneurs and aspiring entrepreneurs who are really interested in my work.

Believe me, there are enough of them to keep me busy for a while.

I will focus on readers like yourself at a later date. Right now, I am out of bandwidth.

I have a very simple philosophy. I create value, and expect to be compensated for that value by those who benefit from that value.

This is the true essence of capitalism.

The problem with your logic is that you want access to the value I have created without having to pay for it.

How is that fair?

In any case, I give a lot of content and services for free … so you are more than welcome to use those as much as you like.

Regards, Sramana

sramana Friday, October 8, 2010 at 10:27 AM PT

Sramana,
Let me add my two cents -an Indian consumer is pretty tight fisted when it comes to spending money unlike the average american consumer -so it is expected that he is going to ponder a bit more than an american book reader when it comes to buying a book -regardless of the value attached to a book (obviously the writer, the publisher and the reader may value the book as per their perspective). Fair Enough -if you want to target just the elite enterpreneurs who are not too price conscious -you will get them. However, a book on entrepreneurship should be like a bible to all those who have dreams on their own and attaching a high price to such a book will only be creating a distance between them and you and your message (which I believe is your honest intention) will not get across to them which I feel will be a disservice to both the you as well as them.

Abhishek Sunday, October 10, 2010 at 6:20 AM PT

Well, read the blog. It's easier to distribute, much more scalable, and consume as much of it as you like.

FOR FREE.

sramana Sunday, October 10, 2010 at 7:03 AM PT

Sramana, I read the article on Flipkart, the smaller story within of your tussle with your publsher, and the above reply. As a value creator I can understand that one wants to be paid his/her due. The problem you are facing is the same as that of every global company that is outsourcing to developing nations. The market growth is coming from the emerging markets, which have lower cost of living and hence price-competitive (for the value-creator sitting say in the US). Naturally, the existing value chain cannot produce at that low a cost unless a significant portion of it is outsourced to the emerging nations themselves.

Sachin Chavan Sunday, October 10, 2010 at 6:23 AM PT

If you are an author based in US, you would naturally feel shortchanged to sell your book at 1/5th the $ price in India. But thats not just you. I worked for Accenture Consulting, a global management consulting firm. They could not hae catered to the Indian market with consultants flying in from the US and Europe. So, Sid Khanna came down from UK in the late 80's and created India's biggest consulting practice where Indian consultants, leveraging the global knowhow of Accenture (Andersen then), could create value for Indian clients, and price it at say 1/5th of what similar work would be charged in the US… and still making excellent salaries and profits, surely by Indian standards (and at higher levels even by international levels).

So, its a call you take. If you are not a firm that is compelled to grow, you could cater to only the US/Europe readers and just skim the Indian market with a $ pricing. But when you come to a point where your book's sales stagnate (eventually they all do, right?) in those markets, and you look for new markets, you would have to lower the prices to what those markets can bear.

Sachin Chavan Sunday, October 10, 2010 at 6:24 AM PT

Sachin, I think India, as it matures as a "business nation" will need to learn to appreciate value and expertise more. Today, there is remarkably little appreciation among Indians about the value of specialized expertise. Just hiring consultants in India and Indian prices will not address the issue. There is remarkably little world class expertise in India in technology product marketing. This is why, we've seen such a slow progression of product entrepreneurship. Outsourcing and labor arbitrage is where the Indian mindset has played well. It's all about price.

Well, I don't play that game very well. Or rather, I don't like to play that game.

I have a very different plan for the future of my books. I am okay with lower volumes, as long as I get higher royalties. Amazon pays me 70% royalty on the Kindle sales. That's almost $7 per unit. I have to sell 15 times the books to make the same royalties in India. I have even chosen not to work with a major publisher in the US for the same reason – intermediaries erode the royalty structure. As eBooks penetrate further, this is all going to get sorted out, and the intermediaries will go away.

The readership I am primarily interested in is highly tech savvy and spends a large part of their lives online. This is a readership that can buy books on Amazon and Flipkart, and within reason, I think they can afford to buy my books in India on Flipkart at US prices (with some discounts that Flipkart is offering). Those who do not want to spend the money can read my blog. Hundreds and thousands of students in India read my blog, and have access to an extensive repository of my intellectual property for free.

