There's a battle brewing in India among the four King Kongs of e-commerce, one that will hugely impact online retail in the country. Four unicorn companies--Flipkart, Snapdeal, Amazon and Paytm--are duking it out to become the regional leader in a field where the final outcome is far from certain. The King Kongs have armed themselves with billions in funds in this battle for survival. Too bad only one will live.
Flipkart, a Desi startup worth $15 billion, raised $700M in July but had been operating at a burn rate of $50 million per month. Even as investors are pouring hundreds of millions into Flipkart, the company is losing its market share. Stagnation indicates the founders may not be able to scale their company long-term. In fact, Flipkart's founders have cashed out millions of their shares and are investing in other startups. The captains are abandoning ship and employees are wondering why they aren't being given a life vest. In a dramatic move to win employee favor, Flipkart recently became the first company in India to sell a stake of its employee trust fund.
Flipkart in 2015 aimed to "double the gross merchandise value of the products sold on its platform to $8 billion," according to the Evening Standard.
Amazon, at the same time, promised to spend $2 billion in India, a number frequently mentioned whenever Flipkart's future is discussed. While both companies are equipped with sizable resources, Amazon has an unparalleled two-decade advantage on the Indian startups when it comes to building technology and staff. Though Flipkart is hiring high-priced executives from Google, Twitter and the like, this strategy is simply a Band-Aid applied on a far more chronic ailment.
A different story is unfolding at Snapdeal. The company announced a $206 million loss in the 2015 fiscal year, which led employees to show their disenchantment with their feet. The company most notably lost its CFO and CTO in 2015.
But, this isn't the full picture. While Snapdeal is burning funds rapidly, they, unlike Flipkart, are actually adding customers every month. It appears Snapdeal has learned how to scale without spending too much per customer. The best measure of a business model, after all, is not how much money the company spends, but how much it accomplishes with the money spent.
Finally we have Paytm, which differs from the other Indian startups in its relationship with that other e-commerce titan, Alibaba. The company's main play in e-retail is as a mobile payments platform, but Paytm's role is changing with the expansion of its online marketplace.
Snapdeal, Amazon and Paytm are in an advantageous position: their wealthy backers have less power to force change than, say, limited partners would. There are several ways this fight for regional control could play out, but I think one scenario is most likely.
Given Amazon's global dominance and Flipkart's golden valuation, the first two gorillas to shift position will be Snapdeal and Paytm. As it stands, both companies are competing on three fronts: with each other, with Amazon, and with Flipkart. Snapdeal's and Paytm's best strategy is to pool their money and knowledge. The financial backers of Snapdeal and Paytm have a close relationship. Snapdeal's largest investor is SoftBank, while Paytm's largest investor is Alibaba. SoftBank is the largest investor in Alibaba. Both companies want to win in India and this new, merged company--let's call it SnapPay--will help them better compete with Amazon.
The creation of SnapPay will render Flipkart the new underdog in the Indian e-commerce landscape. SnapPay and Amazon will logically seize on this opportunity, flanking Flipkart and squeezing the company out. Tiger Global Management, the current financiers of Flipkart, will face millions in losses every month until they finally acquiesce to market pressures and their limited partners' demands and sell the business. Flipkart will almost certainly go to Amazon, making the ultimate battle for dominance one between Amazon/Flipkart and SnapPay.
Since we're at least several months away from this final showdown, perhaps a better question to ask now is: What does the narrowing of the field mean for the Indian e-commerce landscape in general? In the U.S., many of the top e-retailers have been bought by Amazon, which most notably acquired Zappos in 2009.
Whether it's Amazon/Flipkart or SnapPay that comes out on top - I personally think it will be Amazon - the biggest winners will still be Indian consumers, who will be able to experience convenience, choice and transparency in price never before available in the country. The rise of e-commerce will allow India to leapfrog from "Kirana stores" to online retailers without the need for big box stores like Wal-Mart and Target.
This battle will provide the opportunity for tens of thousands of Indian workers to improve their skills and fuel the startup revolution in India.
