Amazon India Country Head Amit Agarwal speaks on profitability, efforts to enable Indian SMEs digitally, and more

E-commerce will be one of the biggest needle movers of the Indian economy and for employment creation, and as a long-term-oriented company, Amazon will focus on enabling millions of Indian SMEs digitally, says Amit Agarwal, Senior VP and Country Head of Amazon India.

“There is no reason why the Indian SME will not go digital, there is no reason why Indians would not again want selection value and convenience. So when you have that comfort in your mind, you don't calibrate your investments on a year-on-year basis based on what is happening around,” Agarwal told CNBC-TV18 in an exclusive interview.

Speaking about the e-retail major’s seven-year journey in India, Agarwal said the company remains focused on things that matter the most for the customers.

“We have more than 200 million items on our website now. We started with a few million, there were only books, there were about hundred sellers on our website. Today, we have more than 600,000 selling partners who are part of the Amazon family. In some sense, we serve to 100 percent of India's pin codes,” he pointed out.

Edited excerpts from the interview:

It has been seven years, you don't realise working every day that it has been that long. It seems like day one all the time for us.

We launched in 2013. For the sake of context, Amazon has always been obsessed with trying to figure out how to focus on the things that matter the most for customers. Three things that we have always believed globally customers care about are selection, value and convenience. So our approach in India over the last seven years has been nothing different. We have been very focused on enabling the SMEs digitally because, with tens of millions of SMEs in India that are entrepreneurs, it is a huge opportunity to unlock selection.

The second bit we have been focused on is how we use technology to remove defects. So that is the beauty of technology, it is sort of make value generation easier for SMEs because their costs go down, their defects go down and they can sell more and that value can be passed on to customers, and in the end, create more and more infrastructure so that we can deliver fast and offer more convenience to our customers.

So the last seven years have been great. We have more than 200 million items on our website now. We started with a few million, there were only books, there were about hundred sellers on our website. Today we have more than 600,000 selling partners and ecosystem partners who are part of the Amazon family. In some sense, we serve to 100 percent of India's pin codes. When we launched, we used to deliver in about 10 cities and we used to get all the emails all the time -- ‘when are you going to launch in my city?’ -- and today when I look at just last October for example, we looked at a sample of data for five days and we found that customers from 99.4 percent of India's pin codes have placed an order on Amazon which is huge accomplishment from where we were and then finally we have millions of items that are now delivered next-day guaranteed and tens and thousands are delivered in two-hours guaranteed.

Prime has become a huge phenomenon for Amazon. Just to give you sense of how quickly Prime has grown, it is our unique loyalty programme that brings digital benefits and physical benefits together so you can add free unlimited videos, add free music and unlimited one-day delivery. Today we have prime members in 97 percent of India's pin code, which is practically every corner of the country and Prime has doubled in the last 18 months. So all-in-all it has been just humbling to see this journey happen.

What is even more exciting is what we are seeing what is good for customers is actually also very much aligned with what are the top priorities when we look at the next decade for India. Just to give you a sense when we look at the number of sellers, we have over half a million sellers on Amazon. Just this October we had about 80,000 sellers from 520 cities that received orders. Similarly, we have thousands of local shops either delivering packages for us or acting as a customer access point, pick-point, return points, and so on. So the ecosystem has become very inclusive and very broad which is helping digitise the sort of the SME base, the customer base. It is helping skilling, when I kind of look at each of these success stories they are creating jobs around there. All-in-all it is very exciting to see that what started as serving customers has evolved into not just serving customers but also serving some of the inputs that India cares about.

We are not running a non-profit organisation, we are a business and we have responsibility against our shareholders. I think you need to evaluate this in a broader context. If you just think about the next decade, what is going to happen in the next decade? India is at a tremendous inflection point, we probably have these numerous tailwinds that are coming together like a perfect stock, we had the largest democracy, we have the youngest population and then you combine with it probably the largest base of small and medium base that is ready to be digitised and then you have the technology-advancements that have happened, especially machine learning that can really transform at scale.

So when you think about India you cannot really find the unique selection from every customer without using AI and machine learning and then finally mobile internet is in my opinion probably the perfect leveller across culture, social and economic boundaries, and so on. So when you have this perfect stock, the opportunity in India is to transform consumption. So when you think about a seven-year journey, we are planting a lot of seeds while our earlier seeds are sprouting, growing, becoming plants and yielding fruits. So let us take Prime video, a large part of the investment that you talked about is going into content creation, bringing producers, content creators, actors, directors together to create the next generation of content that customers would love.