How much more do you want?

sramana Sunday, October 10, 2010 at 6:53 AM PT

Some numbers to bring some perspective. I am supposedly one of your target audience. A 20$ book is equivalent to 12 minutes of my work if I was working in US (assuming 100$/hr billing rate which is fairly reasonable). If you target India with the same price, you would be expecting me to pay equivalent to 60-90 minutes of work. It is obvious that the Indian market has so many low-hanging fruits available that your US-priced products aren't considered as valuable as you project them to be.

Do not get me wrong. Your decision is perfectly consistent with your goals. If I were in your place, I too would not want to fight the pricing game.

It's just that you are ignoring the purchasing power disparity between India and US and some of your statements here are a bit condescending and not going well with people commenting here. India is NOT a market of cheapskate consumers. Consumers here are as much value-conscious as elsewhere. And price here is NOT everything. Indians, as people anywhere else, look for value foremost.

In short, your pricing is fine. It's just your perception of Indian consumers, that they do not appreciate value and expertise, or that they want everything cheap, that is incorrect. It's just a market where equivalent value/utility is available at lower prices.

Nilesh Sunday, October 10, 2010 at 12:59 PM PT

I disagree with you, but you are certainly welcome to your opinions.

To give you another perspective on the numbers – I spent several years of my life writing these books. At my $5000/day consulting rate, this is a very expensive investment. I think it is very fair that I charge $15-$20 per book to recover this investment.

Dropping the price of my books in India now will corrupt the long term pricing model of the project.

Vision India 2020, for instance, has 45 thoroughly researched billion dollar business ideas. I can assure you that there is NOTHING like it in the market. I have no worry about competition for that book. I also am very confident that there is nothing like Entrepreneur Journeys in the market for those who know the difference between what IS in the market and what EJ is.

This is a business decision on my part. There is nothing condescending in this choice. You guys are defensive about this topic, which is why you are finding the position I have taken condescending.

And by the way, Apple and Amazon are ALSO making these business decisions. I have had extensive conversations with Amazon on this topic as I have explored Amazon’s India strategy as an alternative to bringing my books to the Indian readers through their channels.

So, you can either be in denial and be defensive, or face the facts.

I want fair price for the value I bring to the table. You want me to drastically discount.

I’m not going to do it.

And you find it offensive and condescending.

Interesting, isn’t it?

sramana Sunday, October 10, 2010 at 1:18 PM PT

Did you read my comment? Can you point to the place where I asked you to discount the price?

I said that your pricing is fine. The condescending part was your comment that Indians do not not appreciate value. You are justifying your price based on costs which is fine. But some of the comments did not go well because they sounded like value judgments.

It's like Audi / Mercedes saying that most Indian auto-buyers do not appreciate quality. BUT THEY DO. It's just the product attributes that bring the most utility to an Indian auto-buyer that are different for Indian market vs US. Does that mean I want Audi to drop their prices? NO. The problem is when Audi starts doubting the intelligence of the customers and start passing value judgments.

Yes, Apple and Amazon make the same business decisions. And they are right to do that, as are you. The issue is only when they start expecting customers to "grow up" before they become worthy of their products.

Let me repeat so that this point is not lost to the bystanders. I do NOT want you to discount the price. As you said and I agreed, it is a business decision and your costs warrant this price. I even said that I would take the same decision, if I were in your place. I used "condescending" for a few of your comments, not your pricing. Indians are not cheapskates. They are as much value conscious as buyers elsewhere. it's just the market conditions that equivalent value/utility is available from cheaper sources. You do not have to drop your price but at the same time, there is no need to doubt the intelligence of your readers.

Peace. I loved the Flipkart interview series. πŸ™‚

Nilesh Sunday, October 10, 2010 at 2:30 PM PT

Nilesh,

The "you" I have used in my comments is not directed towards you personally, but to numerous readers who have emailed me asking when my books will be available in India at Indian prices.

