While there is still no confirmation on Flipkart-Snapdeal merger, the dissection of this possible deal has already started. On the surface it seems that the online marketplaces and customers would gain the most. But in reality, the investors might be the ones who would benefit the most from this consolidation.
Tiger Global and Softbank’s pursuit of profitable India investments
Nothing compares to the highs and lows witnessed by the companies in the Indian ecommerce industry. From raking in record-making moolah to collecting record-breaking losses, etailers have seen it all. And who lost the most? The investors! The investors that put in millions and billions, but had to suffer due to: a) the complex business environment in India (from demanding policies to customers) and b) the cash-burn/discount-led model followed by most of the big players.
Flipkart and Snapdeal’s largest investors, Tiger Global and Softbank respectively, are now hoping that the merger would help to turn losses into profits and cash-guzzling investments into profitable investments. On hand Softbank is aiming for a clean exit; on the other hand Tiger Global is looking to expand its ecommerce community to challenge Amazon.
Not to forget, the marketplaces would benefit from having the big guns of the investors’ circle on their side.
“It’s a double-edged sword for Flipkart. Absorbing Snapdeal will be very, very challenging and will likely turn out to be a big distraction for the management team. But then, Flipkart would also be getting SoftBank as an investor which may prove to be significant over the long term,” reasoned Rutvik Doshi, MD – Inventus Capital.
Investors are steering the wheel
Experts believe that the big Indian ecommerce leader war has moved from founders to investors. The intense rivalry between Amazon, Flipkart, and Alibaba still exists but it is the investors who are fighting the battle.
Scratch the surface and you would find personal battles being fought. Alibaba and eBay are old rivals of Amazon. So are Tencent-Alibaba, and Microsoft-Amazon. Tiger Global, Softbank, Tencent, eBay and other backers of Flipkart and Snapdeal are the ones steering the wheel.
Needless to say, each of these financiers are willing to do whatever it takes to win the leadership race. All of them are ready to assist the two marketplaces and use their expertise to topple Amazon and Alibaba.
Sandeel Murthy, Lightbox Ventures’ managing director explained,
“When you’re fighting Amazon, $1.4 billion suddenly doesn’t seem that much. I’d say that getting SoftBank as an investor is worth risking the distraction of a distressed asset (like Snapdeal). In a fight with Amazon, the kind of long-term capital that SoftBank offers may prove to be very useful.”
Let’s wait for the official announcement. It would be interesting to see Amazon’s reaction to Flipkart, Snapdeal, eBay, Tencent and others coming together.