Payment systems, we are building and investing a lot of energy and enthusiasm beyond Amazon Payments while this is going to help probably financial inclusion when you look forward. But more importantly, it is also allowing customers in the remotest part of the country to shop with us without having a digital payment method.

All of these investments, grocery is a big area of investments for us where we have opened up numerous formats in the last year or so. These are where our investments are going. When you look at our core business, that business is already showing the characteristics that we have seen globally, that we start seeing leverage in our fixed costs and our revenues covered the variable cost. So all-in-all we are very excited about the enthusiasm, but we also realise that this is so early. We would continue to invest for that long term and we are very excited about it.

I think we have a lot of different businesses. We do not disaggregate our businesses, so it is a little hard to get that picture. We do not also separate our countries out but as I said if you look at Prime Video, it is a business where you need fixed costs to create a content library, then over a period of time you can monetise it. So, it is in the very early stages of investment. In fact Inside Edge had its Season 2, it is kind of the anniversary for us in some sense. Inside Edge Season 1 was our first release and now we have Season 2, so you can realise that we are barely getting into Season 2 of our investments, same with Prime, whether it is Prime Music, building a fast delivery network in this country.

When you look at payments, grocery it is very early, we basically launched four-city, two-hour delivery just in the recent months. These are new emerging seeds, so it is very hard for me to separate these seeds.

When I look at the core business, our core marketplace business, we are very excited by what we are seeing. One of the unique things about the Amazon model is we simultaneously optimise for selection, value and convenience. Customers do not have to trade off one for the other. So, they can find great value, they can find great convenience. However, for us, a big metric of success is to just look at how Prime is growing.

Prime, as I said, is doubling every 18 months. We are the fastest-growing Prime geography in the world, we have the highest engagement of Prime members in the world across our benefits and we have Prime penetration in 97 percent of the country. So, our core business is showing the right financial characteristics that we like very much.

Absolutely. We are kind of seeing that positive characteristic in our core business. You should think of all the other spends -- technology, infrastructure, new emerging seeds which we would continue doing for the next several decades.

I think it goes back again to that question -- the obsession with customers, ask how would you give them the things that they value? They value selection, they value convenience. There is no reason to wait for grocery for a day or two when you expect to just walk into a grocery store and do your daily grocery. At the same time if you are stocking up for your month you would be willing to wait for a day or two. So, we have both formats, when you look at core Amazon.in we have Amazon Pantry that allows you to stock up for the week or for the month and we give two-day guarantee delivery and get it. However, when we thought about doing fresh groceries, it was very simple in our brains that you have to give it in 2 hours or less. So, a lot of these partnerships and investments allow us to service customers in that way.

Shoppers Stop is an example where we did it because we wanted to offer more selection. Shoppers Stop is probably one of the most admired and matured fashion retailer brands in the country and they have access to a lot of brands that are not available online. So, our focus single-mindedly there was how do we make that selection accessible to our customers?

In the case of More, it is very much about how do we get our customers to enjoy our grocery. In case of the Future Group, they have a multi-category selection assortment and it would be great for customers to get the things that they care about most on a daily basis to get it in 2 hours and they are on Prime now which is a 2-hour service and they are seeing great traction and we would continue growing it with them. So, it is hard for me to predict what those kinds of interventions would be.

I can give you a couple of examples or another example that has nothing to do with partnership but is an investment, it is our Amazon Easy product. It is again an offline venture if you will but with a different twist to it. So, when you go to the lower demand clusters of the country, one of the key enablers of trust is being able to converse with somebody that you have interacted with for a long time. So, Amazon Easy allows a local entrepreneur whether it is a shop owner or a new entrepreneur to essentially open up an Amazon store and offer the Amazon selection to the customers around and offer additional services whether it is home services, recharges and other services that they offer. So, the customer is walking into that point, it is called the Amazon Easy Point, they are looking at a screen and choosing what they want to buy, they are paying the shopkeeper and the item gets delivered to their house. So, this model is neither an online nor an offline model but it is an investment for us and we do partner with such local financial networks and social networks that are there that allow us to create these points throughout the country. So, we are very opportunistic about it, very open minded that if there are such synergies where we find our customers can be served better, we are very open to such investments.

We try to approach our problems by setting in place first the principles behind what we would use to find a solution. To me the regulation part is the simplest of all the problems, amongst all the problems that you deal with in some ways because the principle is very simple, we have a very high bar of compliance. We will comply with the law of the land in letter and spirit.