By the way, I think Apple, Amazon, Mercedes, BMW – they're ALL waiting for the Indian consumer to be ready for their products, and so am I.

Your point about value judgment is well-taken. But I will tell you from my decade-long experience in consulting that the Indian customers do not appreciate specialized expertise the way the western markets do. I maintain that this is a fact. You may not like it, but it is a fact based on my experience. You may disagree, but I will basically say that we agree to disagree on this.

The problem perhaps is not that the Indian customers do not appreciate value, but they don't know what they don't know. There is very little history of knowledge based industries in India aside from outsourcing and offshoring. In that business, however, the "thinking" has been done by the customers, while Indians execute on other people's specs. Today, for the first time, there is actually a "product" industry trying to develop itself in India.

The kinds of books I right are most applicable to those people who are trying to spearhead that movement.

For people looking for cheaper, more populist type of work, I suggest trying Rashmi Bansal's books. They are also books on entrepreneurship. And they are extremely cheap.

Sramana

sramana Sunday, October 10, 2010 at 4:10 PM PT

"They don't know what they don't know."

This is a great observation. I'll have to agree with it for the most part. In light of this, your comment makes sense. Now I think, it is just the tone which went a bit off somewhere. πŸ™‚

Nilesh Sunday, October 10, 2010 at 4:24 PM PT

So what offended you? The fact that I said I have no intention of moving to India?

Sramana Mitra Sunday, October 10, 2010 at 8:15 PM PT

Let's look at this from another angle. Let's not talk about your book for the benefit of an objective discussion. πŸ™‚

There is a factor of 5 when it comes to relative purchasing power parity of India vs US. A dollar can buy 5 times more goods in India than the US. Let's be conservative and assume that this factor is only equal to 2 in order to account for your assertion that "the readership I am primarily interested in is highly tech savvy and spends a large part of their lives online. This is a readership that can buy books on Amazon and Flipkart". (I think 2 is unreasonable but let's go with it for the discussion's sake.)

Now if a product's nominal price is equal (say X dollars) in both the markets, it's obvious that the product is either underpriced in one market or overpriced in another. If your product is 10$, both in US and India, then either you are selling it cheap in US or selling it overpriced in India.

Note that, we have not accounted for the production costs yet. The above valuation is from the customer' perspective on how much value he gets out of your product. Costs may make it infeasible to sell at a particular price in a market but that's the producer's decision. Customers can hardly be blamed for that.

Now, if we all assume that the said product is fairly priced in US at 20$, it deduces that their fair value, in terms of utility to the Indian customer – should be equal to 10, not 20, dollars.

The producer is free to chose whether to sell at that price or not. But calling the customers "not value-conscious" or "cheapskates" is unreasonable. A reasonable price that buyers can pay for that product in India is 10$ (considering the factor of two). In fact, the customers are being intelligent when they decide that the product isn't worth 20$. They should be commended, not insulted for their correct decision.

If your book is priced at 20$ BOTH in India and US, then either it is highly overpriced in India or highly underpriced in US. You are free to chose whether to sell at this price or not but please do not insult the customers for making the right decision.

Cost of production is not a value proposition. πŸ™‚

Nilesh Sunday, October 10, 2010 at 3:03 PM PT

Good analysis. Let's look at it another way now.

The customer is intelligent. The customer is aware of the availability of the products. They have some idea about the products' value and uniqueness. It is entirely up to the customer to decide whether or not to access the products.

My point is, those customers for whom these products have significant relevance, will buy them.

I am also saying that there is a customer segment in India that is not familiar with product-oriented entrepreneurship. When it comes to technology, they think outsourcing. This is a customer-base that would possibly be willing to access the products if I priced it at 1/5th the current price. And I believe they would learn a ton from the books. But "they" don't know that. That's my point. They don't know what they don't know, because they don't have the experience to put these products in perspective. Mind you, they CAN afford it even at the current price, but they won't. Because for them, the product doesn't have as much value.

And then there are the students. They CANNOT afford it at the higher price, and I am saying they should just use the blog and the roundtables which are all free.

