Will The Great Indian eCommerce Merger Happen?
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
‘Where have all the good times gone?’ is probably the song on Snapdeal’s founders’ mind right now. Rumour has it, that online retailer and India’s homegrown unicorn, Snapdeal is in preliminary talks with rivals Flipkart and Amazon regarding a merger.
Citing unnamed sources who are directly aware of the development, reports said that Snapdeal is exploring chances of a merger with either of the country’s two largest online marketplaces and that the move is at an exploratory stage. Now this might be true or not, but the mere possibility of this happening has caused a stir in the Indian startup ecosystem.
A statement by a third person stating that ‘Snapdeal co-founder Kunal Bahl had met with top executives of Tiger Global Management, the US-based hedge fund giant and the largest investor in Flipkart, presumably to discuss the issue, has only kindled the flame. After all, every lie contains some truth to it. Although the sources mentioned above said that only feelers have been sent yet to the prospective buyers, Kunal Bahl’s was prompt in denying anything of this sort happening on Twitter:
Snapkartazon! Baseless but I would do it just for the exciting name which seems out of Star Wars! Or like a medicine https://t.co/k9cJKr496F— Kunal Bahl (@1kunalbahl) August 18, 2016
It’s still not a clear denial! We personally asked Snapdeal regarding the talks of the great union and got a negative response. Snapdeal found this lack of faith in them really disturbing!
Is Snapdeal in trouble?
Rohit Bansal and Kunal Bahl can deny all they want, but numbers tell a different tale for Snapdeal. In fact, it is the story of every homegrown eCommerce firm in India at present. Since the beginning of the year, both Flipkart and Snapdeal have been trying to raise more funds, having exhausted their previous funds in giving huge discounts on their platforms, plus the cost of marketing, sales and logistics- and the picture surely looks like a blurry one. They strived to build a strong consumer base and a business built on profitability, but it all seems like a distant dream now.
This plan backfired on these firms when their actual annual valuation turned out to be much lower than what they had anticipated. Noticing this, investors cut back on their funds, and hence began the pressure on Indian online retailers. The introduction of FDI in June only worsened the situation and these portals were no more able to entice customers with unrealistic discounts.
Meanwhile, Amazon being Amazon, have beengrowing rapidly in India. The international eCommerce firm and the largest in the world, has only added to the dismay of Snapdeal, Flipkart, Paytm, Shopclues and others. Amazon’s CEO Jeff Bezos had already made an investment of $ 2 billion in India, opening development centres and a warehouse in Hyderabad. In June, Bezos announced his plans to invest another $3 million in the country.
All eCommerce firms had big plans for their company’s future; however, it seems like that only Amazon has the money to follow through.
Flipkart has still been able to sail through tough times by surviving on their last funding by Tiger Global in 2015, and currently stands at a valuation of $15.2 billion. By acquiring Jabong a couple of weeks ago, they now hold the monopoly over the online fashion industry with 70 per cent of brands on their platform.
With so much happening around, panic had to strike Snapdeal. Their valuation by the end of 2015 was around $6.5 billion, less than half of Flipkart’s. The signs of struggle are evident in their two recent moves – first, talking with investors, including Foxconn, to sell a stake in its payments unit FreeCharge, which it had acquired in early 2015; and second, shutting down its marketplace for premium branded fashion and lifestyle products, named Exclusively.com just after 18 months of acquiring it.
Will Snapdeal make it?
Snapdeal has always turned a deaf ear to these talks, claiming that they are going strong. In an interview to a media channel in June, Jayant Sood, Chief Customer Experience Officer, Snapdeal said, "At present, we are comfortably funded. We are where we wanted to be at this stage." He also claimed that they have outnumbered Flipkart and Amazon in terms of daily transactions. He added, “We are currently at one million plus daily transacting users, which is more than the combined figure of our nearest competitors, Flipkart and Amazon. We have also grown our assortment from 12 million products to 35 million products over the last year.”
Snapdeal has also been trying innovative ways to boost sales and get the attention it once had. Since, there is a curb on offering discounts, they plan to offer credit to sellers, equivalent to the discount offered, a practice that's common in offline trade.
What if there is a merger?
The merger, if it happens, could be really embarrassing for Snapdeal, as it is the third largest online marketplace in India, one of the firsts and one among the ten unicorns in India.
On the other hand, Snapdeal merging with Flipkart could also prove to be very beneficial for the Indian ecommerce industry. Together they can give head-on-head competition to Amazon and make up for their lack of resources. However, personally I don’t see that happening since Flipkart just bought Jabong and adding another portal to its name that is yielding lesser profit than its own, will only increase the financial burden. Also, their business model is very similar, so basically Snapdeal has nothing new to offer to Flipkart.
Snapdeal can look towards Amazon for a merger, but Amazon usually doesn’t consider competitors for acquisitions. A merger with Alibaba could help both sides – Snapdeal will be able to retain its place, while Alibaba will enjoy Snapdeal’s user base it has gained over the years.
According to investor Dilnawaz Khan of Startup Oasis, if Snapdeal merges with Flipkart :
Something like this looks very promising to me as this will give a much stronger foothold to an Indian company and this will create difficulty for Amazon. This also help Flipkart in recovering its valuation which is going down. Overall something like this will give Indian Economy a push in the right direction. My only fear is, if these Indian giants lay off a few employees after the merger.
And, if Snapdeal merges with Amazon : If this happens, then things are going to be very very difficult for Flipkart. Snapdeal is already a billion dollor company and if it gets merged with an International E Comm Giant, its going to create a lot of difficulties for Flipkart in its own home ground. This can lead to further reduction in valuation of Flipkart to difficulty in keeping up the market share.
Who could say that the merger will happen? But if it does, the Indian startup ecosystem is in for a show.