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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 e-commerce 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 e-commerce 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 e-commerce 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 e-commerce business). It is very doable because of the kind of business model we are working on,” Paytm’s founder Vijay Shekhar Sharma
“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.