This, by the way, is a major factor in economics and politics. The notion of "you don't know what you don't know" and the "perceived value" vs. "real value".

Excellent discussion, by the way.

sramana Sunday, October 10, 2010 at 4:20 PM PT

On the other hand, if you think that 20$ is a fair price for your book in India, then it deduces that you are selling them at heavily discounted prices in US pricing at the same 20$ ! They ARE worth 40$ to 100$ for US audience. But then your theory of not playing the pricing game does not hold up. πŸ™‚

PS:- Any way to edit the comments once posted? Sorry for multiple comments in a row.

Nilesh Sunday, October 10, 2010 at 3:21 PM PT

Alternatively, if you think India is the real story going forward, you have the option of relocating to India, where the lower costs would ensure good profits even at Re prices.

But I understand a professional and a firm are not the same. A professional can choose to grow on his/her terms, even if it means letting go of volumes/ scaleup. But a firm has no choice (in most business models).

Sachin Chavan Sunday, October 10, 2010 at 6:26 AM PT

I have no intention of moving to India. And yes, I intend to grow my business on my own terms.

And by the way, firms also let go of markets often. Do you see Steve Jobs focusing on India? No. He is letting go of that volume market because Apple isn't (yet) convinced that the intensely price-conscious Indian consumer will pay up for the beautiful, elegant, great user experience products they produce.

Do you see Amazon focusing on India? No. Amazon isn't (yet) convinced that the Indian consumer will pay for Kindle / eBooks or even their regular books at a price that makes sense for them.

This mentality, unless it changes, will keep India as a laggard market and products and services will not be available in India for years that the Western world enjoys lavishly. Because firms will choose NOT to offer those products and services to India.

Do you see what I am saying?

"I want it cheap" – the Indian mantra – has a price.

sramana Sunday, October 10, 2010 at 6:36 AM PT

Apple already has stores in India (every mall in Mumbai has one, for eg..), and Amazon cannot stay away from the market for too long. Lets see what happens over the next 2 years.

Nilesh above has explained the purchasing parity part well enough, so I shall skip repeating it.

And I am amazed by your comment that India has very little history of knowledge based businesses (apart from outsourcing/offshoring). Publishing industry has long history in India and some of the oldest publishers still continue to do well. Media as well is deeply entrenched, and Malayala Manorama has one of the highest circulations for regional dailies in the world. Indian universities, engineering, science and management institutes are taken seriously by rest of the world. May be you need to look outside the information technolgy space a bit.

Sachin Chavan Monday, October 11, 2010 at 6:04 AM PT

True. But Publishing and Media are not industries where the packaging is knowledge services in the same way that consulting is. That's what I meant. Your clarification is a good one.

sramana Monday, October 11, 2010 at 8:44 AM PT

The $5000 a day comment reinforces my point. A consultant providing equivalent value could be charging Rs 50000 a day in India (1/5th of your $ charge rate), and still be enjoying the same standard of living…. simply because cost of living is lower here. And frankly, why is it lower? Because we still have a flourishing labour industry that has not out-priced itself yet. Again, the same reason.

You are right on Rashmi Bansal's book. It is popular (not populist) and the stories therein are inspiring a generation of young entrepreneurs. Indians are moved by emotion more than logic. And that is just being different, not inferior.

Sachin Chavan Monday, October 11, 2010 at 6:04 AM PT

Yes, Rashmi's books are telling stories of Indian entrepreneurs, and their primary goal is to inspire.

The Entrepreneur Journeys series has a duel goal: Inspiration and Education.

As such, they appeal to two somewhat different audiences. EJ is a series on business strategy. It inspires, but it also deals with the details and the subtleties of how to build businesses.

sramana Monday, October 11, 2010 at 8:42 AM PT

That also makes me ask one question. What is that we work for? Profits or Purpose. Which is primary and which supports the other. If its purpose, we would want our creation to be available to as many as possible… even if we make profits even to make Re 1 over our cost of capital. But if its profits, well!

