Indian e-commerce set to

open up a new war front

By Arti Singh and Vijayakumar Pitchiah

14 August, 2017
SHARE

 31Click to share on Facebook (Opens in new window)31

 Click to share on Twitter (Opens in new window)
 74Click to share on LinkedIn (Opens in new window)74
 Click to share on WhatsApp (Opens in new window)


The events of the past few weeks could redefine e-

commerce in India. While SoftBank led a record $4
billion round of investment in Flipkart, homegrown
rival Snapdeal, which had once posed significant
challenge and spurned its buyout offer, chose to be a
much smaller operation with just a few hundred
staffers.
Now the stage for the near-term seems to be set for a
two-horse race between Flipkart and Amazon, but the
debate around the market dynamics only throws up a
fresh set of questions.
Will we see the emergence of a third player, say, in
Alibaba-backed Paytm? Or will it join the grand
alliance in the fight against Amazon and decide to
back Flipkart? Is there also a possibility of cash-rich
Indian corporate houses, such as the Tatas and the
Ambanis, making deeper inroads into the ecommerce
space?
Well, e-commerce in India is still evolving, and the
the battle lines can be drawn and redrawn, giving way
to several realignments, but what may not work is the
high rate of cash burn witnessed over the past decade.
“The battle over gross merchandise values will not
play out again and there is no need for it, as it has not
really helped in gaining customers,” said Satish
Meena, senior forecast analyst, Forrester Research.
The Indian ecommerce market, which is currently
estimated to be $15 billion by gross merchandise
value, has been experimenting with different business
models. Some, like Flipkart and Snapdeal, had
survived the initial onslaught and later went on to
woo investors, while others, including IndiaPlaza and
Taggle, fell by the wayside by the mid- to late-2000s.
Discounts propelled their gross merchandise value,
which in turn increased the valuations of the
companies. At some point, it seemed the battle for the
pole position is between the two local players, but
Amazon’s entry made life difficult. The US-based
deep pocketed e-commerce major slowly chipped
away their customer base, even as they struggled to
sustain huge marketing spends.
Subsequently, as their valuations nose-dived and
investors were wary of putting in more money in the
startups, both Flipkart and Snapdeal were forced to
cut costs, which involved efforts to slim down the
workforce. A few initiatives reaped results, while
others remained experimental moves without much
headway.
Perceived to be better managed and equipped,
Flipkart did ultimately weather the Amazon challenge
to win back investor confidence, but Snapdeal had to
bite the dust and was forced to become a smaller
entity with an asset-light business model.
With just two players of significance left in the Indian
e-commerce space, the ground is now wide open for
fence sitters, many among which were keeping a
close watch on the powers at play, to make a strategic
entry.
Arvind Singhal, chairman of retail industry consulting
firm Technopak, believes Paytm should not be written
off, while Reliance may be the dark horse. “Reliance
may not necessarily get into this through an
acquisition. It already has a very significant presence
as the largest retailer in the country, physically. Now,
with 100 million-plus customers on Reliance Jio app,
they may enable shopping at some point in time.”
Singhal was also upbeat about a fast turnaround in the
sector. “I think, may be the same time next year, the
e-commerce market will see four strong players who
are very competitive.”
While the ecommerce projects by Reliance or Tata are
yet to play out on a big scale, Paytm, which would
most likely replicate its investor Alibaba’s Tmall
model in India, is waiting in the wings.
“We believe we will very comfortably be one of the
final two players (in the ecommerce business). It is
very doable because of the kind of business model we
are working on,” Paytm’s founder Vijay Shekhar
Sharma had earlier told VCCircle
“Paytm is the only one that is well funded and have
fairly decent operations. It is not dependent only on e-
commerce like others, but is fairly diversified and has
several other sources of revenue. So Paytm is the
third player which can emerge in the space,” said Anil
Joshi, managing partner, Unicorn Ventures.
The industry has also witnessed some chatter around
Alibaba’s direct entry into the Indian market, but we
are yet to see a bold move from the Chinese e-
commerce major along the lines of what Amazon did
earlier. Expanding its presence through Paytm,
however, remains a strong pitch.
“Alibaba is so sizable and powerful that such a move
will not be out of the ordinary because the potential in
the Indian market is definitely very large,” said
Sandeep Ladda, partner and national leader,
technology and e-commerce, PwC.
What may, however, cause them some worry is the
obscure geo-political situation at the moment. “As I
see it, the current e-commerce scenario is Amazon vs
everyone else. It is a two-way thing now. We may
also see Alibaba joining hands with Softbank or put
more money in Paytm. At this time Alibaba is still
evaluating its options,” said Meena, of Forrester
Research.
The expansion ambitions of the big boys may also be
a test of endurance for niche players. “Flipkart and
Amazon will become bigger, and potentially Paytm
and Reliance, too. And this will put pressure on the
likes of ShopClues and also many single category e-
commerce players,” said Singhal, adding that some of
the vertical-focussed ecommerce players will have to
go for consolidations or may even have to shut down.
In fact, say analysts, some of the ventures in grocery,
furniture, travel and movie ticketing segments are
potential targets for the horizontal players. “Travel
sector is going to be a very big play…where many of
these vertical players could see themselves as part of
the horizontal setup,” said Anup Jain, managing
partner at consumer and retail consulting firm
Redback Advisory Services.
Jain’s observations gains more importance with
Amazon and Alibaba already in the race to acquire
BigBasket. “With cash in hand, Flipkart might again
consider talking to online grocers for an M&A,” said
Meena.
Analysts including Meena, Jain and Pareek think
major action will be in logistics, wallet and
technology, as horizontal players would focus on
expanding their reach in small towns and rural areas.
“This might even involve user interphases in
vernacular languages,” said Meena.
The recent events, therefore, mark the beginning of a
new war front, moving away from the discount-driven
phase of whopping valuations. A tougher fight to
acquire every customer and a bigger share of
shopping spend will see companies build sustainable
business models for long term survival.