So whenever there is disruption, there is going to be confusion, and there is an opportunity to educate, there is an opportunity to be open minded and learn. So we do not distract ourselves from opinions out there because as I said, our principle is very simple. Number one, we have a very high bar of compliance and we are always compliant with no matter what the laws of any country are. Two, we are obsessed with customers. We do not care about the noise around us, we do not care about how competitive landscape or the opinion landscape around us changes. The second thing I would point out is the reality of what we are seeing does not align with those opinions. We are seeing a very different transformation.

No, at the seller end. Let me give you some examples that would highlight this. One of the things one has to realise is the internet brings itself with certain disruption. If I just go back to the mobile phone, growing up we were very used to seeing an STD booth. When I was in IIT, that was my way of going and calling my parents. There used to be a line, it was a great moment for all of us to just talk about what happened during the day. We do not see PCO booths today, but we see the same entrepreneurs -- India's advantage lies in how optimistic, how boundless in energy, and how entrepreneurial our business base is. So, the right kind of people during that disruption transform themselves as cornerstones. We are seeing the same happen right now.

So, the right kind of businesses is embracing technology and realising a few things. We are realising that if I am able to embrace this disruption, my cost structure will go down because I can source products directly than I could before. So, we actually have an Amazon distribution service that allows ‘kirana’ stores to buy their grocery at a great value because we could source them from brands and deliver it to them.

Two, the internet and technology reduce inefficiencies in the value chain and they reduce defects. Wherever defects go down, customers have a better experience and your sales go up and your cost goes down and sellers are realising that.

Three, you have to understand that now suddenly your landscape that you can serve is the whole country and the whole world. So, smart sellers realised it is not about optimising the profit margin, it is optimising profit rupees. So, you pass on the value to your customers to provide them great value and you get larger orders to get a greater revenue stream than you could get before.

So, now to give you an example, as I said, this a kind of basic example -- I receive a seller story -- I receive emails all the time, in fact, it is very hard to go travel without people coming and saying ‘thank you’. This seller is a weaver in Varanasi and he sells 1-2 ‘dupattas’ every day. He is selling it to merchants who are putting it in their store shelves and he is basically allowing them to price it up and sell it to customers. Since launching a ‘karigar’ programme that allows weavers to sell to customers directly, his daily orders have gone up 10x. He has been earning more money every week than he could earn in several months and he employs more than 25 weavers working for him now having a legitimate business.

So, if essentially a basic weaver is able to understand the principles of disruption and take advantage of it, then the right kind of businesses are doing that and we have 600,000 of these that are doing that on a daily basis.

I wanted to say it is the least complex because it is a very simple principle of compliance. It is not easy because you have to invent despite that compliance. You kind of train yourself saying that these are the laws that I have to live by but I also have to provide a customer experience. So, what I was trying to say is, when you have compliance and customer obsession as your two fundamental principles, then the hard job is to innovate to comply with both of them. However, the problem is simple because your principles are set, is what I was trying to say.

I really get super-energised by the purpose of what we are doing here. When you are here with an ambition to transform daily lives of 100,000 people, that job comes with a lot of responsibility to deal with this day-to-day variations which is very legitimate. For a country like India, it is a very legitimate question that how should we ensure that this disruption is responsible, how is this disruption going to ensure security of the country, it is going to protect the rights of Indian citizens and at the same time enable innovation. So, it is a tough problem, and our job is to be a partner, be in a consultative approach to offer our point of views and at the end of the day whatever the laws are, we would comply with that.

So, I do not think of it as distraction, it is a natural outcome of the disruption that is happening. If you set your eyes on the larger purpose of hundreds of millions of customers, we already have 100 million plus customers shopping with us, that job has to come with a responsibility. We cannot not expect to be questioned, people not asking us can you please help us understand better.

Absolutely. A great example is for a country to open up FDI in food retail, which probably would be one of the more controversial sectors, is a tremendous affirmation that at the end of the day common sense prevails. So, while you might have a lot of these noises, I think if you keep your mind focused, as a company we have always focused on the things that do not change. I have always said that since we have launched, customers 10 years later would say I need more selection, greater value and faster speed and that is what our strategy is indexed on. We do not really worry about day-to-day variations, day-to-day competitive challenges, and so on. So, when you think about that, that kind of dialogue and that kind of relentlessness in your purpose and objective, at the end of the day I feel the right kind of officials and discussions and industry associations come together and common sense does prevail, there would be variations in the short term but we are very long-term focused.

