Reorganizing Around Web Services: Fill & Download for Free

There are 2 parts to this question – the first part is around how bad it is for Flipkart today (early 2016) and the second part is on competing with Amazon.We will look at the first part on whether it is really bad for Flipkart today and if yes, how bad and then go on to see how Flipkart is competing with Amazon.How bad is it for Flipkart in early 2016There have been 2 pieces of news that has caught everyone’s attention with regards to Flipkart –The big organization restructuring that saw Binny Bansal becoming the CEO replacing Sachin Bansal and a lot of senior level executives like Mukesh Bansal, Ankit Nagori and Punit Soni (reportedly) quittingMorgan Stanley down valuing it’s 0.5% stake in Flipkart - with social media screaming that Flipkart’s overall valuation has come down from 15 billion USD to 11 billion USThere hasn't been any other evidence of things going bad for Flipkart other than these two things. There have been reports on Flipkart struggling to raise their next round at a valuation of their liking but there has been no conclusive information around that. However, in the meantime Flipkart has continued to invest in its technology platform, get more sellers on board and improve their supply chain. They have also continued to strengthen their company by hiring in large numbers from IIMs, IITs and other premier institutes in the country and abroad. As I write this answer Flipkart-Myntra commands an overwhelming 45%[1] of the e-retail market share and is equal to the combined market share of the next three players (Snapdeal, Amazon and Paytm).The question is then should the above pieces of information and speculation around Flipkart's funding be looked upon as something terribly bad? I feel Flipkart along with the entire Indian start-up ecosystem went through a huge positive cycle in the past 2 years and expectations have now become more realistic. Things are not bad in Flipkart, things have merely become sober.Organization RestructuringIf we closely look at the organization restructuring we will realise that there is room for only a limited number of decision makers in the helm of an organization and the investors decided that they would go with Binny Bansal as the main decision maker. This marks a significant shift as the Chief Operations Officer becomes the CEO. This means more focus on operational efficiency and bottom line. This is also a feedback on the major initiatives like 'Mobile First' that were taken under Sachin Bansal and did not do as well as expected. Other top level executives left because they did not get the same level of autonomy as they wanted and moved on to try more exciting things. Was this re-organization triggered by the inability to raise the funds at the desired valuation and worry about Flipkart's future plans? Probably. However, even with companies like Google when they scaled in their initial years, a lot of key people moved on to other start-ups in the valley. The top level leaving for other firms is natural and happens quite often when a start-up reaches a certain scale.With this reorganization Flipkart has became a leaner decision making body with a focus on operational efficiency. This is actually good thing for a company that is looking to become profitable.Morgan Stanley down valuationThe down valuation by Morgan Stanley is internal to MS and Flipkart does not get affected till it raises the next round. Also, if Flipkart does get downvalued to 11 billion USD, is it that bad? It will still be in India’s top 30 companies[2] by market cap and be bigger than Dabur India, Britannia and Idea Cellular. The thing that we must realise is that 11 billion USD is also huge and if Flipkart can get an IPO today at 11 billion USD, it is still a very big success. With an 11 billion IPO they will have enough cash to fend off an Amazon onslaught given the headstart they already have. The reason people seem to be worried is because no one likes a downvaluation. However, we must realise that the earlier rounds in all tech companies were not because of their fundamentals but due to the excess cash that investors made with Alibaba and other Chinese companies. However, the situation has become more realistic now, not only in India but also in the valley where a lot of companies like Dropbox, Square and Palantir have seen market correction.So overall things are not bad for Flipkart. Things just got realistic for them. Flipkart would need to focus on its fundamentals and use cash judiciously to fend off Amazon. I have not written about the losses that Flipkart made in the past year because Amazon has made similar losses in India.Contrary to popular belief, a lot of these loses is not because of deep discounting but due to investments in technology, logistics and human resources.Flipkart Vs Amazon - Key MetricsMarket share: Flipkart-Myntra holds 45% market share which is equal to the combined market share of Snapdeal (second largest), Amazon and PayTmWebsite Traffic: Amazon has around 40% more visits[3] on desktop and mobile website than FlipkartApp Traffic: Flipkart-Myntra has 63% share[4] of mobile e-commerce app visits compared to 16% of AmazonNo. of sellers on platform: Flipkart has 30,000+ sellers[5] where as Amazon has 16,000+ sellersNo. of listed products: Flipkart has 20 million whereas Amazon has 19 million listed productsThe numbers clearly show that Flipkart still has a resounding lead over Amazon. Amazon seems to have done well in terms of Website Traffic but that is mainly because Flipkart deflected its' website traffic to their app. Flipkart currently has more customers, higher range of products, dedicated whole seller in WS Retail and its own logistics provider in E-kart. Lot of customers have been used to Flipkart and use it as their defacto shopping app. Also, Flipkart's platform is considered to be more user friendly and tweaked to Indian needs which a global website like Amazon cannot customize (they have the same user experience for all countries). Here, we need to appreciate that there is a high switching cost in terms of app usage and once you have started using one app you rarely go and check what is happening somewhere else. For example: Now that I have been using goibibo for the past 2 years I do not go and check what offers are there in makemytrip. There is too much switching cost and wastage