Thanks to the rise & rise of ecommerce, India is now viewed as a goldmine for foreign investors. According to a Livemint report, global investors pumped $4 billion in various Indian Internet businesses last year, with Flipkart and Snapdeal getting roughly 60% of it. This figure is only going to increase in 2015 and the coming years.
Affordable smartphones that has enabled users to access Internet freely has resulted in this ecommerce boom. This has presented a unique opportunity to etailers to penetrate unexplored market of our large country with vast population. The domino effect of the same is big investors are lining up with funds in order to grab a share in this growing ecommerce market.
No surprises here that Flipkart has the top rank. According to a report by Morgan Stanley, Flipkart leads with 44% share, followed by Snapdeal with 32% in etail market. Being the market leader of the online retail industry, investors have raised Flipkart’s valuation to nearly $15 billion in its next round of fund-raising, which was less than $3 billion at the beginning of 2014. Courtesy this trend, online cab aggregator, Ola’s worth is expected to reach $2.5 billion from less than $300 million last year. After raising Rs. 2,500 crore recently, Ola has becomes third-most valuable venture-backed company and has raced ahead US based competitor Uber.
Ecommerce companies, whether established firms or new start-ups are being valued high. New ventures in technology, real estate, classifieds and logistics are hot favourites. Director of Matrix Partners, Tarun Davda said, “Valuations are out of whack, both among early-stage and late-stage start-ups. For most companies, valuations are one, sometimes two rounds, ahead because there’s too much money chasing e-commerce firms as new investors, in particular, don’t want to miss out.”
Many firms are raising concerns on this sky-high valuation of startups. Praveen Sinha, co-founder of Jabong said, “On the one hand, this creates many disruptive companies and, on the other, companies that fail miserably. (Today), money is coming in too early and, hence, valuations are rising too fast.”
US based Tiger Global and Japanese multinational, Softbank are the two biggest foreign investors in the Indian ecommerce sector. While Tiger Global invested in Flipkart, LimeRoad, ShopClues, PolicyBazaar, CaratLane, Ola, CommonFloor and many more. Softbank has poured money in Snapdeal, Housing.com and ScoopWhoop. Other global investors are DST Global, Kinnevik, Google Capital, Nasper, Warbug Pincus, Steadview Capital, Qatar Investment Authority and KKR.
Many are pointing at the similarities between rise and fall of dotcom bubble, a period of 1997–2000 in India. Livemint news report stated, ‘Still, a broad comparison between the current funding boom and the dot-com bubble highlights striking similarities: high rates of cash burn, massive losses, ambitious promises of future growth and weak due diligence by investors worried about being left out. There is one big difference that makes an analysis of the current scenario hazardous: this time, it’s the private companies rather than the listed firms which are attracting eye-popping valuations’
Ecommerce as an industry is not under threat and is here to stay. The convenience of shopping online, doorstep home delivery and deals & discounts is something that conventional retail can’t compete with effectively. So online retail will keep thriving.
But yes, experts believe that in the next ten years or so, etailers will get filtered and only those with organic growth and solid financial backing will sail through leaving others behind. There will be winners and losers, just like any other industry. Survivors will grow stronger and continue their dominance.
Founder of Reddiff, Ajit Balakrishnan said, “During irrational periods, you will see two things happen. Firstly, while many companies will fail, there will emerge certain winners. Secondly, these irrational periods help build infrastructure in any economy.”
Time will tell who will win the ecommerce battle. Snapdeal, Flipkart, Amazon or some new entrant. Let’s wait and watch.
Editor team is specialized in introducing the marketplace content targeting the Indian online sellers. They plan and coordinate to bring the appealing content for the small businesses on how to partner with the e-commerce sites like Amazon and Flipkart and strategies for improving their online business.
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