I always wonder how entrepreneurs can sell their business to someone! If passion is what drove them into it, they would never do so, unless when facing really dire financial crisis. I can't say the same about serial entrpreneurs for whom probably the only passion/purpose I can think of is 'entrepreneurship' itself… and not the core value created by the firms they create and then sell to someone.

Sachin Chavan Sunday, October 10, 2010 at 6:26 AM PT

If you are familiar with my work, you must know that I DO offer a tremendous amount of value for free. This blog is FREE. I run the weekly 1M/1M strategy roundtables for FREE. Entrepreneurs from India, Africa, Malaysia, Latin America attend the roundtables routinely and derive value.

But to support such an extensive free service for a global base of entrepreneurs, it is also essential that there are pieces of the program that monetize well.

Otherwise, I will have to depend on charities and handouts, which I don't care for.

Again, if you know my work, you must know the extent of passion and purpose driving it. I'm afraid I don't feel the need to sell my books dirt cheap to further emphasize that point.

And to be perfectly honest, I am fed up with Hachette. They can't market anything.

sramana Sunday, October 10, 2010 at 6:40 AM PT

market will find your alternative if you are pricey ! nobody is indispensable.

good luck Sramana !

Niraj Sunday, October 10, 2010 at 8:38 AM PT

Of course not!

Sramana Mitra Sunday, October 10, 2010 at 8:59 AM PT

and good thing that you dragged Rashmi Bansal’s name … and alleged that it is cheap (work or price ? or both ? ) … as i said priceless !!!!!

you have certainly made my day Sramana … i can’t believe my luck today !! i am going to be checking this space many times today …

thanks for the excellent … views (!)

Niraj

Niraj Monday, October 11, 2010 at 12:34 AM PT

Rashmi Bansal has followed a strategy to market books that is to price them cheaply so that the students can afford her books. THis is not a value judgment, it is just a strategy. And her strategy has worked for her. I am not sure what you are trying to say by saying dragged her name. She is an example of someone who has pulled off a successful business strategy that works in the Indian book business. Chetan Bhagat is doing the same.

I looked into this strategy as an option, but decided not to pursue.

sramana Monday, October 11, 2010 at 8:54 AM PT

hmmm chetan bhagat too … now i am falling on the floor … what happened to my earlier comment dear ?

Niraj Monday, October 11, 2010 at 9:48 AM PT

Niraj, this is not a blog where you'd get a lot of sensationalism. If you are trying to generate controversy for the sake of controversy, no one has time for that.

I don't think you are making any reasonable point here, and as such, not getting any comments.

Calling cheap books cheap is not exactly a crime, just as calling expensive books expensive is not supposed to be insulting.

Cut it out.

sramana Monday, October 11, 2010 at 10:06 AM PT

I quote from ‘Innovation and Entrepreneurship’ by Drucker:
“The reaction of the typical producer and supplier is then to complain that customers are “irrational” and “unwilling to pay for quality”. Whenever such a complaint is heard, there is reason to assume that the values and expectations the producer and supplier holds to be real are incongruous with the actual values and expectations of the customers and cients. Then there is a reason to look for opportunity for innovation that is highly specific, and carries a good chance of success.” Quote ends.

Sachin Chavan Saturday, October 16, 2010 at 2:35 AM PT

Great interview Sramana and I agree with you on focusing on the core and outsourcing the rest. Infact even US enterprises are grappling with this philosophy sometimes but I fully agree. On flipkart, I have been a user and they have made great strides on customer experience and they are a company to watch out for. I even recommended to some folks in the VC community at India. The one comment by Sachin was ironical to me and it is true- the VC community felt that India did not have enough buyers online to support e-commerce companies and that we should wait for buyers to come online. Looks like there is a business model where VC's should be coached on technology, trends and digital space! :-))
Coming to Flipkart, they are certainly at an inflection point for India and I wish them doing well. I was wondering why a 'landmark' or a Odyssey or a crossword (large book retailers in India) could not do this. Well, they have to play catch up.

Prakash Sunday, July 24, 2011 at 3:44 PM PT