of time if I believe both the apps are equally good.Competing on Service: Amazon FirstOne place that Amazon has undoubtedly been better than Flipkart is in terms of customer experience. Amazon has been built around a 'customer first' philosophy and that shows in their customer satisfaction results. To get a better flavour of Amazon's customer service excellence we can see this Quora answer Is Flipkart better than Amazon in India?Given Amazon has not been trying to scale as fast as Flipkart, they have been able to maintain their customer experience quality. Flipkart which had exceedingly good reputation in terms of customer service in its initial years has lost its ground while moving to a marketplace model and expanding too fast.The technology backend of Amazon is also more robust than Flipkart which ensures that there is hardly any website outage for Amazon. However, Flipkart has faced challenges in terms of their website going down during mega sales and launches.Amazon has the luxury of using the technology and operations that it has developed over 20 years and fine tuned by launching in multiple countries across the globe. Flipkart hence needs to invest heavily in technology and processes to match Amazon's exceptional customer service.Competing on Price: TieAmazon and Flipkart have products priced similarly on their portal. They have crawlers that generally maintain price parity. However, Flipkart fared better than Amazon during the festive sales in 2015.[6]The deals in Flipkart were considered to be better with 69% buying from Flipkart.Competing on Delivery: TieAmazon and Flipkart has competed on delivery with each one providing the same set of services - same day, subscription at competing prices. However, Amazon seems to have faster service but Flipkart has better reach in terms of pin codes covered. Flipkart has also recently spun off e-kart into a separate company which is investing tremendously to develop the next generation logistics in the country. Flipkart uses dozens of lunch carriers and dabbawallas for any last-mile delivery, while Amazon India uses Postmen, local shopkeepers and even gas stations to do its deliveries.Amazon has also started their hyperlocal service in the form Amazon Fresh. Flipkart has funded start-ups like blackbuck[7]which are working on capacity utilization and cost effective inter city logistics.Over the past 1 year Amazon has given more competition to Flipkart in terms of product availability and reach. They have also pumped in their profits from their cash generating Amazon Web Services business for expansion in India. Flipkart does face the problem of raising the next round of funding to invest in discounts, technology and logistics to match Amazon's 20 year old capabilities. The e-commerce war has certainly become more exciting but Flipkart is still the leader of the race.Footnotes[1] Flipkart becomes the first Indian app to cross 50 million install mark on Android[2] Top Companies in India by Market Capitalization, Top BSE Companies by Market Capitalization, Top BSE Companies[3] Flipkart.com Traffic Statistics[4] Flipkart beats Amazon, Snapdeal in m-commerce market share: SimilarWeb | ET Retail[5] Top 5 Online Marketplaces in India compared[6] And the winner of mega sale war between Flipkart, Amazon and Snapdeal is...[7] BlackBuck

Software is nothing like a messy workshop. You can pick up, sweep, move items around and you won't change the nature of them (dust, hammer, board, nails are still those items just in a different spot). Software, even sometimes hardware has to be examined first by itself to ask — what does it do, then how does it relate to other software.Example we had a new team come in and see a web service, decided they needed 3 new return items, but got rid of 3 they did not need. So they broke any software that expected the 3 older items.Eventually the service handled all needs.

IBM and Louis Gerstner Jr. Before we get into details, let's be clear about the success. It is hard to remember now, but by the mid-1990s, IBM’s mainframe business had declined significantly from its peak in the late 1980s, and the PC division had lost much market share over the same half decade. Perceiving IBM to be in a free fall, the board had removed the CEO. The board also broke with precedent in hiring a new CEO from outside the firm in 1993. That is how Lou Gerstner Jr. came to IBM.Have no doubt about his impact. IBM’s stock price rose from $14.12 at the end of the year in 1993 to $120.96 at the end of the year for 2001, and the dot-com bust did not dent it at all. This was one of the greatest turnarounds in the history of large corporations.How the Strategy Emerged. (You asked for some of the details, so here we go).Gerstner undertook a long-term review of every part of IBM, and after considerable study came to two key decisions: he chose not to break IBM into distinct business units for sale, and he decided to reorganize many of the existing business units around a service-oriented strategy that focused on helping clients to implement IT in more effective ways. The strategy included some restructuring, such as—eventually—selling IBM’s networking business and, instead, purchasing networking services from others. It also stressed investing in business services, especially those related to implementing all aspects of IT used in business operations. While IBM had done some of these activities for years, there was only one obvious problem with this approach in 1995: IBM did not provide every service its clients wanted. In particular, it had no services related to the Internet.This was a major gap, to say the least. IBM had always been more than just a supplier of computer hardware. It helped build reliable and scalable processes, and its employees had deep familiarity with standard industry practices. Yet, despite investment in the NSF Internet by the research division, the rest of the company had not invested in the non-proprietary software needed to satisfy its customers.The relevant events are well known, and here is a brief synopsis. Gerstner appointed a task force, which concluded that IBM needed a new Internet division, and the new division should not be in the classic mold. It should not have a product and its own profit and loss statement, engage in product development, or compete in a race to develop new features. Rather, it should coordinate