Further, the government shouldn't feel the need to artificially protect Desi companies like Flipkart from failing. Doing so would eliminate the competitor advantage that is absolutely critical to innovation. These founders and employees have competed against the best in the world and will only go on to do bigger and better things.
Flipkart, a Desi startup worth $15 billion, raised $700M in July but had been operating at a burn rate of $50 million per month. Even as investors are pouring hundreds of millions into Flipkart, the company is losing its market share. Stagnation indicates the founders may not be able to scale their company long-term. In fact, Flipkart's founders have cashed out millions of their shares and are investing in other startups. The captains are abandoning ship and employees are wondering why they aren't being given a life vest. In a dramatic move to win employee favor, Flipkart recently became the first company in India to sell a stake of its employee trust fund.
Flipkart in 2015 aimed to "double the gross merchandise value of the products sold on its platform to $8 billion," according to the Evening Standard.
Amazon, at the same time, promised to spend $2 billion in India, a number frequently mentioned whenever Flipkart's future is discussed. While both companies are equipped with sizable resources, Amazon has an unparalleled two-decade advantage on the Indian startups when it comes to building technology and staff. Though Flipkart is hiring high-priced executives from Google, Twitter and the like, this strategy is simply a Band-Aid applied on a far more chronic ailment.
A different story is unfolding at Snapdeal. The company announced a $206 million loss in the 2015 fiscal year, which led employees to show their disenchantment with their feet. The company most notably lost its CFO and CTO in 2015.
But, this isn't the full picture. While Snapdeal is burning funds rapidly, they, unlike Flipkart, are actually adding customers every month. It appears Snapdeal has learned how to scale without spending too much per customer. The best measure of a business model, after all, is not how much money the company spends, but how much it accomplishes with the money spent.
Finally we have Paytm, which differs from the other Indian startups in its relationship with that other e-commerce titan, Alibaba. The company's main play in e-retail is as a mobile payments platform, but Paytm's role is changing with the expansion of its online marketplace.
Snapdeal, Amazon and Paytm are in an advantageous position: their wealthy backers have less power to force change than, say, limited partners would. There are several ways this fight for regional control could play out, but I think one scenario is most likely.
Given Amazon's global dominance and Flipkart's golden valuation, the first two gorillas to shift position will be Snapdeal and Paytm. As it stands, both companies are competing on three fronts: with each other, with Amazon, and with Flipkart. Snapdeal's and Paytm's best strategy is to pool their money and knowledge. The financial backers of Snapdeal and Paytm have a close relationship. Snapdeal's largest investor is SoftBank, while Paytm's largest investor is Alibaba. SoftBank is the largest investor in Alibaba. Both companies want to win in India and this new, merged company--let's call it SnapPay--will help them better compete with Amazon.
The creation of SnapPay will render Flipkart the new underdog in the Indian e-commerce landscape. SnapPay and Amazon will logically seize on this opportunity, flanking Flipkart and squeezing the company out. Tiger Global Management, the current financiers of Flipkart, will face millions in losses every month until they finally acquiesce to market pressures and their limited partners' demands and sell the business. Flipkart will almost certainly go to Amazon, making the ultimate battle for dominance one between Amazon/Flipkart and SnapPay.
Since we're at least several months away from this final showdown, perhaps a better question to ask now is: What does the narrowing of the field mean for the Indian e-commerce landscape in general? In the U.S., many of the top e-retailers have been bought by Amazon, which most notably acquired Zappos in 2009.
Whether it's Amazon/Flipkart or SnapPay that comes out on top - I personally think it will be Amazon - the biggest winners will still be Indian consumers, who will be able to experience convenience, choice and transparency in price never before available in the country. The rise of e-commerce will allow India to leapfrog from "Kirana stores" to online retailers without the need for big box stores like Wal-Mart and Target.
This battle will provide the opportunity for tens of thousands of Indian workers to improve their skills and fuel the startup revolution in India.
Further, the government shouldn't feel the need to artificially protect Desi companies like Flipkart from failing. Doing so would eliminate the competitor advantage that is absolutely critical to innovation. These founders and employees have competed against the best in the world and will only go on to do bigger and better things.
No comments:
Post a Comment