E-COMMERCE CONSOLIDATION TO GIVE WAY TO MATURE GROWTH

With the decks having been cleared for the sale of Snapdeal to Flipkart, India’s e-commerce industry might look like a two-horse race, but a third rider will emerge as China’s Alibaba raises its game in the country.

But with all three players — Flipkart, Amazon, and Alibaba — now having access to longterm capital, the days of burning money to buy customers seem to be over. Instead, the next chapter of India’s e-commerce war will be like a game of chess with all players looking at long-term growth.

“Consolidation was bound to happen because the game was so shallow and you needed hands with permanent capital on your balance sheet. Now, what has happened is the player with the better model has been able to get permanent capital on their balance sheet, which is Flipkart and Amazon,” says Haresh Chawla, partner at True North, a private equity fund.

“The time horizon to investment has suddenly changed, it’s no longer a VC play and the same thing will continue to happen in the space with vertical e-commerce absorbing whoever is left in the horizontal e-commerce space,” he added.

India’s e-commerce firms were throwing money in discounts to lure customers and build a habit to shop online. For this, they raised hundreds of millions of dollars from global venture capital and private equity players, promising them the market opportunity and boosting their valuation.

In 2015, Indian firms raised $9 billion in venture capital money — half of the total funds invested in five years from 2010 in the country. This was largely led by Flipkart and Snapdeal, raising massive rounds, but several small firms also took money from investors to replicate the models of the two big giants.

The following year the rush of investors seeking returns amid a global fund crunch pushed many companies to the brink, and they were either merged with rivals or shut shop. A few that had built a base and had fundamentals strong revived their business to show higher growth, while firms like Snapdeal floundered. Flipkart, which fought back Amazon last festive season, raised a massive $1.4 billion at a $11.6 billion valuation in April from investors such as Chinese internet giant Tencent, eBay, and Microsoft. On Wednesday, Snapdeal’s main investor, Softbank, wrote off almost $1 billion in the e-commerce company off its books.

“A clear three-way battle is emerging between Amazon, Tencent and Alibaba and in a sense the victor will now be decided by who’s got the best model to create the habit of shopping online among customers. Because all three of these guys have the staying power, no longer is that a big consideration,” said Chawla.

In March, Chinese e-commerce behemoth Alibaba took a majority stake in Paytm and, launching its Paytm Mall, announced its entry into the country. While that might point to yet another price war in India’s e-commerce space, experts say the times have changed and the goals for players are now different.