activities across divisions in IBM. Why? Because, said Irving Wladawsky-Berger, who became head of the Internet division in late 1995, the “Internet touches on all parts of the company. … [You] cannot gather it together in one place.”The essence of IBM’s strategy emerged in 1996, during his first year. Wladawsky-Berger’s team began talking with existing customers with whose business processes IBM’s staff had gained deep familiarity. Many of these were the largest firms in the globe; many had recently bought mainframes and related applications from IBM. More to the point, many of their managers had heard the outsized claims of the new economy entrepreneurs and did not dismiss these claims as outsized. Many viewed their own firms as under threat and wanted IBM’s help in developing a solid strategic response. In that sense the market opportunity fell into the lap of Wladawsky-Berger’s team; many of IBM’s longtime clients had a need and were willing to pay for substantial services that addressed it.Wladawsky-Berger’s team queried IBM’s technical staff and sales force. The team discovered that while a large number of IBM experts were studying the right set of problems, they had not constructed prototypes that buyers wanted. In the recent past employees at IBM had developed network applications of, for example, news aggregation, yellow pages, hosted electronic commerce, and shopping sites. These prototypes addressed many of the potential issues Wladawsky-Berger’s team heard from customers. Yet the vast majority of prototypes in IBM’s laboratories used proprietary components and approaches, not Internet software and web protocols. In short, IBM’s prototypes had part of the vision right in a lab, but all of them implemented solutions that did not appeal to users. They were too cumbersome and far too expensive in comparison to what the web was making possible.The key Features of the Strategy (Again, you asked for it...)At first Wladawsky-Berger’s team concluded that these prototypes gave IBM no comparative advantage in developing solutions for clients. Any competent HTML programmer could design a web page as easily as IBM, after all. The first impression was misleading, however, and Wladawsky-Berger’s views evolved as he came to appreciate that no other large supplier understood the buyer’s business processes of large enterprises as well as IBM’s staff did. IBM could do something unique; they could bring in programmers who had worked at their client in the past, and understood what the software needed to accomplish. That made IBM well placed to address the buyer’s needs as well as preserve some of the existing processes.IBM also could take on a role as a technological intermediary, aiding the client’s move from its unique situation to a distant technical frontier. Why did IBM have a comparative advantage at that task? Because IBM’s employees also had a vision of what the new technology could accomplish in a large enterprise, and they understood from their own prototypes what types of services could be built. IBM’s employees also already had familiarity with IT-related issues in security, firewalls, and preservation of brand value. That knowledge could be very valuable if married to an effective vision about how to implement the new frontier using new Internet and web technologies.IBM could get there if they made only one large change to their attitude about using open systems. Many years later, looking back on it, Wladawsky-Berger described that critical shift:"IBM, like many large businesses, used to be very inward-looking, preferring to do everything by ourselves if at all possible. Embracing the Internet, its open standards, and overall inside-out approach turned out to be much more than a technology change for us. I think it had a very big impact on the overall culture in IBM, as it did in many other companies. It truly made us much more open—e.g., embracing new technology ideas from external communities, as we did with Apache, Linux, and Grid."Principles for a strategy emerged comparatively quickly and employed these three elements:· A vision of the future prototype that created value by delivering new services and meeting the client’s need to match competitive threats;· A commitment to adapt to and respect the client’s existing business processes that already delivered value to the client’s users;· A preference for the open technologies of the Internet and web.As it turned out, using their expertise in their traditional strength, enterprise IT, and making it work with web technologies, IBM’s employees learned how to create bridges between a client's IT processes and a new web front end. They called this bridge middleware. IBM regarded it as a definable IT enterprise project, with many elements that had value in many settings, and where IBM provided all the pieces to adapt the mainframe system to the web and Internet.Most of us take middleware for granted today. It is easy to forget how challenging it was to develop and sell middleware at large scale to a wide variety of clients. Moreover, during the dot-com boom this strategy was regarded skeptically, and many investors treated it as a last ditch effort to stave off the "inevitable" rise of greenfield pure-play electronic commerce. Such investors turned out to be wrong, and it took considerable courage for the management and employees at IBM to stick to their strategy.SummaryAll in all, it was an extraordinary business turnaround.IBM emerged from its near-death experience with a healthy strategy and a lucrative line of services, and it did so by readopting the Internet to new circumstances. This strategy emerged because many of its clients—large enterprises—needed help integrating the commercial Internet into their businesses processes. Integration turned out to be productive, because it reused existing capital for new purposes instead of needing to build processes and operations from scratch. That approach led to a cheaper solution and in less time, and it preserved plenty of valuable processes these large enterprises had perfected in prior years. Hence, the buyer of IBM’s services made out well, and so did IBM.If you want to read more, three useful references are Wladawsky-Berger's web page, Louis Gerstner's book, Who Says Elephants Can’t Dance?, and <self-interest alert> Chapter 10 of my book, Shane Greenstein, How the Internet Became Commercial.