I don't know of that news yet.

I have nothing to confirm at this point in time.

I would say the priorities would be as boring as they have been last seven years. We everyday get up and ask ourselves.

If you think about it, as I said the beauty of our strategy is something that is not going to change for the next few decades or forever. How many businesses are built on things of stability? So while you keep asking me about distraction and instability, I keep going back to the stability that we have.

I know customers will want more selection, greater value and greater convenience and that is a very stabilising factor in how we think about things. So yes, the next few years would be the same things. Add more selection, keep removing more and more defects from the ecosystem so that our SMEs, partners reduce their cost of operations and they are able to pass that as value to our customers, keep making deliveries faster, more and more pin codes, more and more cities, eligible for 2-hour, one-day, two-day deliveries and so on, keep making Prime better every day. Today when I look at an Amazon customer, you can go to Amazon to send money, book bus tickets, book train tickets or book movie tickets.

For everything, you can buy a grocery, you can pay other people, you can pay shops. It has essentially become a utility for my everyday life. So it is our responsibility to improve the lives of hundreds of millions of customers who are going to use this on a daily basis.

Prime is a great way for us to bring the best of Amazon together. So get more content out there, have more and more places where they can use Amazon, more and more cases where they can use Amazon -- keep making Prime better. Within that, of course payments is an area we are investing in, groceries are where we are investing, Prime Video is in an area.

As I said, you have to look at a period of time to evaluate the financials. So if you look at a given year, let us say you have decided that you suddenly want to build a spurt of infrastructure to serve the next seven years, you cannot look at losses within a year.

We are already seeing that. If you look at the seeds that we planted seven years ago, they are already showing the financial health that we expect when we map it to other geographies that we have seen. It is just that we are planting so many more seeds that you are looking at the summation of all of that. So if you look at the number of new seeds that we are planting now they are going to go through their own lifecycle. So we are very excited by the leverage that we are seeing in our investments, by the financial health of the investments that we made seven years ago. It is just that we believe that when we are given the responsibility to improve the lives of hundreds of millions of people, there are so many different areas that we can improve the lives, Prime Video is very early in this lifecycle, grocery is very early. Amazon Payments is very early. We have started last year. So they will grow.

None, to prepare a business plan and say that you need to launch a business and make money in 90 days or 9 months or 9 years or 90 years, they would have a very different business plan. I find ourselves very blessed that Amazon is a very long-term-oriented company. So trying to base your strategies on things that change, you just said that estimates change every year, they are bound to change because macro conditions change, environment change, but the things that don't change is the fundamental premise that the e-commerce will be one of the biggest needle movers of the Indian economy and for job creation. I don't have a shred of doubt because there is no reason why Indians will not go digital. There is no reason why the Indian SME will not go digital, there is no reason why Indians would not again want selection value and convenience.

So when you have that comfort in your mind, you don't calibrate your investments on a year-on-year basis based on what is happening around. You ask yourself where you want to be in the next few decades and what investments do you need today, fixed investments mostly and people confuse that. Most of our investments are fixed, infrastructure, technology, content, things that would leverage over a period of time. Our Variable expenses are minimal because we have already achieved that scale where we can start seeing that kind of financial health.

I think where that number should be, even if you look at matured geographies like the United States, online is less than 10 percent, so I feel in some ways online being so small receives disproportionate attention that it really deserves. So even after 25 years of evolution, it hasn't crossed 10 percent in the United States. So I think in the case of India I am certain it will continue to grow. I am certain it will continue to be one of the biggest levers for us to connect people together.

I am getting these great stories like there is a company called Jack in the Box, it is run by women, it is a women-led, women-vision company and she wanted to make creative toys for kids, and they essentially decided they are going to launch in the US and they went through Amazon and they have launched in the US. It is one of the top 10 products in their categories. Now she employees 30 other underprivileged women - that is the new India I am excited about and I am subscribed to and that is barely scratching the surface.

I think the opportunity is tremendous, it is massive. If I look ahead I think it is India's moment in the world. I feel blessed, I think Amazon is very fortunate to be a catalyst in helping India grow.

We have created more than half a million jobs, five lakh jobs since we have launched. These are both direct and indirect. When we look at exports that are enabled through Amazon, we have 600,000 sellers selling on Amazon right now, almost 50,000 of them sell in 12 international markets and exports through Amazon has already exceeded billion dollars cumulatively. We are on track to exceed $5 billion by 2023. Just to give you a perspective that is almost 3 percent of India's total exports, so the opportunity is massive.