Are job cuts at Snapdeal a precursor to its merger with Alibaba and Paytm?

If Snapdeal follows the rule of the game, the company would deny any kind of merger talks with rival Paytm, or with investor Alibaba, unless a deal is concluded, at least verbally.

But according to an industry source close to the company, the job cuts at the e-commerce firm, as well as the 100% pay cuts announced by founders Kunal Bahl and Rohit Bansal may just be a precursor to it. “That’s the logical step forward,” the source added. After all, nobody wants to remain a distant third (especially, considering Amazon and Flipkart are way ahead).

The company, meanwhile, chose to stay tight lipped, but Bansal and Bahl’s letter to employees on Wednesday were enough to add fuel to the fire.

“Did we make errors in our execution? No doubt about that,” Bahl wrote in the letter. He went on to say that Snapdeal grew the business without figuring out the right “economic model”, and diversified before without “perfecting the first or made it profitable”, and started expanding beyond what was needed.

So, while the company raised capital ($1.56 billion), it lost focus. “We started doing too many things, and all of us starting with myself and Rohit, are to blame for it,” Bahl wrote.

From a close challenger to Flipkart, Snapdeal has become a distant number three. What’s worse, the e-tailer is under immense pressure to reduce losses (which has been going up), and keep its market share intact, which has been fast dwindling.

Rumours also have it that Alibaba, the anchor investor in a $500-million fund-raising in Snapdeal in August 2015, is in talks with its other investee company Paytm and Snapdeal to form a large e-commerce firm. That would mean a financial clean up at Snapdeal.

Meanwhile, Paytm has separated its marketplace business from its payments bank and wallet business, which has been spun off into a different entity. Alibaba is likely to invest about ₹1,700 crore into the Paytm-Alibaba merged entity to build the e-commerce business.

Paytm refused to comment on any merger talks with Alibaba.

But according to industry experts, a three-way merger is the way forward. “It will offer a new lease of life to everybody involved in the business… However, a lot will depend on the structure, who will control and who will hold what stake,” said Sanchit Vir Gogia, CEO and chief analyst of Greyhound Research.

If at all a merger takes place, both Amazon and Flipkart will have a more powerful and bigger rival to fight.