Amazon Bets Big On India

| About: Amazon.com, Inc. (AMZN)

Summary

Amazon launches its Prime India service.

Amazon signals that a launch of Prime Video India is imminent.

The "Great India Sale" is announced to help drive subscription sign-ups.

-by Jesse Atlas

Launch of Amazon Prime India

Amazon (NASDAQ:AMZN) just served the street a massive second quarter earnings per share and revenue beat. Keeping with its growth mentality, Amazon is continuing to tap new revenue streams by rolling out a slew of new services and offerings in the world's 3rd largest economy. Last week, Amazons CEO Jeff Bezos announced that the company had launched its Amazon Prime service in India and would be offering residents in over 100 cities free one-day and two-day shipping on several hundred thousand products through Prime. Amazon Prime Video will also be going live in the country "soon". Prime Video customers in India will likely have access to all of Amazon Studios original content as well as new content tailored to the Indian market. Amazon also announced its "Great India Sale"; it will run from August 8-10th and feature deals on products across various tech and non-tech categories.

Amazon launched its Prime India service last week; it is one of the country's only subscription ecommerce services. Flipkart, one of Amazon's local competitors, introduced the first subscription service in the country. It's worth considering the advantages Amazon Prime will offer Indian consumers over its competing product, Flipkart First. Amazon Prime India is currently priced at Rs. 499; however, the price will eventually be raised to Rs. 999, about USD $15. When the price raise kicks in, Amazon Prime will have a price disadvantage to Flipkart which currently costs Rs. 500 per year. I believe Amazon may wait until it has significant traction in the market to raise its price. Flipkart First does not gives users access to movie and television content which Amazon Prime India will do eventually. Amazon Prime India also only charges Rs. 50 for same day deliveries on eligible products and area codes while Flipkart First charges Rs. 70. While both companies offer similar delivery times and fee structures, Amazon has the upper hand thanks to its future content offering. Amazon is also enticing users to try the service by offering a two month free trial.

Possible rollout of Prime Video India

Amazon has been incredibly successful producing original Amazon Studios content in the United States. In July 2016, Amazon announced that its original content had been nominated for 16 Emmy awards. Amazon has done a great job finding teams of actors, directors, and producers to create original content in the United States. Amazon has excelled at taking lessons learned from its experience building everything from infrastructure; its fulfillment centers, to software; Amazon Web Services, in the United States and applying those lessons learned to building facilities and services all over the globe. I believe creating original digital content for the Indian market will be no different and that through previous experience Amazon will be able to assemble a new successful content creation business in India. Amazon is going to offer its English language content in India, but also produce India focused content that will feature prominent Indian actors and directors. Prime Video has the potential to be a huge hit in India. In January, Netflix (NASDAQ:NFLX) entered the country with its own streaming services and said it was "super bullish" on the Indian market. Netflix India service offers fewer of its American shows and other content while Amazon is likely to offer its full range of digital media. Netflix is in a different price stratosphere compared to Amazon Prime. Netflix subscriptions run at Rs. 500 a month while Amazon Prime Currently cost about the same amount per year.

Using Sales to Drive Sign-ups

Amazon also announced its "Great India Sale" which will take place over three days in early August. Prime users get early access to sale deals as well as free one-day and two-day shipping on select area codes. Amazon India's sale would entice potential users to start their free trial of the Amazon Prime service. In the United States Amazon has a history of announcing metrics from their Prime Day sales and give some indication of the company's year over year merchandising volume growth. The comparison would be possible if Amazon released the sales number from its "Great Indian Freedom Sale" in 2015. However, Amazon operates a bit differently in India. Amazon does not sell products from its own entity, as it's forbidden for foreign companies to do so by law. Amazon merely warehouses and ships goods while acting as a middleman for merchants. For example, Amazon has a product called Amazon Tatkal that allows small and medium businesses in India to onboard Amazon in minutes.

Amazon is on quest to gain a strong foothold in the subcontinent before its largest competitor Alibaba (NYSE:BABA) does. Alibaba already has a strong business to business sales channel established in India, but it plans to add a business to consumer sales offering by the end of the year. Ultimately the company with better infrastructure and higher operating margins will win the lion's share of the market. However, I believe Amazon will dominate the subscription service due to its great infrastructure experience and digital content offerings. Until Alibaba rolls out its offering to compete with Amazon it will be hard to vet them as a credible threat to Amazon's business to consumer platform.

Bottom Line

The three catalysts: the rollout of Prime India, promising signs of Prime India Video, and the "Great India Sale", are going to propel Amazon to new growth in the subcontinent. Amazon will be able to compete with Netflix in the international content streaming market. It was also beat able to beat Alibaba to the crucial business to consumers service punch by introducing Prime India. The "Great India Sale" will entice users to sign up for the free trial service and hopefully result in some traction for Prime India. India is Amazon's newest frontier and they are striving to cater to their consumers product wants, delivery needs, and streaming pleasures.

Disclosure: I am/we are long BABA, AMZN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.